Categories –
Item URL – Read More
Item Image –
Item Description – Hertz, the American car rental company, could be facing bankruptcy after failing to make lease payments during the COVID-16 shutdown.The long-standing organization based out of Estero, Florida was founded in 1918 as Rent-A-Car Inc. They began their rental operation with Model T Fords, starting with a fleet of a dozen that expanded into 600 vehicles over the following five years.After rebranding to Hertz Corporation in the 1950s, acquisition increased to include almost 400,000 vehicles across 120 countries.A lengthy history and success in the industry had made Hertz one of the most recognizable brands in rentals. Today, the company owns 9,700 corporate and franchise locations in 150 countries. Even with their impressive size, growth, and longevity, Hertz is not immune to the effects of the coronavirus pandemic.COVID-19 Brings the Travel and Hospitality Industries to a Grinding HaltBusinesses that operate in transportation are hit hard right now. Social distancing keeps most people at home. Vacations have been canceled and professionals aren’t traveling for work. Even everyday movement is limited, which means fewer people requesting rental cars and trucks. Inc. is considering the possibility of bankruptcy filing after missing lease payments to preserve funds.The lower cash flow hasn’t stopped monthly payments from coming due. Hertz leases vehicles for its fleet, which has created serious financial trouble for the corporation.Payments were not made on Monday, which triggered a grace period that will extend until May 4th. During that time, creditors can agree to waive any default. If there aren’t enough of them that agree, then it could spell disaster for , who stated that it could be “materially and negatively impacted.”This may not come as a surprise to those in the know. The  reported last week that Hertz hired investment bankers and lawyers as advisers while attempting to renegotiate $17 billion of debt. The firms include Moelis & Co. and White & Case LLP. Both declined to comment on the matter.Hertz announced that it had about $1 billion in liquidity in March with no significant debt maturities due until June 2021.Hertz made a statement in a  that said the company has “experienced a rapid, sudden and dramatic negative impact on their businesses,” and that they face “significant ongoing operating expense.”The stock market has reacted to the development, with shares dropping 15.1% to $4.25.Efforts have been made to try and close the financial gap within the organization. Last month, Hertz spoke with banks to discuss financing options during COVID-19. The options included first-lien loan, second-lien financing, or collateralizing its rental fleet.“Like the rest of the global travel sector, COVID-19’s impact on Hertz arrived swiftly, and the reversal in customer demand has been significant,” stated Chief Executive Kathryn Marinello in late March.Hertz previously announced that it will  North American workers as a cost-cutting measure during the downturn. It’s a move that’s been made by many others during the , including Lyft, Boeing, TripAdvisor, Walt Disney World, Tesla, Under Armour, and J.C. Penney.In a Securities and Exchange Commission filing, Hertz said that the layoffs would cost $30 million and would begin April 14th for non-union workers and April 21st for union workers. The company employed around 38,000 people at the end of last year.The corporation also asked the  for a loan.“We are being hit by this as hard as airlines, maybe harder,” explains Hertz CEO . “The volume just went away. We have had the same kind of drop-off that the airlines have had.”The letter requesting inclusion also pointed out the 160,000 people who would be out of a job if no solution is found that would allow them to continue operations.Jeffries analyst Hamzah Mazari predicted a 30% fall during the second quarter and up to 20% in the third quarter. Top rental companies like Hertz were already drawing down credit and other resources, which has led to a need to renegotiate.“The volume has fallen so quickly they won’t have the opportunity to reduce their fleets,” Mazari explains.Rental companies usually have around 80% of their vehicles rented out. With the sudden drop in rentals, they are having trouble finding places to store their unused vehicles. This also puts an immediate stop on the purchase of new vehicles from carmakers.Hertz, Avis, and Enterprise controlled 95% of the rental industry, excluding ride-sharing companies like Lyft and Uber. These three entities purchase 10% of all new cars manufactured in the United States each year, which totals approximately 1.7 million vehicles annually.Searching for Answers to the COVID-19 Financial CrisisCEO Marinello stated that the company had a strong start to 2020 in January and February, but everything stopped when coronavirus spread in March.For businesses and workers, everything is uncertain right now. We are not sure how COVID-19 will change industries and communities in the coming months. Even when social distancing orders are lifted, people may be reluctant to jump right back into travel or utilize hospitality services. Many will be timid about a possible re-emergence of COVID-19 while others may simply not have the cash to spend after losing their jobs during the outbreak.In the meantime, even the biggest corporations are searching for ways to keep their heads above water while drowning in debt.“Hertz is continuing to engage in ongoing discussions with such lenders to reduce its obligations under the Operating Lease and avoid certain consequences of the payments not made on April 27,” the company stated.