Hertz in Bankruptcy: A Wild Ride in Pandemic Times Custom Case Solution & Analysis

Case Evidence Brief

Financial Metrics

Total Debt at Filing: Approximately 19 billion dollars, primarily comprised of 14.4 billion dollars in vehicle-backed debt and 4.3 billion dollars in corporate debt.
Liquidity Position: 1 billion dollars in cash on hand as of May 2020, with a monthly burn rate accelerated by a 90 percent drop in revenue during the initial pandemic lockdowns.
Stock Price Volatility: Traded at 0.40 dollars per share post-filing, spiked to 5.50 dollars per share in June 2020 despite bankruptcy status.
Asset Base: Fleet of nearly 700,000 vehicles, representing the primary collateral for the Asset-Backed Securities (ABS) structure.
Proposed Equity Offering: Attempted to raise 500 million dollars through new share issuance while in Chapter 11 proceedings.

Operational Facts

Revenue Concentration: Heavily dependent on airport-based rentals, which accounted for a significant majority of total transaction volume.
Fleet Management: Required to make monthly depreciation payments to ABS lenders; failure to meet a 400 million dollar payment triggered the default.
Geographic Footprint: Operations across North America, Europe, Latin America, and Asia, with varied local lockdown restrictions affecting utilization.
Headcount Reductions: Terminated or furloughed approximately 20,000 employees, representing 50 percent of the global workforce, prior to filing.

Stakeholder Positions

Carl Icahn: Largest shareholder at 39 percent; exited position entirely at a loss of nearly 1.6 billion dollars shortly after filing.
Retail Investors: Primarily Robinhood users who drove speculative demand, viewing the stock as a low-cost call option on travel recovery.
ABS Lenders: Focused on collateral protection; demanded fleet liquidation to satisfy vehicle-backed notes.
SEC (Securities and Exchange Commission): Intervened to scrutinize the plan to sell potentially worthless equity to the public.
Paul Stone (CEO): Tasked with navigating insolvency while maintaining operational readiness for an uncertain travel rebound.

Information Gaps

Specific used-car market pricing forecasts for the 2021-2022 period are not detailed.
The exact breakdown of variable vs. fixed cost structures per rental location is omitted.
The precise terms of the eventual bidding war between competing private equity groups are partially redacted.

Strategic Analysis

Core Strategic Question

Can Hertz successfully restructure its massive debt load and rightsize its fleet while navigating the unprecedented disconnect between its insolvency and its retail-driven equity valuation?

Structural Analysis

The travel industry underwent a structural shift. The Five Forces analysis reveals a total collapse in buyer power and a surge in substitute threat (stay-at-home orders). However, the critical bottleneck is the Asset-Backed Securities (ABS) structure. Unlike traditional corporate debt, the ABS structure requires constant cash inflows to cover vehicle depreciation. When travel stopped, the value of the collateral (used cars) initially plummeted, creating a solvency trap. The strategy must move from a volume-based airport model to a margin-based flexible mobility model.

Strategic Options

Option 1: Accelerated Liquidation and Exit. Sell 200,000+ vehicles immediately to satisfy ABS lenders and emerge as a smaller, niche player focused on off-airport rentals.
- Rationale: Reduces debt burden and aligns capacity with depressed demand.
- Trade-offs: Cedes market share to Enterprise and Avis; risks missing the travel rebound.
Option 2: Speculative Equity-Funded Survival. Execute the 500 million dollar equity raise to fund operations and delay fleet sales.
- Rationale: Utilizes irrational market behavior to obtain interest-free capital.
- Trade-offs: High regulatory risk from the SEC; potential for total loss for new shareholders.
Option 3: Competitive Re-organization (Preferred). Use Chapter 11 protection to renegotiate ABS terms while pivoting the fleet toward long-term rentals and ride-sharing partnerships (e.g., Uber/Lyft).
- Rationale: Diversifies revenue away from volatile airport traffic.
- Trade-offs: Requires significant investment in technology and new operational processes.

Preliminary Recommendation

Hertz must pursue Option 3. The company cannot rely on speculative equity alone, nor can it shrink its way to greatness. The path forward requires a fundamental shift in the business model from car rental to fleet management as a service. This preserves the core asset base while reducing exposure to airport travel cycles.

Implementation Roadmap

Critical Path

Month 1-2: Negotiate a forbearance agreement with ABS lenders to halt immediate fleet liquidation. Secure Debtor-in-Possession (DIP) financing to stabilize operations.
Month 3-4: Execute the disposal of 182,000 older or high-mileage vehicles to generate cash and reduce maintenance costs.
Month 5-6: Finalize a plan of reorganization that converts a portion of corporate debt into equity, cleaning the balance sheet for post-bankruptcy operations.
Month 7-9: Launch the ride-sharing partnership pilot to increase fleet utilization during mid-week periods when leisure travel is low.

Key Constraints

Used Car Pricing: The plan depends on used car prices remaining stable or rising. A second crash in vehicle values would force a total liquidation.
Regulatory Oversight: SEC intervention regarding equity issuance could block critical capital infusions.
Labor Availability: Re-hiring 20,000 workers in a post-pandemic market may prove difficult and more expensive than budgeted.

Risk-Adjusted Implementation Strategy

The strategy assumes a phased recovery. If travel remains below 50 percent of 2019 levels by the end of the second quarter, the company must pivot to a permanent off-airport footprint, closing 30 percent of airport counters to preserve cash. Contingency funds must be set aside to cover the higher insurance premiums associated with ride-sharing fleet use.

Executive Review and BLUF

Bottom Line Up Front

Hertz should abandon the attempt to fund its recovery through speculative retail equity and instead focus on a radical restructuring of its ABS-backed fleet. The company is currently a victim of its own debt architecture. Success requires reducing the fleet by 25 percent and pivoting toward suburban and ride-sharing markets. The current retail stock price is a distraction; the real value lies in the recovery of used car prices, which provides a unique window to exit underwater vehicle leases. Approve the plan to renegotiate with lenders and downsize the airport footprint immediately.

Dangerous Assumption

The single most consequential premise is that the 2021 used car price surge is a structural shift rather than a temporary supply chain anomaly. If used car prices revert to mean before the fleet is rightsized, the collateral gap will widen, making the current reorganization plan mathematically impossible.

Unaddressed Risks

Market Share Erosion: While Hertz is constrained by bankruptcy, Avis and Enterprise are not. The risk of permanent loss of corporate accounts to better-capitalized rivals is high.
Fleet Refresh Costs: Selling the fleet now generates cash but leaves the company with an aging inventory. Replacing these vehicles in 18 months will likely occur at peak prices, compressing future margins.

Unconsidered Alternative

The team failed to consider a full merger with a technology-led mobility platform. Instead of a partnership with Uber, a structured sale to a tech firm would have solved the capital intensity problem permanently by moving the fleet management expertise into a software-integrated ecosystem.