After the novel coronavirus pandemic hit the business of the United States based 102-year-old car rental firm Hertz very badly, the firm has been forced to file for bankruptcy protection in the US.
It had voluntarily filed for Chapter 11 reorganisation, the company said in a US court filing on Friday. The company is also operational in markets outside of the US and primarily in Europe, Australia and New Zealand. But the businesses of these markets were not included in the country filing in the US.
Government orders of lockdown and severe travel restrictions in the US and elsewhere in order to prevent the fats spread of the coronavirus pandemic has caused the company’s coffers to dry up. The billionaire investor Carl Icahn is one of the largest shareholders of the company. One of the major sources of revenues for the company originated from car rentals at airports which have completely dried up since the last few months because of a near complete ban on international travel.
The company currently has about 38,000 employees worldwide and a total debt of nearly $19bn as of the end of 2019 which makes it among the largest companies in the world to be winding up its business because of the coronavirus pandemic.
Similar fate has so far been avoided by airlines of the United States primarily because of billions of dollars in government aid given to them – which had been tried by Hertz but was unsuccessful.
After failing to pay significant car lease payments due in April, talks with creditors were held by the Florida-based company, which operates Hertz, Dollar and Thrifty brands of car rentals. Forbearance and waiver agreements on the missed payments were set to expire on 22 May. Hertz has about $1bn of cash.
Since the value of vehicles has declined because of the pandemic, therefore the size of Hertz’s lease obligations have increased. According to reports, Hertz has proposed to the creditors its plan of selling more than 30,000 cars a month till the end of the current year which the company hopes will be able to generate about $5bn. Analysts viewed this proposal by the company as its efforts to appease the creditors holding asset-backed securities.
The board of the company promoted an executive, Paul Stone, to replace Kathryn Marinello as CEO on 16 May. Earlier about 10,000 employees were laid off by the company and had warned that there was substantial doubt about its ability to continue as a going concern.
The complexity of its balance sheet has also added on to the woes of Hertz. The balance sheet of the company has more than $14bn of securitised debt. The fund generated from those securities was used as finance for purchasing of vehicles that are then leased to Hertz in exchange for monthly payments. This has risen as the value of cars fell.
If the company was able to get some relief from creditors or financial aid that the company and its competitors have sought from the US government, it could avoid a bankruptcy, the company had said earlier.
(Adapted from TheGuardian.com)