Hertz files for Chapter 11 bankruptcy

August 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

August 2020 Issue

Due to the sudden and dramatic impact of coronavirus (COVID-19) on travel demand, car rental company Hertz Corporation – a subsidiary of Hertz Global Holdings, Inc. – and a number of its US and Canadian subsidiaries, have voluntarily filed for Chapter 11 reorganisation.

The Chapter 11 filing is intended to provide Hertz with a path toward a more robust financial structure that best positions it for the future as it navigates what could prove to be a prolonged travel and overall global economic recovery.

When the effects of the crisis began to cause an increase in car rental cancellations and a decline in forward bookings, Hertz moved quickly to adjust, prioritising the health and safety of its employees and customers, eliminating all non-essential spending and preserving liquidity. However, uncertainty remains as to when revenue will return and when the used-car market will fully reopen for sales, necessitating Chapter 11 reorganisation.

As part of the process, Hertz has filed first-day motions which will allow it to maintain operations in the ordinary course and continue to provide the same quality and selection of vehicle. Furthermore, Hertz has more than $1bn in cash on hand to support its ongoing operations. And, depending upon the length of the COVID-19 crisis and its impact on revenue, the company may seek access to additional cash, including through new borrowings, as the reorganisation progresses.

Prior to the COVID-19 pandemic, Hertz was on a strong upward financial trajectory, including 10 consecutive quarters of year-over-year revenue growth and nine quarters of year-over-year (YOY) adjusted corporate earnings before interest, taxes, depreciation and amortisation (EBITDA) improvement. Moreover, in January and February 2020, it increased global revenue 6 and 8 percent YOY, respectively, driven by higher US car rental revenue.

“Hertz has over a century of industry leadership and we entered 2020 with strong revenue and earnings momentum,” said Paul Stone, president and chief executive of Hertz. “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’s principal international operating regions including Europe, Australia and New Zealand are not included in the Chapter 11 proceedings. In addition, Hertz’s franchised locations, which are not owned by the company, also are not included.

“The Chapter 11 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,” added Mr Stone.

All of Hertz’s businesses globally, including its Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales and Donlen subsidiaries, are open and serving customers, with all reservations, promotional offers, vouchers, and customer and loyalty programmes, including rewards points, expected to continue as usual.

Serving as legal adviser to Hertz throughout the Chapter 11 reorganisation is White & Case LLP. Moelis & Co. is serving as investment banker and FTI Consulting is serving as financial adviser.

Mr Stone concluded: “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.”

Fraser Tennant