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Hertz Global Holdings Inc. is preparing to file for bankruptcy as soon as this weekend after failing to reach a standstill agreement with top lenders, according to people familiar with the matter.
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The car-rental company is planning to seek chapter 11 protection in the coming days after government restrictions on travel cut down on air and ground traffic, decimating the vehicle rental market, these people said. A bankruptcy would make Hertz one of the highest-profile corporate defaults yet stemming from the coronavirus pandemic's impact on American travellers.
A bankruptcy would make Hertz one of the highest-profile corporate defaults yet stemming from the coronavirus pandemic's impact on American travellers. The fallout from Covid-19 has hit the rental-car companies doubly hard because their operations are reliant on two industries -- automotive and travel -- that have been pummeled.
Hertz, based in Estero, Fla., missed a lease payment last month and convinced creditors to wait until Friday evening before declaring a default. Creditors refused to grant another extension, people familiar with the matter said.
The creditors had asked for upfront compensation from the company in exchange for a further extension, but the two sides couldn't come to an agreement, one of the people said.
Hertz is saddled with roughly $19 billion of debt, made up of $4.3 billion of corporate bonds and loans and $14.4 billion of vehicle-backed debt held at special financing subsidiaries.
Shares of Hertz, down 82% this year, fell 7.5% Friday to $2.84.
The company has spent years trying to restructure its business, struggling with competition from peers including Enterprise Holdings Inc. and Avis Budget Group Inc., as well as upstart ride-sharing companies like Uber Technologies Inc. and Lyft Inc.
In recent months, both Hertz and Avis have cut executive pay and resorted to furloughs and job cuts, with Hertz laying off about 10,000 employees in North America.
After a 2005 leveraged buyout by private-equity firms, Hertz went public in 2006, and activist investor Carl Icahn, who started acquiring shares in 2014, now owns more than one-third of the company and has placed three of his representatives on the board.
The company has blown through four chief executives in less than a decade. Most recently, former Chief Executive Kathryn Marinello was replaced Monday by Paul Stone, who previously served as the company's executive vice president and chief retail operations officer for North America. Ms. Marinello, who served as CEO for 3 1/2 years, will remain in a consulting position with the company for up to a year to support the transition, the company has said.
The Wall Street Journal has reported that Hertz, the nation's second-largest rental car company by fleet size behind Enterprise, was preparing for a bankruptcy filing and hired FTI Consulting Inc. as a restructuring adviser for a planned bankruptcy, on top of other legal and financial help.
Hertz's business has collapsed with the onset of the coronavirus, as people world-wide bunkered in at home and global travel shriveled up. The pandemic has diminished automotive traffic in the U.S., squelched car sales and cut into rental reservations at Hertz. Hertz has cut executive pay in recent months and laid off about 10,000 employees in North America.
In early May, Ms. Marinello said the coronavirus pandemic created "a major business disruption as global travel demand dropped to almost zero and the U.S. used-car market effectively shut down." And in its quarterly filing, Hertz warned there is "substantial doubt that we will be able to continue as a going concern."
Any bankruptcy would be complex given the company's vast debt and corporate structure.
Like Avis and some other rental car companies, Hertz doesn't own its vehicles. The company leases its rental-car fleet, about 770,000 vehicles in total, from separate financing subsidiaries. The lease payments are earmarked for investors that own bonds backed by the fleet.
Founded in Chicago in 1918 and originally known as Rent-a-Car Inc., Hertz opened its first airport car rental facility at Midway Airport in 1932. The company's owners have included RCA Corp. and later Ford Motor Co., which sold Hertz to a buyout group led by Clayton Dubilier & Rice in 2005 for $5.6 billion.