Hertz files for bankruptcy following economic crisis sparked by COVID-19
- A Monitor Desk Report 28 May, 2020 | 746 Views|-+
Dhaka: The Hertz Corporation has become the latest victim of the economic downturn caused by the COVID-19 pandemic as it filed for bankruptcy on May 22.
By declaring bankruptcy, the company said it intends to stay in business while restructuring its debts and emerging as a financially healthier company.
"The impact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company's revenue and future bookings," said the company in a statement.
"Uncertainty remains as to when revenue will return and when the used-car market will fully re-open for sales, which necessitated today's action," it added.
The company has already made deep cuts to stem its losses. It has notified 12,000 employees in North America that that they were losing their jobs, and another 4,000 are on furloughs. Its US workforce stood at 38,000 employees at the start of the year, with about a quarter of them represented by unions.
Hertz (HTZ) shares closed down 7.5 per cent on Friday and have fallen 82 per cent so far this year. Shares moved sharply lower in after-hours trading Friday evening. Shares are likely to become worthless as part of the bankruptcy process.
The company had a total of 568,000 vehicles and 12,400 corporate and franchise locations worldwide at the start of this year. About a third of those locations are at airports.
A significant portion of Hertz's nonairport business is renting cars to people who are having their vehicles repaired after accidents. But with so many people out of work or working from home, the miles being driven and the number of car accidents are down significantly. Car insurers are voluntarily returning more than USD 7 billion, or between 15 per cent to 25 per cent of premiums, to their customers.
Hertz posted annual revenue of USD 9.8 billion last year, a company record, and its rental car revenue is comparable to that of rival Avis Budget Group (CAR).
However, Hertz has problems that predate the COVID-19 pandemic. It posted a USD 58 million net loss in 2019, down from a USD 225 million loss in 2018. But in the first three of this year it lost USD 356 million.
Hertz had USD 18.8 billion of debt on its books as of March 31, up USD 1.7 billion from the end of last year. Most of that debt, USD 14.4 billion, is backed by its vehicles. That includes the debt for which it missed the payment in April the prompted this latest crisis. It had only USD 1 billion in cash on its balance sheet as of the end of March.