Hertz Global Holdings Files for Chapter 11 Bankruptcy Protection
Hertz Global Holdings, Incorporated — which includes certain subsidiaries of its operations in the United States and Canada — has filed voluntary petitions for reorganization under Chapter 11 in the United States Bankruptcy Court for the District of Delaware in an effort to create a strengthened and more robust financial capital structure that best positions the rental car company for the future as it navigates its way through what could be a prolonged recovery for both the travel industry and the global economy overall.
Hertz Global Holdings Files for Chapter 11 Bankruptcy Protection
Although Hertz Global Holdings has had prior financial issues, the “sudden and dramatic” impact by the current 2019 Novel Coronavirus pandemic on the demand for travel in general is the main reason which is cited for the exacerbation of those financial issues, as it contributed to the abrupt decline in the revenue — as well as future reservations and bookings — for the company.
In March 2020, the World Health Organization declared a pandemic resulting from the COVID-19 viral disease. As a result of the pandemic, Hertz Global Holdings, Inc. and The Hertz Corporation (collectively, “Hertz” or the “Company”) and their subsidiaries have experienced a rapid, sudden and dramatic negative impact on their businesses. While the Company has taken aggressive action to eliminate costs, the Company faces significant ongoing operating expenses, including monthly payments under its Amended and Restated Master Motor Vehicle Operating Lease and Servicing Agreement Series 2013-G1 (the “Operating Lease”), pursuant to which Hertz leases vehicles used in its day-to-day United States rental car fleet operations from its special-purpose vehicle finance subsidiary. In light of the impact of the pandemic and the uncertainty about the timing and strength of any recovery in the Company’s markets, the Company is taking aggressive actions to preserve liquidity to support its ongoing operations. In this regard, the Company has been engaged in discussions with certain of its senior credit facility lenders (the “Senior Credit Facilities Lenders”) and certain of the holders of its vehicle finance subsidiary’s notes (the “VFN Noteholders”), among other things, to temporarily reduce the required payments under the Operating Lease. As those discussions have continued, on April 27, 2020, Hertz did not make certain payments in accordance with the Operating Lease. If such payments are not made by the end of a grace period on May 4, 2020, and a sufficient amount of Hertz’ Senior Credit Lenders and VFN Noteholders do not agree to waive any resulting default or forbear from exercising remedies, Hertz could be materially and negatively impacted. Although Hertz has received the required support from VFN Noteholders, it has not yet received sufficient support for the required waivers from other required lenders. 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, 2020 under the Operating Lease.
Immediate actions were taken by Hertz Global Holdings to prioritize the health and safety of employees and customers — as well as eliminate all non-essential spending while simultaneously preserving liquidity. However, uncertainty remains as to when revenue will return and when the used-car market will fully re-open for sales, which necessitated the filing for voluntary petitions for reorganization under Chapter 11 bankruptcy protection.
Still, Hertz Global Holdings was unable to secure longer-term agreements — despite negotiations with its creditors for relief in the short term. Additionally, the company sought assistance from the federal government of the United States — but access to funding for the rental car industry did not become available.
“Hertz was on a strong upward financial trajectory prior to the COVID-19 pandemic, including ten consecutive quarters of year-over-year revenue growth and nine quarters of year-over-year adjusted corporate EBITDA improvement”, according to this official announcement which was released from Hertz Global Holdings on Friday, May 22, 2020. “In January and February 2020, the Company increased global revenue 6% and 8% year over year, respectively, driven by higher U.S. car rental revenue. In addition, the Company was recognized as No. #1 in customer satisfaction by J.D. Power and as one of the World’s Most Ethical Companies by Ethisphere.”
All Subsidiaries of Hertz Global Holdings Remain Open and Serving Customers
Hertz Global Holdings — which is based in Estero in Florida south of Fort Myers — had greater than $1 billion in cash on hand to support its ongoing operations as of Friday, May 22, 2020. Depending upon the length of the crisis as a result of the current 2019 Novel Coronavirus pandemic and its impact on revenue, Hertz Global Holdings may seek access to additional cash — “including through new borrowings” — as the process of reorganizing the company progresses.
New initiatives — such as Hertz Gold Standard Clean sanitization protocols — are intended to provide additional safety in response to the current 2019 Novel Coronavirus pandemic.
All reservations, promotional offers, vouchers, and customer and loyalty programs — including points from the Hertz Gold Plus Rewards frequent renter loyalty program — are expected to continue as usual; and the levels of service and reliability to the customer should remain uninterrupted.
Not included — and therefore unaffected — by the Chapter 11 bankruptcy proceedings of Hertz Global Holdings in the United States include:
Principal international operating regions of Hertz — including in Europe, Australia, and New Zealand
Franchised locations which are not owned by Hertz Global Holdings
Taking Actions in Response to the Current 2019 Novel Coronavirus Pandemic
Hertz Global Holdings moved quickly to adjust when the effects of the current 2019 Novel Coronavirus pandemic began to manifest in March of 2020 — which caused an increase in cancellations of car rentals and a decline in reservations — by taking action to align expenses with significantly lower demand levels and closely managing overhead and operating costs, which included:
Reducing planned fleet levels through vehicle sales and by canceling fleet orders
Consolidating off-airport rental locations
Deferring capital expenditures and cutting marketing spend
Implementing furloughs and layoffs of 20,000 employees, which comprised approximately 50 percent of its global workforce
First Day Motions
Hertz Global Holdings will file customary “First Day” motions as part of the Chapter 11 reorganization process, which “should allow it to maintain operations in the ordinary course.” The company intends to continue to:
Provide the same vehicle quality and selection
Pay vendors and suppliers under customary terms for goods and services received on or after the filing date
Pay its employees in the usual manner and to continue without disruption their primary benefits
Continue its customer loyalty programs
Walter L. Jacobs founded Rent-a-Car Incorporated in Chicago in 1918 at the age of 22 with a fleet of a dozen Model T Ford cars to rent to customers.
John Daniel Hertz, Senior — who was born as Schandor Herz in Slovakia in 1879 — founded the Yellow Cab Company in Chicago in 1915. He purchased Rent-a-Car Incorporated from Jacobs in 1923 and renamed the company Hertz Drive-Ur-Self System. By 1925, Hertz was generating annual revenues of approximately $1 million with what became a coast-to-coast rental network before Hertz sold the company to General Motors in 1926.
In the years before John Hertz purchased the rental car company back from General Motors, Hertz offered the first advanced reservations; a new program called Rail-Drive through which Hertz provided a rental vehicle for vacationers right when they stepped off the train; released the first rental car charge card in 1926; opened its first rental car location at Midway Airport in Chicago in 1932; introduced the first one-way rental plan in 1933; and opened its first European location in France in 1950.
In 1972, Hertz introduced the #1 Club — which is now known as Hertz Gold Plus Rewards — that was a computerized data system that allowed club members to use Express Service. The service eventually expanded its benefits, allowing club members to bypass the airport counter and move directly from the airplane to a Hertz rental car in 1989. The 1990s brought the on-board navigation system NeverLost and the first Internet web site for the company.
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