Rental car giant Hertz Global Holdings, Inc. announced a filing for Chapter 11 in the U.S. Bankruptcy Court for Delaware after failing to get long-term financing commitments or government assistance.
The filing is one of the largest in recent years for the Delaware court, which typically handles mid-sized filings. Hertz has annual sales of nearly $10 billion.
Delaware is expected to see additional filings as many companies deal with steep revenue declines during the coronavirus crisis.
According to a release “Theimpact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the Company’s revenue and future bookings. 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.”
Hertz hopes the filing will help it weather what could be a prolonged travel and global economic slump.
Hertz’s principal international operating regions including Europe, Australia and New Zealand are not included in the U.S. Chapter 11 proceedings. In addition, Hertz’s franchised locations, which are not owned by the company, also are not included in the Chapter 11 proceedings.
Hertz had grown over the years by acquiringDollar, Thrifty and Firefly rental companies, as well as Hertz Car Sales.
“Hertz has over a century of industry leadership and we entered 2020 with strong revenue and earnings momentum,” said CEO Paul Stone. “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. 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 of the filing date, the Company had more than $1 billion in cash on hand. Depending upon the length of the COVID-19 induced crisis and its impact on revenue, the company may seek access to additional cash, including through new borrowings, as the reorganization progresses.
The Company says it has engaged with many of its largest creditors to temporarily reduce the required payments under the Company’s vehicle operating lease.
Although Hertz negotiated short-term relief with such creditors, it was unable to secure longer-term agreements. Also, the company sought assistance from the U.S. government, but access to funding for the rental car industry did not become available.