Hertz Seeks Loan in Bankruptcy after Stock Sale Flames Out

HERTZ

Even though Hertz was able to sell 100,000 cars in the past two months, and plans to sell almost 200,000 more through the end of the year as it suffers a dramatic contraction in business following the near-collapse of the travel industry earlier this spring, the rental giant is not giving up trying to raise money. After an odd effort to issue new stock in which it was able to generate just $29 million -- odd because Hertz admitted the stock could be worthless -- the company is now seeking debtor-in-possession financing, Bloomberg reports.

This type of financing or loan is sought by companies that have already filed for Chapter 11 bankruptcy protection from creditors, but that have a turnaround plan in the works. What makes this move as unusual as the stock issue effort is that a turnaround plan largely hinges on a quick return to pre-pandemic levels of travel in the U.S. -- a target that is not seen on the horizon at the moment. The company said as much in an SEC filing.

"We do not expect our business to improve until customer demand increases and the global economy improves," Hertz said.

Bloomberg notes that Hertz lost $847 million in the second quarter of 2020, representing a 67% drop in revenue, and is currently left with $1.4 billion in cash to try to weather the next several months.

Hertz' grim assessment of the prospects of ongoing operations at the current level of demand arguably clashed with the logic of generating cash through the issuance of new stock earlier this spring and summer -- a fact that the company addressed in a matter-of-fact way in its filing.

"The price of our common stock has been volatile following the commencement of the Chapter 11 Cases and may decrease in value or become worthless," the company noted. "Accordingly, any trading in our common stock during the pendency of our Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our common stock. Recoveries in the Chapter 11 Cases for holders of common stock, if any, will depend upon our ability to negotiate and confirm a plan, the terms of such plan, the recovery of our business from the COVID-19 pandemic, if any, and the value of our assets. Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness, are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels."

Of course, those who had been buying Hertz stock for whatever reason over the summer were not likely to be naive purchasers new to the process of investment, but all the same Hertz did try to sell stock during a bankruptcy process while noting that holders of this stock would be among the last in line after just about all other creditors got paid -- a scenario that would require a sharp return to pre-pandemic business conditions that currently appears very unlikely to Hertz itself. Moreover, the $29 million generated through this effort is not expected to be enough to affect the big picture -- the company is burning through cash too fast as cars idle and depreciate.

SOURCE: Autoweek