What happened

Shares of Hertz Global Holdings, Inc. (HTZG.Q), a vehicle rental company that filed for bankruptcy protection during the coronavirus pandemic, spiked 16% higher on Tuesday after Bloomberg reported private equity firms and Hertz rivals could be preparing bids for a part of the company. But what does this mean for investors?

So what

According to Bloomberg's report, two private equity firms, TPG and Onex Corp., are currently preparing bids for Hertz's Donlen car leasing business that value the unit at roughly $1 billion. Essentially, it's a small part of Hertz's business that does fleet management, maintenance, registration, and vehicle leasing. As it's not a core part of the Hertz vehicle rental business, management is willing to sell it to likely help fund operations during the bankruptcy process or pay down debt owed to creditors. The most important thing for investors to note is that this won't solve much in the big picture, as Hertz has roughly $15 billion in debt linked to its vehicle fleet alone, and selling the Donlen portion of its business simply buys the company some time to continue the bankruptcy process.

Row of cars at a rental lot

Image source: Getty Images.

Now what

Negative impacts from COVID-19 have hit some in the automotive industry hard, especially the vehicle rental business. For Hertz, even if a bid is placed for its Donlen business, not much will change, as the company will simply have a little extra cash on hand to fund operations. The company is likely to be delisted from the NYSE in the near term, which is generally viewed as a negative development but could save the company a little cash, and it could be heading toward liquidation and/or restructuring. Regardless of what happens, shares of Hertz in its current form are likely to end up worthless, and that's likely why the 16% pop in Hertz stock quickly faded Tuesday afternoon.