Hertz struggles during the coronavirus pandemic while Avis stays afloat

Carl Icahn’s Hertz – once considered the gold standard of rental car companies – crashes to the side of the road as nearest rival Avis is well positioned to weather the coronavirus storm.

The 102-year-old Hertz company told shareholders last week that it had missed a debt payment linked to its fleet of 500,000 amid a “rapid, sudden and dramatic negative impact” on its business amid the pandemic.

Sources tell the Post that the Estero, Fla.-based company has until Monday to shell out about $500 million or get a waiver from its lenders. If it fails, it will default on its fleet financing and likely file for bankruptcy protection within days, multiple sources said.

By contrast, Avis Budget Group – the country’s only other publicly traded car rental company – is expected to ride out the crisis despite similar problems with financing its fleet, according to Wall Street analyst Hamzah Mazari of Jefferies.

Former Goliath hire – which was famous for its ‘airport’ OJ Simpson commercials in the 1970s – suffered from ‘mismanagement for years’, Mazari said, including as recently as March when the company seemed oblivious to the impact of COVID-19 on its finances even as Avis prepared for an assault.

In mid-March – as a state of emergency was declared from New York to California – Barclays had offered to loan Hertz between $300 million and $500 million at an interest rate of around 12%, reports indicated sources. But Hertz, led by former General Electric executive Kathryn Marinello, turned down the offer in part because of the high cost of the loan, multiple sources said.

On March 26 – amid shelter-in-place orders from New Jersey to Illinois – Hertz filed a disconcerting public document that seemed to suggest that funding for the company’s fleet would no longer need attention until in 2020. Hertz “does not anticipate any vehicle debt financing requirements for its global car rental business for the remainder of the year,” he said.

But that outlook changed the first two weeks of April when the value of the average used car fell 18% from a year earlier, according to the Manheim Auto Index. The drop was devastating because, as The Post previously reportedthat’s 500,000 cars acting as collateral for $13 billion in funding – and when the value of the collateral drops, the company has to make up the difference in cash.

“Hertz only woke up a few weeks ago,” a loan source said.

Avis, which also owns Budget Car Rental and Zipcar, is in a similar debt situation with $12 billion in fleet financing. But unlike Hertz, it used the pandemic as an opportunity to negotiate $750 million in additional borrowing capacity from its JPMorgan-led lending group, sources said.

This $750 million is in addition to the $1.6 billion in cash Avis had before the crisis, giving it leeway to survive the same year at an expected burn rate of $200 million. per month, said Mazari of Jefferies.

Hertz, which is also expected to burn through $200 million a month in a time of zero revenue, had just $1 billion in cash before the pandemic. Without any additional funding, it should be reduced to around $700 million since the start of the crisis. The combination of the $500 million guarantee payment and the $200 million expense in May puts the company on the financial cliff, sources say.

The situation is a far cry from when Hertz, which did not respond to requests for comment, fed Avis to its dust during the 23-year reign of Frank Olson, who led the company until 1999 from his former headquarters in Park Ridge, NJ.

“Hertz was the Google of the car rental industry,” said Jordan Hymowitz of the hedge fund Philadelphia Financial Management, which participated in its initial public offering in 1997, while Avis, 30 miles from Parsippany, NJ , was known for her “We Try Harder” slogan.

Ford Motor Co. sold Hertz in 2005 to a group that included Merrill Lynch and private equity firms Carlyle Group, Clayton, Dubilier & Rice in a $15 billion deal that tasked the company with debts – beginning its downward trajectory, sources said.

Chief executive Mark Frissora began buying Hertz cars through the asset-backed loan program that is now at the center of his woes, sources said. Hertz also reduced its reliance on leases that would allow it to resell its cars directly to automakers at a fixed price.

Currently, only 11% of Hertz’s fleet can be resold to automakers, compared to 21% at Avis, according to Jefferies. Abroad, 38% of Hertz cars can be returned to manufacturers compared to 58% at Avis.

Icahn, who now owns a 39% stake in Hertz, became its largest shareholder in 2014 and successfully ousted Frissora. But the company continued to fall behind, and with a market value of $500 million, it is now half the size of Avis, valued at $967 million.

Meanwhile, privately held Enterprise Holdings has risen to the top spot as the nation’s largest car rental company with about 1 million cars, double Hertz’s total.

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