Vehicle rental and leasing giant Hertz will invest $1 billion in purchasing new models; this represents the majority of the $1.65 billion the bankrupt company obtained debtor-in-possession financing.
Recall that at the beginning of the coronavirus crisis, and especially during the first weeks of the March lockdown, the firm saw its revenues drop precipitously - so much so that it filed for bankruptcy protection. In early summer, the company was forced to sell off most of its idle fleet, or nearly 200,000 vehicles.
Now, in addition to the $1 billion it plans to invest in new models, Hertz will also use $800 million for working capital and general business needs.
"This new financing will provide additional financial flexibility as we continue to navigate the pandemic's effects on the travel industry and take steps to best position our business for the future."
- Hertz CEO Paul Stone
“Debtor-in-possession" is a form of financing for businesses in bankruptcy under Chapter 11 (Bankruptcy Act) in the U.S., designed to allow them to continue operations. The financing will be provided by some of the company's creditors, Hertz said. The century-old company has filed a motion for approval of the financing with the U.S. Bankruptcy Court for the District of Delaware.
Hertz Global Holdings Inc.’s shares jumped 96% to $2.02 just before markets opened in response to the announcement.
By the end of March of this year, Hertz had accumulated more than $24 billion USD in debt, according to its balance sheet, which also showed only $1 billion in available cash. The firm laid off 12,000 workers and put 4,000 others on leave, and cut its vehicle purchases and non-essential spending by 90 percent.
Hertz then filed for bankruptcy protection on May 22 after its business was decimated during the pandemic and discussions with creditors failed to bring much-needed relief.
For car manufacturers, this announced spending spree is good news, of course: one of the largest car rental companies is going to start buying vehicles again, and lots of them. And since the company also operates in Canada, it also means good news for our economy.