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Hertz Shares Plunge 14% Tuesday, Despite Lenders Throwing a Lifeline

By Daniel Miller - May 5, 2020 at 10:55AM

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A late agreement between Hertz and its lenders will buy the company time, but will it be enough?

What happened

Shares of Hertz Global Holdings (HTZG.Q), a vehicle rental company, continued their roller-coaster ride with a 14% drop Tuesday morning after investors digested the reports surrounding a potential bankruptcy announcement as soon as this week -- but a last-second forbearance from lenders may have saved the day.

So what

Hertz shares started their slide in the extended Monday trading session, after The Wall Street Journal reported the rental company had hired another advisor for a potential bankruptcy. Massive revenue declines due to a near-standstill in travel and transportation amid the COVID-19 coronavirus outbreak, as well as plunging used car prices, have put the company between a rock and a hard place. Because the company financed its fleet of vehicles, if the value of those assets falls, as it has during COVID-19, Hertz has to make up the difference in cash -- which it is clearly struggling to do. The company has been working with lenders to try to renegotiate its $17 billion pile of debt.

Rows and rows of vehicles

Image source: Getty Images.

That's how the rental company's week began, but there is good news for investors! Hertz reached a last-second agreement with lenders that allowed the company more time to rework its debt and extends a grace period on payments it has recently missed. And while the lifeline is welcomed by Hertz, the forbearances allowed by lenders give the rental company only until May 22, 2020 to develop a strategy that "better reflects the economic impact of the COVID-19 global pandemic," Hertz wrote in a filing.

Now what

If you're wondering why Hertz stock isn't rebounding on the late agreement with lenders, it's likely because investors realize how dire the situation is now. Hertz has until May 22, 2020 to figure out its next step, but rival Avis announced it expects April and May revenue to be 80% lower and that it didn't expect a gradual recovery to begin until June, which could be too little, too late for Hertz. The automotive industry is fiercely competitive, and the uncertainty and disruption caused by COVID-19 are only heightening the hurdles the company must now jump. 

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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