On Friday, May 22, 2020, America’s no.2 car rental firm, Hertz Global Holdings Inc., filed for bankruptcy protection as the coronavirus pandemic ravaged its business, leaving the company inadequate to “repay or refinance” debt and cash flow to continue its operation.
Its Chapter 11 protection filed in the U.S. Bankruptcy Court in Delaware says that the company accrued over $24 billion in debt, with only $1 billion in cash. The filing also notes that the company’s lenders were unwilling to grant an extension on its auto lease debt that expired Friday, May 22, 2020.
Hertz and its subsidiaries will continue to operate. The proceeding excludes principal international operating regions such as Europe, New Zealand, and Australia.
Hertz laid off 10,000 workers across its North America operations to save the company from losses caused by the global health crisis.
The company implemented furlough programs “to align staffing levels with the slowdown in demand.” Currently, it furloughed 4,000 employees, cut 90% of its vehicle acquisition, and stopped nonessential spending.
Also, it proposed to sell more than 30,000 cars per month to raise around $5 billion through the end of the year “to appease creditors holding asset-backed securities that finance its fleet of more than 500,000 vehicles,” says Reuters.
Before the bankruptcy filing, Hertz named Paul Stones as its new CEO after Kathryn Marinello’s resignation. The move was inclined to the company’s preparation for a possible bankruptcy protection filing.
Back then, Marinello relinquishes 100% of her base salary to support the organization.
Since 2017, Hertz has suffered from declining margins, shrinking cash flows that can no longer pay off its debt. Shifting travelers’ preference from car rentals to ride-hailing services also impacted the business’ profitability, as most of its revenues came from car rentals at airports.
Its traditional credit lines, loans, and bonds with trigger defaults also affect the business’ survival, alongside the financial crisis the pandemic has posed on the travel industry due to stay-at-home orders.
According to Hertz, it could have avoided bankruptcy if it received relief from creditors or financial aid from the U.S. Treasury, as part of $2.3 trillion assistance that was signed into law.
