We brought you the story last week about Hertz selling off its special edition Corvettes, so it makes a little more sense now. The rumor of Hertz filing bankruptcy has been swirling for weeks due to the lack of travel during the Covid-19 pandemic. It is no longer a rumor.
Hertz Global Holdings, Inc. recently announced it and certain of its U.S. and Canadian subsidiaries have filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. You can read the press release from Hertz's website here.
In the release, Hertz blames the need to file for bankruptcy on the sudden and dramatic impact of COVID-19 on travel demand which caused an abrupt decline in the Company's revenue and future bookings. The company further states there is continuing uncertainty as to when revenue will return and when the used-car market will fully re-open for sales.
Here's what Hertz did prior to filing for bankruptcy. The company says it took immediate actions to prioritize the health and safety of employees and customers, eliminate all non-essential spending and preserve liquidity. It also took action by:
- reducing planned fleet levels through vehicle sales and by canceling fleet orders
- consolidating off-airport rental locations,
- deferring capital expenditures and cutting marketing spend, and
- implementing furloughs and layoffs of 20,000 employees, or approximately 50% of its global workforce.
Hertz says it also received short-term payment relief with many of its largest creditors, but was unable to secure longer-term agreements or government assistance.
The federal bankruptcy filing, which you can read here, also reveals Hertz paid top executives $16.2 million as part of a retention program.
As of the filing date, Hertz says it had more than $1 billion in cash on hand to support its ongoing operations. Depending upon the length of the COVID-19 induced crisis and its impact on revenue, Hertz may seek access to additional cash, including through new borrowings, as the reorganization progresses.
All Hertz Businesses Remain Open
Customers with rental reservations should not see an impact. Hertz says its global businesses which include Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales, and Donlen subsidiaries remain open and that customers should expect business as usual with their reservations, promotional offers, vouchers, and customer and loyalty programs, including rewards points. Hertz is also using new "Hertz Gold Standard Clean" sanitization protocols in response to the COVID-19 pandemic.
"Hertz has over a century of industry leadership and we entered 2020 with strong revenue and earnings momentum," said Hertz President and CEO Paul Stone. "With the severity of the COVID-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery. Today's action will protect the value of our business, allow us to continue our operations and serve our customers, and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future. Our loyal customers have made us one of the world's most iconic brands, and we look forward to serving them now and on their future journeys."
First Day Motions
As part of the reorganization process, Hertz says it will file customary "First Day" motions, which should allow it to maintain operations as they are. Hertz says it intends to continue to provide the same vehicle quality and selection; to pay vendors and suppliers under customary terms for goods and services received on or after the filing date; to pay its employees in the usual manner and to continue without disruption their primary benefits; and to continue its customer loyalty programs.
Pre-COVID-19
Hertz says prior to the COVID-19 pandemic it was facing a strong financial future with ten consecutive quarters of year-over-year revenue growth and nine quarters of year-over-year adjusted corporate EBITDA improvement. 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.
Hertz's principal international operating regions, including Europe, Australia and New Zealand are not included in today's U.S. Chapter 11 proceedings. In addition, Hertz's franchised locations, which are not owned by the Company, also are not included in the Chapter 11 proceedings.
Photo: New York, NY - May 15, 2020 - Car rental Hertz parking lot is full since there are no customers during COVID-19 pandemic at JFK airport. Editorial Credit: lev radin/Shutterstock.com.