Hertz Global Holdings Inc. is doing everything it can to preserve cash and get leniency from lenders to avoid a bankruptcy filing in the midst of the travel industry’s collapse, CEO Kathryn Marinello said in an interview.
The company has been in discussions with creditors for weeks and is still pushing the U.S. Treasury Department to help rental-car companies, which Marinello says have been hit as hard as the airline sector by the coronavirus pandemic.
“We are seeking the support of our lenders and banks,” said Marinello, whose biggest shareholder at Hertz is billionaire investor Carl Icahn. “We are also seeking the support of the government. Yes, we can avoid bankruptcy.”
Hertz is working with several advisory firms to restructure its balance sheet, people familiar with the matter said. While the company is preparing for bankruptcy as a possibility, the people said it’s a last-resort option.
Shares of Hertz closed Wednesday's trading down 20 percent to $4. The Wall Street Journal reported earlier on the preparation toward a possible bankruptcy.
Hertz’s bonds plunged to new lows and were among the top decliners in the U.S. high-yield market on Wednesday afternoon. Its 5.5 percent unsecured notes fell around 5 cents on the dollar to 20.5 cents, according to Trace.
Hertz disclosed earlier Wednesday that it has missed substantial lease payments related to the cars it rents out. With business down about 80 percent since the pandemic took hold, the company has furloughed thousands of workers without pay and looked for ways to stay afloat until travelers reemerge.
If Hertz doesn’t make payments by the end of a grace period on May 4, and enough lenders and note holders don’t agree to waive a resulting default, the company said in a regulatory filing that it could be “materially and negatively affected.”
Hertz’s filing “suggests it is struggling to obtain all necessary amendments and waivers to reduce its required payments,” Joel Levington, a Bloomberg Intelligence credit analyst, said in note. “Should it achieve that, we think raters may view the changes in terms as tantamount to a selective default, and without the change, the potential for a corporate restructuring is possible.”
Barclays and Deutsche Bank are the lead banks Hertz has been working with to find a solution.
Seeking support
Marinello also holds out some hope that the Treasury will throw a lifeline to the rental industry. Hertz, Avis Budget Group Inc. and Enterprise Holdings Inc. employ about 160,000 people, the three companies said in a letter to Secretary Steve Mnuchin on March 18.
Hertz employs about 30,000 of those workers, many of whom have been laid off as the company has cut $1 billion in costs, Marinello said.
Rental companies’ biggest expense is the depreciation of its cars. With consumers sheltering, car auctions closed and dealers restricted from selling in some states, used-vehicle prices have plunged. If the trend lasts, it will hammer profits for Hertz and Avis and make it costly to reduce the size of their fleets.
“We have the same problem airlines do,” Marinello said. “We have hard assets that are hard to sell.”
Airline aid
The U.S. has made $50 billion in aid available to airlines and set aside $17 billion for companies deemed critical to national security, including U.S. plane maker Boeing Co. Hertz and its peers have made the case they should be treated similarly, arguing in March that the Federal Emergency Management Agency and other government bodies rent cars for first responders and are closely tied to the nation’s airlines and airports.
“We pay rent and fees to airports and we support FEMA,” Marinello said. “The airline industry has been helped. We have the same problems they do.”
Another option could be for Icahn, who owns 39 percent of Hertz, to put more money into the company to preserve his equity stake. But that doesn’t seem likely, BI’s Levington said.
“We’re a great iconic company and have been around for 100 years,” Marinello said. “We plan to be around for another 100 years.”
