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- Car rentals were down last year—you get one guess why—and that helped plunge the already struggling Hertz into bankruptcy in early 2020.
- Even though the company was pessimistic about its chances of coming out of bankruptcy with any sort of value for its shareholders, a bidding war this spring helped means stocks are worth almost $9 now, well above the sub-$2 level during the pandemic.
- Hertz was also able to sell off around 200,000 of its 650,000 vehicles while demand for used cars was strong, which didn’t hurt the company’s finances.
The COVID-19 pandemic was not kind to car rental company Hertz, at least not at the beginning. When regular travel pretty much halted in the early part of 2020, Hertz filed for Chapter 11 bankruptcy. But as with so much during the pandemic, things evened out and then started to turn around for Hertz, and the company announced last week that it has emerged from bankruptcy as “a financially and operationally stronger company that is well positioned for the future.”
As a customer loyalty move, Hertz said it will upgrade customers who join its rewards program, Hertz Gold Plus Rewards, to Five Star Elite through the end of 2021, and will offer double points on rentals by existing members through September 30.
The rebound was indeed dramatic, and the group of investors that ended up providing Hertz with $5.9 billion in capital was led by Knighthead Capital Management and Certares Management. Each of these investment firms will now get two representatives on the new Hertz board of directors, according to the Wall Street Journal, which also reported that one of the board’s new independent directors is former Ford CEO Mark Fields.
The Journal called the bidding war for Hertz that played out this past May a “rarity in corporate Chapter 11 cases.” In fact, the paper reported that in April, Hertz was telling its shareholders that they should expect to get nothing for their stock. But people were optimistic enough about Hertz not only to bring the company out of bankruptcy but to also drive the share price from under $2 during the pandemic to just under $9 this past week. Hertz shares, which trade on the over-the-counter market, were trading at over $15 before the pandemic, according to the New York Times. Hertz common stock started trading under a new ticker symbol, HTZZ, on July 1.
One reason Hertz managed this turnaround was the fact that it sold more than 200,000 of its 650,000 vehicles during the pandemic when demand for used cars was strong and Hertz wasn’t earning money from at the time, since people, for the most part, stopped traveling.
“When the economy began to show signs of recovery earlier this year, we were perfectly positioned to drive a competitive process that would maximize recoveries,” outgoing board chairperson Henry Keizer said in a statement. “The result—paying our nearly $19 billion of creditors in full and returning substantial value to our shareholders—is remarkable.”
Looking forward, the new Hertz will look a bit different than the old, bankrupt company. The new board chairman, Gregory O’Hara, told the Journal that new customer service models will be coming that eliminate the need for people to stand in line to get the keys to a rental car. He also said that Hertz will add more electric and alternative-fuel vehicles to its fleet. Hertz is now confident enough in the changes it has gone through, including reducing costs, negotiating cost concessions at some airport locations, and selling its Donlen fleet leasing business for $891 million in cash, mean Hertz is “on track for strong financial results in 2021.”
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