The Chapter 11 filing in Delaware allows Hertz to keep operating while it devises a plan to pay creditors and turn around the business. The second-largest U.S car-rental-car company does not need debtor-in-possession financing for now, according to a person familiar with the matter, because it has more than
“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,”
Analysts have warned of ramifications for the broader auto industry from a Hertz bankruptcy. The company has a fleet of about 400,000 cars in the U.S. that are not subject to repurchase agreements with vehicle manufacturers and could be liquidated,
“The risk for the auto sector occurs if the creditors of the debt that is secured by the vehicles decides to liquidate the fleet to repay the bonds,” Ward wrote on May 14. The impact those sales may have on used-car prices could be minimized by the sale of those vehicles taking place over the course of several months, he said.
Hertz said it has enough cash for now to support its operations, which include Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales, and
The Chapter 11 proceedings involve the company’s U.S. and Canadian subsidiaries and don’t include its international operations in Europe, Australia or New Zealand. U.S. Bankruptcy Judge
She presided over bank holding company
Walrath also gained some notoriety in 2011 when she turned down WaMu’s first swing at a reorganization plan after finding the legal releases for third-parties involve in the mortgage-securities fraud were too broad. She’s oversaw the
The judge, the longest-tenured bankruptcy judge on the Delaware bench, will be faced with some difficult questions about whether Hertz has to honor agreements it was forced to make in hopes of surviving the pandemic, said
For example, Walrath must decide if Hertz can invalidate expensive car-storage agreements prompted by the drop in rental-car demand that have become a huge drain on its finances, he said. “She’s got the experience to make the calls on this Covid-19 stuff. She’s the right judge for the job.”
To survive, Hertz may have to slim down operations considerably, said Joseph Acosta, a partner in the bankruptcy law firm of
The company began laying off workers to preserve cash in March as emergency measures to contain the virus halted business and leisure travel. Hertz disclosed on April 29 that it had missed substantial lease payments related to its rental cars.
While all travel-related companies have been hurt by the pandemic, a big part of what’s weighed on Hertz is its strategy of owning or leasing a large portion of its fleet outright instead of acquiring them through buyback agreements with manufacturers. Hertz typically responds to falling demand by selling cars from its fleet, so it has been hit especially hard by the
Hertz, originally known as Rent-a-Car Inc., was founded in Chicago in 1918. It was operating 12,400 locations worldwide as of February.
The main bankruptcy case is In RE: The Hertz Corporation, 20-111218, U.S. Bankruptcy Court for the District of Delaware (Wilmington)
(Updates with details on judge overseeing case starting in eighth paragraph)
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