As expected, vehicle rental giant Hertz Global Holdings (NYSE: HTZ) filed for Chapter 11 bankruptcy protection on the evening of Friday, May 22. The COVID-19 health crisis dealt Hertz a brutal blow that the company wasn’t equipped to absorb.
The Chapter 11 filing was not presented as a step toward the liquidation of the company’s assets. Instead, Hertz said that it is taking action to strengthen its capital structure.
Hertz will continue running its business as usual, providing car rentals under brand names such as Hertz, Thrifty, Dollar, Firefly, and more. Employee paychecks are still on tap, supported by $1 billion of remaining cash reserves. The same balance sheet also holds $18.7 billion of long-term debt.
Image source: Getty Images.
The financial situation
In an effort to make the cash last, Hertz has laid off or furloughed nearly half of its workforce, affecting 20,000 employees. Many rental locations are closed and revenue-generating traffic to the remaining car rental outlets is a mere trickle. The largely idle vehicle fleet isn’t even making much money in used-car auctions due to low consumer demand for used vehicles.
“No business is built for zero revenue,” Hertz CEO Kathy Marinello said in first-quarter earnings call earlier this month. “There’s only so long that the company’s reserves will carry them.”
The filing for bankruptcy protection is relevant only to Hertz’s company-owned domestic operations. Franchised locations and international rental fleets in places like Europe, New Zealand, and Australia are not affected, though they may have to take similar actions on a local level later on.
Meanwhile, Hertz continues to negotiate its debt covenants, hoping to find a solution that satisfies its debt owners while keeping Hertz in business in the long run. The company had a good year in 2019 and would love to get back to business quickly. However, the novel coronavirus has permanently changed the market for travel services.
10 stocks we like better than Hertz Global Holdings
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Hertz Global Holdings wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
*Stock Advisor returns as of April 16, 2020
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.