As if 44,354 Robin Hood traders suddenly cried out in terror and were suddenly silenced.
What one world war, one Great Depression and numerous oil price shocks couldn’t do, the coronavirus did in less than three months and late on Friday, auto rental giant Hertz which was founded in 1918 when it set up shop with a dozen Ford Model Ts, quietly filed for Chapter 11 bankruptcy protection struggling under a massive debt load after its business was brought to a grinding halt during the coronavirus pandemic and talks with creditors failed to result in much needed relief.
The company had a total of 568,000 vehicles and 12,400 corporate and franchise locations worldwide at the start of this year. About a third of those locations are at airports.
By declaring bankruptcy, Hertz said it intends to stay in business while restructuring its debts and emerging a financially healthier company. The board of Hertz, whose org chart listed dozens of debtor and non-debtor affiliates…
… earlier on Friday approved the company’s Chapter 11 filing in a U.S. bankruptcy court in Delaware, according to court records, news of which was promptly leaked and sent the stock – which had in recent days become a darling for retail daytraders on Robinhood and elsewhere who expected a swift rebound in the price and BTFD – crashing . Its international operating regions including Europe, Australia and New Zealand were not included in the U.S. proceedings.
“The impact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company’s revenue and future bookings,” said the company’s statement adding that while it took immediate action in response to the crisis, “uncertainty remains as to when revenue will return and when the used-car market will fully re-open for sales, which necessitated today’s action.”
“With the severity of the Covid-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery,” Hertz’ new CEO Paul Stone said in a statement.
The firm, which already was suffering from a decline in demand as a result of the ubiquity of cheaper car-hailing services, and whose largest shareholder is billionaire investor Carl Icahn with a nearly 39% ownership stake…
… was left reeling after government orders restricted travel and ordered citizens to remain home. A large portion of Hertz’s revenue comes from car rentals at airports, which have all but evaporated as potential customers eschew plane travel.
Then there is the debt: with nearly $19 billion of debt and roughly 38,000 employees worldwide as of the end of 2019, Hertz was among the largest companies to be undone by the pandemic.
Hertz had $18.8 billion of debt on its books as of March 31, up $1.7 billion from the end of last year. Most of that debt, $14.4 billion, is backed by its vehicles. That includes the debt for which it missed the payment in April the prompted this latest crisis.
Hertz’s woes are compounded by the complexity of its balance sheet, which includes more than $14 billion of securitized debt. The proceeds from those securities finance purchases of vehicles that are then leased to Hertz in exchange for monthly payments that have risen as the value of cars fall. Hertz also has traditional credit lines, loans and bonds with conditions that can trigger defaults based on missing those lease payments or failing to meet other conditions, such as delivering a timely operating budget and reimbursing funds it has borrowed.
The public health crisis has also caused a cascade of bankruptcies or Chapter 11 preparations among companies dependent on consumer demand, including retailers, restaurants and oil and gas firms. And while US airlines had so far avoided a similar fate after receiving billions of dollars in government aid, Hertz was unable to get a government handout and this is the result.
The Estero, Florida-based company, which operates Hertz, Dollar and Thrifty car-rentals, had been in talks with creditors after skipping significant car-lease payments due in April. Forbearance and waiver agreements on the missed payments were set to expire on May 22. Hertz has about $1 billion of cash, which is why it won’t need a debtor in possession loan. The company said it might need to raise more, perhaps through added borrowings while the bankruptcy process moves forward.
The company listed total assets of $25.8 billion and total debt of $24.4 billion on its bankruptcy petition, estimating more than 100,000 total creditors, of which IBM and Lyft were listed as the biggest.