Hertz filed for bankruptcy protection on Friday, unable to withstand the coronavirus pandemic that hurt global travel and, with it, the highly indebted 102-year-old car rental business.
The creditors of the Estero, Florida-based company were unwilling to grant another extension of their auto leasing debt payments after Friday's deadline, triggering the claim in the U.S. Bankruptcy Court in Delaware.
Hertz and its subsidiaries will continue to operate, according to a company statement. Hertz's major international operating regions and franchised locations are not included in the document, the statement said.
By the end of March, Hertz Global Holdings Inc. had accumulated $ 18.7 billion in debt, with only $ 1 billion in cash available.
Beginning in mid-March, the company – whose car rental ranges also include Dollar and Thrifty – lost all revenue when trips ended due to the new coronavirus and started losing payments in April. Hertz was also plagued by management's revolt, naming its fourth CEO in six years on May 18.
"No business is built on zero revenue," said former CEO Kathryn Marinello in the company's conference call in the first quarter of May 12. "Companies have been carrying them for so long."
At the end of March, Hertz laid off 12,000 workers and placed another 4,000 on leave, reduced vehicle purchases by 90% and stopped all non-essential spending. The company said the measures would save $ 2.5 billion a year.
But the cuts came too late to save Hertz, the country's second-largest car rental company, founded in 1918 by Walter L. Jacobs, which started in Chicago with a fleet of a dozen Ford Model Ts. Jacobs sold the company, initially called Rent-A-Car Inc., to John D. Hertz in 1923.
In a note to investors at the end of April, Jefferies analyst Hamzah Mazari predicted that rival Avis would survive the coronavirus crisis, but Hertz had only a 50 to 50 chance of "since it was slower to cut costs".
On May 18, Hertz took the unusual step of appointing chief operating officer Paul Stone as CEO and announced that Marinello would step down as CEO and chairman of the company. Mazari considered the move unusual just a few days before a possible bankruptcy filing. He also noted that changes in the CEO have been common at Hertz since financier Carl Icahn joined the company in 2014.
Icahn's holding company is Hertz's largest shareholder, with a 38.9% stake in the company, according to FactSet.
Deutsche Bank analyst Chris Woronka credited Marinello for rekindling Hertz's revenue growth, writing in a note to investors who rose 16% in 2018 and 2019 together.
Hertz's bankruptcy protection request came as no surprise. In its first quarter report presented in early May to securities regulators, the company said it may not be able to pay or refinance debt and may not have enough money to continue operating.
"Management has concluded that there is substantial doubt about the company's ability to continue as a going concern within one year from the date of issue of this quarterly report," the statement said.
Under a Chapter 11 restructuring, creditors will have to settle for less than full repayment, but the company is likely to continue operating.
Hertz is not the first struggling company to be bankrupted by the coronavirus crisis. The company joins the J.C. Penney department store chain, as well as Neiman Marcus, J.Crew and Stage Stores.