Hertz, one of the first victims of the pandemic, officially emerged from bankruptcy on Wednesday. Its comeback coincides with and was made possible in part by a hot rental car market.
This is a remarkable turnaround for a business that was swollen with debt and struggling to survive just 13 months ago. But a rapid rebound in the economy and travel in recent months has sparked a bidding war to revive the company, which is more than a hundred years old. The winning investor group, led by Knighthead Capital Management and Certares Management, provided the company with $ 5.9 billion in capital.
The resolution of its bankruptcy allows Hertz to deleverage more than $ 5 billion, including all of Hertz Europe’s corporate debt. The company has also aligned access to nearly $ 10 billion in loans, lines of credit and other debt.
“It sets them up very well,” said Hamzah Mazari, analyst at Jefferies, an investment bank. By reducing its debt, Hertz can make much-needed investments like modernizing its technology and purchasing cars, he said.
Car rental companies are doing very well at the moment. Travel is rebounding across the country and people are eager to rent cars after spending over a year at home. Searches for rental cars and their prices have nearly doubled in the past two weeks compared to the same period in 2019, according to Kayak.
In some cities, cars can be rented for over $ 300 per day. Rentals are particularly expensive in areas of the country that individuals and families have flocked to throughout the pandemic: beach and outdoor destinations. In Anchorage, a rental can cost around $ 330 per day, according to Kayak. In Bozeman, MT, it can cost around $ 315 per day.
The high prices are in part the result of a car shortage, driven by high demand for used cars and supply chain disruptions throughout the pandemic. Ford said on Wednesday it is expected to keep part of production suspended until July due to a global shortage of computer chips.
Soaring used car prices have helped Hertz in another way.
When the company filed for bankruptcy in May 2020, used car prices were just starting to rise. In August, prices had risen by nearly 20%, according to data from Manheim, which organizes used car auctions and tracks the market. The timing worked well for Hertz, which sold more than 200,000 vehicles, mainly in the second half of 2020. Before filing for bankruptcy, Hertz had a global fleet of around 650,000 vehicles.
“Instead of being a problem, it was actually a source of strength for car rental companies, including Hertz, last year, because by selling vehicles they were actually making money on those transactions, ”said Jonathan Smoke, chief economist at Cox Automotive, which owns Manheim.
Hertz shares, which trade in the less restricted over-the-counter market, fell from over $ 15 before the pandemic to less than $ 2 a share during the crisis. Individual investors, many of whom exchange ideas and trading strategies online, crowded into stocks last spring, to the surprise of many analysts who feared that the company’s shares would become worthless in bankruptcy. Some of those investors who held onto their stocks are now in a position to make a nice profit.
Hertz’s share price has risen over the past two months to nearly $ 9 as Hertz’s exit from bankruptcy seemed increasingly likely. Starting Thursday, the company’s shares will trade under a new ticker symbol, HTZZ.
“Today marks an important milestone in Hertz’s 103-year history,” said Paul Stone, chief executive officer of the company, in a statement. “With a solid financial foundation, a lean and more efficient operating model and sufficient liquidity to invest in our business, Hertz has exceptional potential to generate profitable long-term growth. “