Hertz backs new $400M ABS Deal to restock vehicle fleet

New money arrangement is separate from $1.5 billion bankruptcy loan

Hertz Global Holdings Inc. is backing a new effort to raise $400 million that would allow it to keep its rental car fleet stocked with new vehicles for a return to business once the coronavirus pandemic eases.

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The nation’s largest car-rental company filed for bankruptcy protection in May, its revenues hammered by restrictions imposed to suppress the spread of Covid-19, which has claimed more than 200,000 lives in the U.S.

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The new securitization deal between Donlen Corp., which supplies Hertz with cars, and Barclays Bank PLC is separate from Hertz’s search for chapter 11 financing in the form of a $1.5 billion loan that will preserve the company until business returns to normal levels.

Multiple lenders are offering to provide the bankruptcy loan, Hertz lawyer Thomas Lauria of White & Case LLP told The Wall Street Journal Wednesday. Some potential financiers already have money riding on Hertz, but others don’t, and there are offers from potential backers willing to settle all the company’s debts, as part of the bankruptcy financing.

The proposed $400 million asset-backed securitization deal might reduce Hertz’s need to draw down on a bankruptcy loan, but it won’t reduce the size of the chapter 11 financing, Mr. Lauria said.

“We need all the cushion we can get,” he said.

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Over the next week to 10 days, Estero, Fla.-based Hertz will choose one or two leading contenders from the financing competition, and prepare a chapter 11 loan package for the approval of the U.S. Bankruptcy Court in Wilmington, Del.

Hertz is trimming its existing fleet in a deal that allows it to sell older cars, potentially chopping billions of dollars out of its debt load.

The company also wants to welcome customers back with new vehicles without adding to its debt.

“This is part of a grand plan to, through multiple strategies, ultimately reduce the liquidity requirements of Hertz on a go-forward basis,” Mr. Lauria said.

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The money being raised is coming through Donlen, a Bannockburn, Ill.-based commercial auto fleet leasing and management company that is an integral part of Hertz’s complex financing arrangements.

Hertz would get the benefit of a new asset-backed securitization facility to finance new additions to the fleet of cars it offers rental customers, guaranteeing Donlen’s performance under the deal.

In court papers, Hertz’s lawyers said the new ABS financing is the best option for finding the money Donlen needs.

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Bankruptcy cut off access to new money through existing securitized vehicles, triggering provisions that protect investors in those deals. Since filing for bankruptcy, Hertz has been lending its own cash to Donlen to buy new cars, $173 million to date, straining Hertz’s liquidity.

Donlen would use some of the new money to pay off what it owes Hertz under the proposed ABS arrangement.

Write to Peg Brickley at peg.brickley@wsj.com