Shares of Hertz Global Holdings (NYSE:HTZ) plunged over 46% in after-hours trading, following The Wall Street Journal's report that the company is preparing to declare bankruptcy as soon as Friday night.

It's been well documented that Hertz was struggling financially after it missed a collateral payment in April. Management bought the company time as it reached a deal with its largest lenders to give it until tonight to develop a strategy that accurately reflected the negative impacts from COVID-19. That answer seems to be what many have feared: bankruptcy.

Man holding bankruptcy papers

Image source: Getty Images.

The primary driving force of its downfall was financing its large vehicle fleet. The agreement with lenders was that if the value of its assets declined -- and used car prices have declined by double digits amid COVID-19 -- it would be forced to make up the value with cash payments. Management tried to get lenders on board with postponing a roughly $500 million payment, in hopes prices would rebound as the nation emerged from the economic slowdown, but it appears no deal was reached.

The next step for Hertz is uncertain, but it's possible the company will be more valuable sold off in parts. Major lenders have roughly $3.4 billion in debt and could force liquidation of its vehicles or other assets that include real estate and trademarks. In terms of the industry, Avis Budget Group (NASDAQ:CAR) is likely to gain market share but will also deal with a potential flooding of vehicles from a Hertz liquidation, further depressing used-car prices. It's also possible foreign vehicle rental companies could look to expand into the U.S. by scooping up some Hertz trademarks or assets on the cheap.

Even before the after-hours decline, it was clear investors saw a gap between Avis Budget Group's ability to weather the COVID-19 storm and a more likely Hertz bankruptcy, as the following chart shows.

HTZ Chart

HTZ data by YCharts