This is a few paragraphs from the statement from the Hertz CFO in his declaration in support of the Chapter 11 filings (Hertz and its subsidiaries all filed separate chapter 11 petitions.). THC is the Hertz Company.
- On April 27, 2020, to preserve its liquidity for the benefit of all stakeholders, the Company elected not to pay the $135 million estimated depreciation and amounts due under the related lease—the combination of which (net of amounts owing back to THC) totaled nearly $400 million. This default could have resulted in the forced liquidation of vehicles in the Company’s U.S. rental car fleet beginning on May 5. However, on May 4, the Company obtained the agreement of various lenders to forbear and waive certain defaults through May 22, 2020. Unable to reach further agreements with its U.S. and Canadian creditors by the end of this period, the Company’s board, in consultation with its advisors, made the difficult decision to commence these chapter 11 cases.
- The Company enters these chapter 11 cases with approximately $19.0 billion in total financial debt, $14.7 billion of which relates to vehicle financing activities. This debt burden was sustainable last year, when the Company’s revenue was on the order of $10 billion and when used vehicle prices were less volatile. But with little hope of returning to those conditions any time soon, that debt must be restructured.
- The Company filed these chapter 11 cases in order to preserve and maximize value for the benefit of all stakeholders. In particular, the Company intends to utilize the “breathing room” chapter 11 provides to keep its business intact, continue to assess the likely state of the market upon emergence, and develop a business plan and capital structure that is sustainable in the new reality.
- The Company arrives in these cases with substantial unencumbered cash sufficient to fund operations at least through the initial stage of these Chapter 11 Cases. The Company may seek access to additional cash, including through new borrowing, as the case progresses.
Essentially, COVID hits and zaps almost all of the company's revenue. The company went to the lenders for time and did get a couple of weeks but that was all. The lenders wouldn't budge beyond May 22, so the company filed bankruptcy.
75% of the company's debt is related to the fleet of cars. The fleet of cars is sitting idle because of covid. Hertz needed to restructure this debt because it effectively can no longer rent the cars. If the cars are sitting idle in lots the depreciation isn't occurring so Hertz didn't want to pay that part of the obligation while the fleet cannot be rented.
Yes, hertz had more than enough cash on hand to make these payments. Hertz wanted more support from its lenders related to the fleet of cars and probably to restructure the depreciation terms since the cars couldn't be rented. The lenders gave a couple weeks then wanted payment. Hertz filed to force the lenders to the negotiation table. I'm sure if read more of the filings it would get in to the why, but it's likely the company needed permission to sell huge amounts of the fleet and wanted the lenders to share some of the covid pain, similar to what's happening to landlords.
Hertz is being somewhat aggressive here. That aggression was on full display when the company announced it wanted to sell stock in the the public markets while in bankruptcy.
That offering never occurred to my knowledge, and Hertz got a tongue lashing from the SEC about it.