Please ensure Javascript is enabled for purposes of website accessibility

Hertz Shares Plummet 46% on Report of Imminent Bankruptcy

By Daniel Miller – May 22, 2020 at 6:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

COVID-19's ripple effects through the economy have pushed Hertz toward the inevitable.

Shares of Hertz Global Holdings (HTZG.Q) 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 (CAR 2.45%) 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

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Hertz Global Holdings Stock Quote
Hertz Global Holdings
Avis Budget Group Stock Quote
Avis Budget Group
$178.07 (2.45%) $4.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.