Hertz says coronavirus decimated revenue, leading to bankruptcy

Hertz Global Holdings Inc., the car-rental company that filed for bankruptcy protection late Friday, said the collapse in air travel amid the coronavirus pandemic hit its biggest source of rental revenue.

“The overall impact of the COVID-19 crisis devastated our revenue,” Hertz said in a court filing dated Sunday and signed by Jamere Jackson, an executive vice president and chief financial officer of the company.

Hertz, whose counters are common in airports across the globe, said the pandemic not only hit its revenues but also placed “substantial new demands” on its cash. In April, the first full month after the health crisis took hold in the U.S., its global revenue dropped 73% from the same month in the previous year, according to the company.

The bankruptcy filing in Delaware allows Hertz to keep operating while it forms a plan to pay creditors and turn around the business. Although all travel-related companies have been hurt by the pandemic, a big factor for Hertz is its strategy of owning or leasing a large portion of its fleet outright instead of acquiring them through buyback agreements with manufacturers.

In the U.S. and in some other countries, Hertz used asset-backed debt to help finance its rental fleet. A drop in used-vehicle values because of the pandemic fueled the company’s woes because of requirements to make payments — corresponding to estimated market depreciation — into those financial structures to prevent a cut in funding access.

Although the company was able to negotiate a short-term reprieve from creditors until May 22 on some payments, it wasn’t able to work out longer-term agreements and “made the difficult decision to commence these Chapter 11 cases,” Hertz said in the filing.

The company has already let go about 14,400 employees, cut spending on marketing and consolidated some outlets, as many of its approximately half a million rental vehicles in the U.S. stand idle. It has sufficient funds to finance operations at least through the initial stage of bankruptcy proceedings but may seek additional borrowings as the case progresses, it said.

Hertz’s financial debt load, including $14.7 billion of which relates to vehicle financing activities, is no longer sustainable, according to the filing. With “little hope” of returning to the type of business conditions seen before the outbreak any time soon, that “debt must be restructured,” it said.