Hertz Prepares To File For Chapter 11 Bankruptcy As Debt Restructuring Is In Doubt

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A bombshell is about to hit the rental car market as industry giant Hertz is preparing to file for Chapter 11 bankruptcy as the company missed deadlines on substantial rental car lease payments since about a week ago.

Filing for Chapter 11 would allow Hertz to continue operating as normal while management works on restructuring the company and satisfy it’s creditors in some way.

The rental car industry is hit especially hard these days as the need for renting cars has pretty much evaporated into nothing since travel is down to single digit percentage and people around the world have been under quarantine / stay home advisories for the last few months.

Hertz and other companies meanwhile have lots full of cars which need to be paid for no matter if rented out or not.

Bloomberg reports that Hertz wasn’t able to make lease payments for at least part of their fleet and that a deadline set by creditors expired at midnight.

Hertz Global Holdings Inc. is preparing to file for bankruptcy as soon as Monday night if the company fails to rework its debt and can’t get lenders to extend a grace period on a missed payment.

The rental-car company has been talking to some of its creditors about how to ease its burden without going through bankruptcy, but negotiations have been a struggle and the company is preparing to file for Chapter 11 court protection, according to people with knowledge of the matter.

Hertz could file this evening, though Tuesday would be more likely if a deal isn’t reached. The situation could still change and a filing isn’t definite, said the people, asking for anonymity to discuss the confidential talks. A representative for Hertz didn’t return an email and calls seeking comment.

A Chapter 11 filing would permit Hertz to stay in business while it works out a plan to pay its creditors and turn the business around.

While the U.S. government has a $50 billion bailout plan for airlines, Hertz hasn’t been able to access that program, and its chief rival, Avis Budget Group Inc., had a stronger balance sheet going into the crisis.

The Estero, Florida-based company had been negotiating with lenders for relief as well as with the U.S. Treasury Department about the possibility of a bailout. But with dismal demand, a too-big fleet and plunging prices for used cars, Hertz didn’t have enough liquidity to last until a market recovery. …

A Hertz bankruptcy would be BIG. Even though the company has started to slim itself down in recent months it’s nowhere near the point where the company can withstand a long-term, substantial drop in business without taking a severe hit.

Creditors will have to come to the realization that Hertz won’t be able to meet their financial obligations as previously agreed to in better times with a functioning business travel environment. And Hertz isn’t alone in this, other travel providers no matter if airlines or hotels will experience the same and that causes a ripple effect down to their suppliers and creditors.

The way that the federal bailout program works doesn’t seem very fair to me. A lot of companies have been in the spolight during the past few weeks for applying and receiving bailout money yet a company such as Hertz apparently isn’t eligible? At the same time the government is throwing Billions after airlines and that’s just for starters.

Conclusion

If the creditors won’t make major concessions to Hertz they could end up in a situation where they have to take a substantial haircut and instead of dimes on the dollar end up with pennies on the dollar.

Hertz isn’t a company that will go away. It’s a solid business although competition on the rental car market has been fierce in recent years, even decades. It would make more sense to keep the business relationship alive and wait for better times together instead of going through Chapter 11. Creditors aren’t always reasonable though and if a bankruptcy filing is the only way forward for Hertz then so be it. They wouldn’t be the first and they won’t be the last.

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