Hertz, Car Rental Pioneer, Files for Bankruptcy Protection

Hertz, which started with a fleet of a dozen Ford Model T a century ago and became one of the largest car rental companies in the world, filed for bankruptcy on Friday after falling victim to its mountain of debt. .

The coronavirus pandemic devastated Hertz, preventing business travelers and tourists, making it impossible for the company to continue paying its creditors. A sharp drop in used car prices has also reduced the value of its fleet.

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"They were doing great, but when you cut back on revenue and own all these cars, and suddenly the cars are worth less, it's a very difficult business," said John Healy, an analyst and managing director at Northcoast Research in Cleveland.

Hertz said on Friday that it would use more than $ 1 billion in cash to keep its business running while continuing the bankruptcy process.

“Today's action will protect the value of our business, allow us to continue our operations and serve our customers, and provide time to establish a new, stronger financial foundation to successfully advance this pandemic and position ourselves better in the future. Paul E. Stone, its chief executive, said in a statement.

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The bankruptcy filing excludes operations in Australia, Europe and New Zealand, as well as the company's franchise locations. Hertz also said it sought help from the federal government, but that funding for its industry "has not become available".

Although it had accumulated $ 17 billion in debt, Hertz, which also owns the Dollar and Thrifty brands, was reporting healthy sales in early 2020. The company's revenue increased 6% in January and February.

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But the pandemic treated what the company described as a "quick, sudden and dramatic" scam. Sales dried up in March as much of the world began to take shelter at home. Airports, where Hertz and its competitor Avis Budget Group earn most of their revenue, have turned into ghost towns.

At the end of March, the company he began to cut costs, sold some of his cars, distributed workers and arranged outposts nearby. Hertz management suggested that they had some room for maneuver, including access to $ 1 billion in cash.

"Hertz is a resilient company, with resilient brands and resilient people," said its executive, Kathryn Marinello, in a statement at the time.

But Marinello resigned last week, and since then, Hertz has laid off or hired 20,000 employees, half of its workforce. The company also cut the salaries of senior leaders in March, but recently reversed that decision.

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The company's bankruptcy march began in late April, when a lease for part of its fleet, which includes about 667,000 cars, SUVs and other vehicles worldwide, was missed. He convinced creditors to hand it over by midnight on Friday to work out a financial plan that they could accept. But in a statement this month, Hertz acknowledged the enormity of the task.

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"If our businesses do not recover quickly and we are unable to successfully restructure our substantial indebtedness, obtain additional exemptions or tolerance or increase additional capital, there is substantial doubt that we will be able to continue as an ongoing company," said the company.

Hertz struggled in the years following the 2008 financial crisis, but has recently started to change. Under Marinello, the company improved operations, cut costs and reduced its debt, analysts said.

"I have no doubt that if the coronavirus had not happened, Hertz would finally achieve its recovery," said Ryan Brinkman, J.P. Morgan analyst in the automotive industry.

The company's stock closed at $ 2.84 on Friday, down from $ 20 at the end of February. Carl Icahn, the billionaire investor, owned about 39% of the company's shares in mid-March.

Their peers were more suitable for the moment. Avis Budget Group, which has less debt, said last month that it had access to enough money to survive the year. Avis, which also raised $ 500 million at a bond sale this month, it moved more quickly to cut costs, analysts said. Enterprise, a private company, is more diverse and does not rely as much on airport rentals as Avis or Hertz.

When Marinello took over at Hertz in early 2017, she inherited a troubled company.

In addition to accumulating a lot of debt, Hertz recently acquired many compact cars, which have been devaluing American drivers for years and have not met corporate cost-cutting targets. Its predecessor spun off the company's equipment rental business. Earlier, Hertz decided to move its headquarters from New Jersey to Florida, which prompted many seasoned executives to leave the company.

"The company lost a lot of momentum during this period," Marinello told investors shortly after taking office. She was the company's fourth boss in three years. And Hertz was under-served by "incredibly optimistic demand forecasts" and misguided car purchases, she said.

"That was the beginning of his problems," said Betsy Snyder, a credit analyst at S&P Global Ratings.

In mid-2014, Hertz said it would need to correct its financial results in three years, due to a series of accounting errors. A few months later, Mr. Frissora left office.

Hertz had overestimated earnings before taxes by $ 235 million, the Securities and Exchange Commission said last year. The company agreed to pay the regulator $ 16 million to resolve fraud and other charges. Hertz sued Mr. Frissora and other former senior managers, seeking to recover at least $ 56 million in compensation and arguing that they pressured subordinates to achieve financial goals, which they did through misleading accounting. The case is still pending.

Frissora does not agree that he is to blame for accounting errors or the company's current problems, said Stephen Cohen, a spokesman, in a statement.

"During his tenure at Hertz, Mark chaired substantial value creation and operational improvements," said Cohen, noting that he has been succeeded by several executives in the six years since he left Hertz. "These members of the CEE.Os, not Mark, defined the company's strategy and oversaw its operations, leading to the company's current circumstances."

Also in 2014, Mr. Icahn, the activist investor, announced that he accumulated a stake of almost 8.5% in the company. He has since taken control of three seats on the board and expanded his stake in the company, most recently in March, when he bought about 11.5 million shares for $ 7 to $ 8 each.

The bankruptcy filing represents a devastating blow to an institution that started 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 T models and formed Rent-a-Car, Inc. The business grew rapidly and, within five years, owned a fleet of around 600 vehicles, according to Hertz.

In 1923, Jacobs sold the company to John Hertz, owner of the Chicago Yellow Cab Company, who renamed it. Together, the pair expanded business across the country. In 1932, the company opened its first airport car rental facility at Chicago Midway Airport, according to Hertz. The following year, it began offering one-way rentals. In 1955, the company had more than 1,000 locations worldwide. Today, there are more than 12,000 corporate and franchise locations.

The company's future is uncertain, although most analysts are optimistic that it could emerge from bankruptcy after its debt restructuring.

"I don't think Hertz is leaving," said Snyder. “When you think about car rental, you think about Hertz. It is an iconic brand. "

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