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Why Hertz Stock Popped Over 30% Wednesday

By Daniel Miller – Jul 22, 2020 at 11:28AM

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Here's what Hertz's $650 million agreement with lenders means for investors.

What happened

Shares of Hertz (HTZG.Q), a vehicle rental company working through the bankruptcy process, popped more than 30% higher early Wednesday morning before giving back some of the gains, as the company agreed to pay lenders $650 million.

So what

The agreement for Hertz to pay lenders $650 million will buy the company some time, as it will end the fight over how much the rental company must pay in 2020. Hertz will ask a federal bankruptcy judge to approve the settlement on July 24, 2020. However, the looming decisions regarding how the rental company will shrink the size of its fleet, attempt to pay back lenders, and emerge as a new company attempting to continue business in a postpandemic world will still be there when the calendar turns over to the new year.

Paper that says Petition for Bankruptcy.

Image source: Getty Images.

One positive development for Hertz has been a quick rebound in used-vehicle prices, the plunge of which was a driving force behind Hertz filing for bankruptcy. A brief reminder: Hertz essentially financed its massive fleet of vehicles using asset-backed securities, and the agreement was that it would pay lump sums of cash to lenders if the value of those assets dropped -- as it did when used-car prices plunged in April. Hertz couldn't make the massive payment necessary and thus filed for bankruptcy protection.

Now what

The rebounding used car prices and agreement to pay $650 million to lenders likely only kicks the can down the road for Hertz, lenders, and remaining shareholders. The main problems facing Hertz haven't changed: The company has a massive pile of debt, and it's still doing just a fraction of its normal business with the travel industry crippled by the COVID-19 coronavirus. Expect negotiations to continue, because Hertz's bankruptcy process still has much left to be decided about how it sells part -- or all -- of its vehicle fleet and attempts to restructure its business.

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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