Hertz, who started a fleet of a dozen Ford Model T’s a century ago and became one of the world’s largest car rental companies, filed for bankruptcy protection on Friday after falling victim to its debt mountain.
The Coronavirus pandemic has destroyed Hertz by founding business travelers and tourists, making it impossible for the company to continue to pay its lenders. A sharp fall in the prices of used cars has also reduced the value of its fleets.
Late on Friday, Hertz said it would spend more than $ 1 billion in cash to keep its business going while continuing the bankruptcy process.
“Today’s measures will protect the value of our business, allow us to continue our business and serve our customers and provide time for a new, stronger financial foundation to successfully go through this pandemic and better position us for the future,” Sa Paul E. Stone, its CEO, in a statement.
The bankruptcy application excludes operations in Australia, Europe and New Zealand as well as the company’s franchisees. Hertz also said it had sought help from the federal government, but that funding for its industry “became unavailable.”
Although it had raised $ 17 billion in debt, Hertz, which also owns the Dollar and Thrifty brands, reported good sales in early 2020. The company’s revenue grew 6 percent in January and February.
But the pandemic handled what the company described as “a fast, sudden and dramatic” blow. Sales dried up in March as much of the world began to protect at home. Airports, where Hertz and its competitor Avis Budget Group earn most of its revenue, were turned into ghost towns.
“Hertz is a resilient company with resilient brands and resilient people,” said its chief executive, Kathryn Marinello, in a statement then.
But Marinello resigned last week, and Hertz has since laid off or lost 20,000 employees, half of its workforce. The company had also reduced the salaries of senior executives in March, but recently reversed that decision.
The company’s bankruptcy march began in late April when it missed a lease payment for some of its fleets, which includes about 667,000 cars, sports vehicles and other vehicles worldwide. It persuaded the lenders to give it until midnight on Friday to put together a financial plan that they could accept. But in an application this month, Hertz acknowledged the enormous importance of the data.
“If our business does not recover quickly and we fail to restructure our significant indebtedness, obtain additional exemptions or endurance or raise additional capital, it is highly doubtful that we will be able to continue as a continuing business,” the company said.
Hertz had struggled in the years following the 2008 financial crisis but had begun to turn recently. During Marinello, the company had improved its operations, reduced its costs and reduced its debts, analysts said.
“I have no doubt that unless the coronavirus had happened that Hertz would eventually have achieved its turnaround,” said Ryan Brinkman, an automotive industry analyst with J.P. Morgan.
The company’s shares closed on Friday at $ 2.84, from about $ 20 at the end of February. Billionaire investor Carl Icahn owned about 39 percent of the company’s shares in mid-March.
Its peers were better suited at the moment. Avis Budget Group, which has less debt, said last month it had access to enough cash to survive the year. Newspaper, as well raised $ 500 million in bond sales this month, acted faster to lower costs, analysts said. Enterprise, a private company, is better diversified and not as dependent on airport rents as either Avis or Hertz.
When Marinello took the helm of Hertz in early 2017, she inherited a troubled company.
In addition to collecting a lot of debt, Hertz had recently bought too many compact cars, which have fallen out of favor with American drivers for years and failed to meet the companies’ cost-cutting goals. Her predecessor turned off the company’s equipment to rent equipment. Earlier, Hertz decided to relocate its headquarters from New Jersey to Florida, leading to many experienced executives leaving the company.
“The company lost a lot of momentum during that time,” Marinello told investors soon after taking over. She was the company’s fourth manager in three years. And Hertz had been badly served by “incredibly optimistic demand forecasts” and incorrect car purchases, she said.
“That was the beginning of their problems,” says Betsy Snyder, a credit analyst at S&P Global Ratings.
In mid-2014, Hertz said it would need to correct its financial results for three years due to a number of accounting errors. A few months later Frissora went down.
Hertz had overstated $ 235 million in pre-tax income, the Securities and Exchange Commission said last year. Company agreed to pay the regulator $ 16 million to resolve fraud and other charges. Hertz sued Mr. Frissora and other former senior executives tried to get at least $ 56 million in compensation, claiming that they had squeezed subordinates to meet financial goals, which they did through misleading accounting. The case is still waiting.
Frissora does not agree that he is blamed for accounting errors or the company’s current problems, Stephen Cohen, a spokesman, said in a statement.
“During his tenure in Hertz, Mark organized significant value creation and operational improvements,” Cohen said, noting that he was succeeded by several managers in the six years since he left Hertz. “The C.E.O.s, and not Mark, have established the company’s strategy and monitored its operations leading to the company’s current circumstances.”
In 2014, activist investor Icahn revealed that he had accumulated a share of almost 8.5 percent in the company. He has since gained control of three types of board and expanded his holding in the company, most recently in March, when he purchased approximately 11.5 million shares for $ 7 to $ 8 each.
The bankruptcy filing represents a devastating blow to an institution that began in the early days of the American auto industry.
Hertz was founded in Chicago in 1918, when a former Ford Motor salesman, Walter Jacobs, bought a dozen Model T’s and formed Rent-a-Car, Inc. The business grew rapidly and within five years it had a fleet of about 600 vehicles, according to Hertz.
In 1923, Jacobs sold the company to John Hertz, the owner of the Chicago Yellow Cab Company, which renamed it. Together, the couple expanded their operations across the country. In 1932, the company opened its first car rental facility at Chicago’s Midway Airport, according to Hertz. Next year, it started offering one-way rentals. In 1955, the company had more than 1,000 locations worldwide. Today, there are more than 12,000 companies and franchisees.
The company’s future is uncertain, although most analysts are optimistic that it may come from bankruptcy after restructuring its debt.
“I don’t think Hertz will disappear,” Snyder said. “When you think about car hire, you think of Hertz. It is an iconic brand. “