Hertz Global Holdings Inc, a car-rental company, filed for bankruptcy last Friday, further accentuating the devastating effects that the coronavirus pandemic has had on business.
Chief financial officer and executive vice president of Hertz, Jamere Jackson, stated that “the overall impact of the Covid-19 crisis devastated our revenue”. It certainly did, as the main reason for the bankruptcy was the 73% global revenue drop the company experienced in April. Of course, this would’ve been easily predicted when shutdowns were announced late March as travel restrictions and bans would heavily decrease the need for car rentals.
Hertz has laid off 14,400 employees along with cutting their marketing spending.
The company filed for chapter 11 bankruptcy in Delaware, which will allow them to continue operations while figuring out a way to restructure their debts and pay back creditors. Within the filing, the company describes that they hold a debt load currently of $14.7 billion which is car financing-related and overall debt of $19 billion. It’s a possibility that the company could choose to liquidate their cars to satisfy some outstanding debts.
Even with the news of the bankruptcy, Hertz stock has seen increasing interest from investors, who delight in the fact that what once was a ~$16 stock is now going for a fraction of a dollar. Is the stock a buy then?
Right now? No. Recently, renowned investor Carl Icahn threw in the towel on his 39% Hertz position, losing an estimated $1.6 billion since first buying into this position in 2014. Moving forward, the company could possibly issue new Hertz stock to satisfy the debts still outstanding and give equity to creditors, leaving shares of the old company useless.
Once Hertz comes out with its new debt model, and if the situations are still salvageable, then investors should start taking the company a bit more seriously. Until then, the company's low share price doesn’t mean that it’s going for a bargain, more like its stock is in the hole. Some companies will be permanently scarred from the pandemic, and only time (and the company’s restructured model) will tell if Hertz can come out of this alive.
Any thoughts? Feel free to comment below