102-year-old car rental company Hertz Global Holdings Inc filed for bankruptcy on Friday after its business was decimated during the coronavirus pandemic and talks with creditors failed. to the company to provide much needed relief.
Lenders at the Estero, Fla.-Based company were unwilling to grant it another extension of its auto rental debt payments beyond Friday’s deadline, triggering filing in U.S. bankruptcy court of Delaware.
By the end of March, Hertz Global Holdings Inc had accumulated $ 18.7 billion in debt with only $ 1 billion in available cash.
As of mid-March, the company whose car rental groups also include Dollar and Thrifty lost all revenue when trips were cut short due to the novel coronavirus, and it began to miss payments in April. Hertz has also been in the throes of management upheaval, appointing its fourth CEO in six years on May 18.
No business is built for zero income, former CEO Kathryn Marinello said on the company’s first quarter earnings conference call on May 12. At the end of March, Hertz laid off 12,000 employees and put another 4,000 on leave, reduced vehicle purchases by 90% and stopped all non-essential spending. The company said the measures would save $ 2.5 billion per year.
But the cuts came too late to save Hertz, the country’s second-largest rental car company founded in 1918 by Walter L Jacobs, which started in Chicago with a fleet of a dozen Ford Model T. Jacobs sold the company , originally called Rent-A-Car Inc, to John D Hertz in 1923.
In a note to investors in late April, Jefferies analyst Hamzah Mazari predicted rival Avis would survive the coronavirus crisis, but Hertz only had a 50-50 chance, given he was slower. to reduce costs. On May 18, Hertz made the unusual decision to appoint COO Paul Stone as CEO and announced that Marinello would step down as CEO and board of the company.
Mazari called the change unusual just days before a possible bankruptcy filing. He also noted that CEO changes have been common at Hertz since financier Carl Icahn joined the company in 2014.
Icahn’s holding company is Hertz’s largest shareholder, with a 38.9% stake in the company, according to FactSet.
Deutsche Bank analyst Chris Woronka credited Marinello with boosting Hertz’s revenue growth, writing in a note to investors that it had grown 16% in 2018 and 2019 combined.
Hertz’s bankruptcy filing came as no surprise. In its first quarter report filed earlier in May with securities regulators, the company said it may not be able to repay or refinance debt and may not have enough cash to fund it. continue to operate.
Management has concluded that there is substantial doubt as to the ability of the company to continue operating within one year from the date of publication of this quarterly report, he said.
In a Chapter 11 restructuring, creditors will have to settle for a less than full repayment, but the business will likely continue to operate. Hertz is not the first struggling company to be bankrupted by the coronavirus crisis. The company joins the JC Penney department store chain, as well as Neiman Marcus, J.Crew and Stage Stores.