Hertz, an early victim of the pandemic, officially emerged from bankruptcy on Wednesday. Its return coincides with and was made possible in part by a red-hot market for rental cars.
It is a remarkable turnaround for a business that was bloated with debt and struggling to survive just 13 months ago. But a quick economic and travel rebound in recent months set off a bidding war to revive the company, which is more than a hundred years old. The winning group of investors, 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 shed more than $5 billion in debt, including all of the corporate debt of Hertz Europe. The company also lined up access to nearly $10 billion in loans, credit lines and other debt.
“It sets them up very well,” said Hamzah Mazari, an analyst at Jefferies, an investment bank. By reducing its debt load, Hertz can make much-needed investments like modernizing its technology and buying cars, he said.
Rental car businesses are doing very well right now. Travel is rebounding around the country, and people are eager to rent cars after spending more than a year at home. Searches for rental cars and their prices have nearly doubled over the past two weeks compared with the same period in 2019, according to Kayak.
In some cities, cars can rent for more than $300 a day. Rentals are especially expensive in parts of the country that individuals and families have been flocking to throughout the pandemic: beach and outdoor destinations. In Anchorage, a rental can cost about $330 per day, according to Kayak. In Bozeman, Mont., it can run about $315 a day.
The high prices are partly the result of a car shortage, driven by high demand for used cars and supply chain disruptions throughout the pandemic. On Wednesday, Ford said it would have to keep some production suspended into July because of a global shortage of computer chips.
The skyrocketing prices for used cars helped Hertz in another way.
When the company filed for bankruptcy in May 2020, used car prices were only just starting to rise. By August, prices were up nearly 20 percent, according to data from Manheim, which runs auctions for used cars and tracks that market. The timing worked out well Hertz, which sold more than 200,000 vehicles, mostly in the second half of 2020. Before it filed for bankruptcy, Hertz had a global fleet of about 650,000 vehicles.
“Instead of a problem, it was actually a source of strength for the rental car companies, including Hertz, last year, because as they sold vehicles they were actually making money on those transactions,” said Jonathan Smoke, chief economist for Cox Automotive, which owns Manheim.
Hertz’s stock, which trades in the less-restricted over-the-counter market, plummeted from more than $15 before the pandemic to less than $2 a share during the crisis. Individual investors, many of whom exchange ideas and trading strategies online, piled into the stock last spring, to the surprise of many analysts who feared the company’s shares could become worthless in bankruptcy. Some of those investors who held on to their shares now stand to make a tidy profit.
Hertz’s share price has risen in the past two months to nearly $9 as Hertz’s emergence from bankruptcy seemed increasingly likely. Starting Thursday, the company’s shares will trade under a new ticker symbol, HTZZ.
“Today marks a significant milestone in Hertz’s 103-year history,” Paul Stone, the company’s president and chief executive, said in a statement. “With a solid financial foundation, a leaner, more efficient operating model, and ample liquidity to invest in our business, Hertz has outstanding potential to drive long-term profitable growth.”
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