Hertz files for Chapter 11 bankruptcy protection
As industry experts predicted might happen, late on Friday afternoon Hertz Global Holdings announced it and certain of its U.S. and Canadian subsidiaries have filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware.
According to a news release, Hertz said the company still has $1 billion in cash on hand to support continuing operations.
“The impact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company’s revenue and future bookings,” the company said in the announcement going into what normally would be a busy Memorial Day weekend. “Hertz took immediate actions to prioritize the health and safety of employees and customers, eliminate all non-essential spending and preserve liquidity.
“However, 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,” the company continued. “The financial reorganization will provide Hertz a path toward a more robust financial structure that best positions the Company for the future as it navigates what could be a prolonged travel and overall global economic recovery.
Officials indicated Hertz’s principal international operating regions including Europe, Australia and New Zealand are not included in the U.S. Chapter 11 proceedings. In addition, they added that Hertz’s franchised locations, which are not owned by the company, also are not included in the Chapter 11 proceedings.
All Hertz businesses remain open and serving customers
The announcement also indicated all of Hertz’s businesses globally — including its Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales and Donlen subsidiaries — are open and serving customers.
All reservations, promotional offers, vouchers, and customer and loyalty programs, including rewards points, are expected to continue as usual, according to the company.
“Hertz has over a century of industry leadership and we entered 2020 with strong revenue and earnings momentum,” said Hertz pesident and chief exeuctive Paul Stone, who just took over the position last Monday. “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.
“Today’s action will protect the value of our business, allow us to continue our operations and serve our customers and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future,” Stone continued in the news release.
“Our loyal customers have made us one of the world’s most iconic brands, and we look forward to serving them now and on their future journeys.”
As part of the reorganization process, the company explained that it will file customary “First Day” motions, which should allow it to maintain operations in the ordinary course.
Hertz said it intends to:
—Continue to provide the same vehicle quality and selection
—Pay vendors and suppliers under customary terms for goods and services received on or after the filing date
—Pay its employees in the usual manner and to continue without disruption their primary benefits
—Continue the company’s customer loyalty programs.
Sufficient cash to support operations
As mentioned previously, Hertz said it had more than $1 billion in cash on hand to support its ongoing operations as of its bankruptcy filing date.
Depending upon the length of the COVID-19 induced crisis and its impact on revenue, the company acknowledged that it may seek access to additional cash, including through new borrowings, as the reorganization progresses.
Hertz emphasized that it was on a “strong” upward financial trajectory prior to the COVID-19 pandemic, including 10 consecutive quarters of year-over-year revenue growth and nine quarters of year-over-year adjusted corporate EBITDA improvement.
In January and February, the company reported that it increased global revenue 6% and 8% year-over-year, respectively, driven by higher U.S. car rental revenue.
Other actions in response to COVID-19
When the effects of the crisis began to manifest in March, causing an increase in car rental cancellations and a decline in forward bookings, Hertz stressed that it moved quickly to adjust.
Hertz explained that it took action to align expenses with significantly lower demand levels by closely managing overhead and operating costs, including:
—Reducing planned fleet levels through vehicle sales and by canceling fleet orders
—Consolidating off-airport rental locations
—Deferring capital expenditures and cutting marketing spend
—Implementing furloughs and layoffs of 20,000 employees, or approximately 50% of its global workforce.
Hertz also reiterated that it actively engaged with many of its largest creditors to temporarily reduce the required payments under the company’s vehicle operating leases.
Although Hertz negotiated short-term relief with such creditors, the company conceded that it was unable to secure longer-term agreements.
Additionally, the company pointed out that it sought assistance from the U.S. government, but access to funding for the rental-car industry did not become available.
Hertz noted White & Case is serving as legal advisor, Moelis & Co. is serving as investment banker and FTI Consulting is serving as financial advisor.
Additional information for customers regarding Hertz’s restructuring is available www.hertz.com/drivingforward. Court filings and information about the claims process for suppliers and vendors are available at https://restructuring.primeclerk.com/hertz, by calling the company’s claims agent at (877) 428-4661 (toll-free in the U.S.) or (929) 955-3421 (for parties outside the U.S.) or emailing firstname.lastname@example.org.