Hertz Global Holdings (HTZ) – Get Report is reportedly in talks for a bankruptcy loan to fund its business reorganization after the auto rental company suspended a sale of potentially worthless stock.
Hertz had put a planned $500 million stock sale on hold pending a review by the Securities and Exchange Commission after it said in a public filing the shares “could ultimately be worthless.”
With the stock deal shelved for now, Hertz is in discussions with top lenders to supply a financing package, The Wall Street Journal reported, citing people familiar with the matter. The bankruptcy loan could approach $1 billion.
Hertz, which has been hit hard by the coronavirus pandemic shutdown, filed with the SEC to sell $500 million of stock on earlier this week. On Wednesday SEC Chairman Jay Clayton told CNBC that the commission had “comments” about the controversial sale.
“In this particular situation we have let the company know that we have comments on their disclosure,” Clayton said. “In most cases when you let a company know that the SEC has comments on their disclosure, they do not go forward until those comments are resolved.”
Last week, Judge Mary Walrath of the U.S. Bankruptcy Court in Delaware said that Hertz, which filed for Chapter 11 protection on May 22 with nearly $20 billion in debts, could raise as much as $1 billion through the sale of new shares.
Hertz told the court it would alert buyers of the new shares that common stock in the company “could ultimately be worthless” once its bankruptcy proceedings are concluded.
Washington (AFP) – Coronavirus-hit car rental company Hertz was granted permission Friday to sell $1 billion in shares, an extraordinary move after it declared bankruptcy in the United States and Canada.
The unusual green light was given by a bankruptcy court in the US state of Delaware, which “held a hearing and approved the Motion,” according to documents filed by Hertz with the Securities and Exchange Commission (SEC).
The company says it will sell the shares at its discretion in terms of timing and volume.
Hertz is trying to capitalize on a surge in its volatile stock price since it filed for bankruptcy on May 23.
Trading at less than a dollar at the end of last week, shares are now worth three times as much, even peaking at $5.53 at the beginning of the week.
On Friday the stock climbed 37.38 percent during the day, but fell 10.5 percent to $2.53 at 2130 GMT in after-market trading.
Traditionally, shares of bankrupt companies lose value with debt repayment taking precedence.
Experts say in Hertz’s case, however, the price has been affected by the abundance of cheap money flooding the economy after the US Federal Reserve turned on the tap to combat the economic impact of the coronavirus pandemic.
Traders after a good deal are also playing a role.
According to the Wall Street Journal, Hertz — which filed for bankruptcy after lockdowns imposed to stop the spread of COVID-19 devastated the car rental industry — is buried under $19 billion in debt.
After 100 years in business, Hertz filed for bankruptcy on Friday, proving to be yet another casualty during Covid-19.
The old-time entity now joins the likes of J.C. Penney, J. Crew, Neiman Marcus, Gold’s Gym, Pier 1 and the McClatchy newspaper chain—companies that have all sought bankruptcy protection in recent weeks. Hertz was just another victim of the pandemic, people will say. It’s easy to blame the company’s misfortunes, as well as the other corporate casualties, on the pandemic. The reality is a different story. The failures of Hertz and the others have more to do with their own arrogant inertia and inability to recognize the fast-changing trends and a refusal to adapt their business models accordingly.
Back in the day, Avis was Hertz’s major rival. Avis branded itself as the scrappy underdog and adopted the advertising tagline, “We Try Harder.” It was meant to convey that the folks at Avis will do whatever it takes to make its customers happy. Hertz’s slogan should’ve been “We Didn’t Try Hard Enough.”
The Wall Street Journal reported, “Hertz Global Holdings Inc., one of the nation’s largest car-rental companies, filed for bankruptcy protection Friday, saddled with about $19 billion in debt and nearly 700,000 vehicles that have been largely idled because of the coronavirus.” The company has lost money for the past four consecutive years, including $58 million in 2019.
Back in March, responding to the deteriorating economic circumstances, Hertz laid off 12,000 workers and furloughed an additional 4,000 employees—25% of its workforce. Car rental companies are heavily dependent upon travel. People will rent cars for family vacation. A business person flying out to a client will go to a Hertz and rent a car for the duration of their visit. With air travel coming to a near halt, the need for car rentals has plummeted.
It’s true that Covid-19 has had an impact on Hertz—as well as an array of other large and small companies—but it was suffering long before we even heard of the coronavirus. Hertz had to contend with tough competition in the car-rental space, in addition to the onslaught from Uber and Lyft. Customers preferred the ease of use with car-sharing apps. There wasn’t a need to take the time to fill out long and one-sided contracts, wait for your car then have to drive it yourself in an unfamiliar location. Compared to this experience, it’s much more convenient to open an app, request a ride and get whisked to your location.
Some of Hertz’s problems have been self-inflicted. The company, which was founded in 1918, recently went through a number of restructures and four CEOs have gone through the turnstile. A private equity firm heaped a whole lot of debt on Hertz, which didn’t help matters.
Hertz’s bankruptcy will have a big impact. It’s likely that there will be future layoffs, in addition to the 16,000 employees who have already lost their jobs or have been furloughed. It’s reasonable to believe that the hours of the remaining staff will be reduced and furloughed workers won’t be asked to return.
Hertz bought and leased cars from General Motors and other carmakers. Now, it won’t be, which will hurt the automakers and all of their parts suppliers. Hertz will be forced to sell parts of its fleet of cars. This will put downward pressure on the used-car market. People who have considered selling their cars—to earn money because they may have lost their jobs—will not receive much for it, as there will now be an overabundance of used cars for sale.
An unlikely group has also lost out due to Hertz’s bankruptcy filing. Robinhood, the trading app, had about 45,000 day traders holding stock in the company—most of whom presumably lost money while betting on the chance of a resuscitation for the car rental company. Creditors to the company will also lose out under the Chapter 11 restructuring and be forced to accept less repayments.
Former CEO Kathryn Marinello succinctly summed up Hertz’s sad state of affairs, “No business is built for zero revenue.” In a regulatory filing for the fiscal year of 2019, Marinello walked away with $9,138,362 in total compensation. According to Salary.com, “Of this total, $1,450,000 was received as a salary, $1,405,050 was received as a bonus, $567,663 was received in stock options, $5,635,758 was awarded as stock and $79,891 came from other types of compensation.”