More On: bailouts
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Carl Icahn’s car-rental company, Hertz, is seeking a bailout from Uncle Sam to fend off a looming cash crunch that threatens to push it over the edge, The Post has learned. Hertz Global Holdings, known for snagging OJ Simpson as its spokesman at the height of his football career, faces a $1 billion-to-$1.5 billion budget …
Carl Icahn’s car-rental company, Hertz, is seeking a bailout from Uncle Sam to fend off a looming cash crunch that threatens to push it over the edge, The Post has learned.
Hertz Global Holdings, known for snagging OJ Simpson as its spokesman at the height of his football career, faces a $1 billion-to-$1.5 billion budget shortfall in the coming months as the coronavirus eats away its business and the resale value of its cars, sources say.
But the publicly traded car-rental chain only has $1 billion in cash on hand to make good on that debt, according to financial records. Without government aid or relief from lenders, Hertz could be forced to file for bankruptcy by summer, one company insider told The Post.
“If we can’t make a deal with them, we go bankrupt,” the insider said of talks with its lenders. “It’s a coin toss whether Hertz does not go bankrupt by the summer.”
At issue is the $10 billion in financing Hertz used to buy its fleet of 500,000 cars. The financing was done through what are known as asset-backed securities, which are linked directly to the assets in question — in this case, the cars.
When the value of the cars fall, Hertz is required to make up the difference in cash within roughly three months, unless values rebound before then.
But with the coronavirus slamming the brakes on the economy and sending millions of Americans to the unemployment line, used car prices are expected to be depressed for months, industry sources say.
Jefferies analyst Hamzah Mazari, for example, sees used car values “down 12 to 15 percent” starting in April and continuing for the rest of the year.
That would put Hertz on track to owe more than $1 billion to its fleet lenders by July — money it may not have, especially if the pandemic continues to dampen rental-car demand.
Short sellers have been swarming the stock — down more than 60 percent this year, to $5.80, according to data tracker S3 Partners, which reports a 20 percent short interest in the shares. One such short seller told The Post that he expects Hertz to run out of money in just two months without a bailout.
Hertz, along with the rest of the rental-car industry, has been appealing to the Treasury Department and Federal Reserve for a series of bailout measures, including loans, tax breaks and government guarantees on tens of billions in asset-backed loans, sources said. The bailout stands to help Hertz most as it’s the most leveraged, sources added.
The company also is in talks with its asset-backed securities lenders for a potential reprieve. The concern is that the ABS lenders, consisting of pensions and mutual funds, could be hard to corral in a timely fashion, especially given the shelter-in-place orders sweeping the nation.
“It is quite a bureaucracy,” the Hertz insider said.
Without a bailout, Hertz, which did not respond to requests for comment, could also be sold, according to Mazari, who says the healthier Avis would be the most obvious buyer. Any sale would likely be done in bankruptcy, however, Hertz sources predicted.
Talks with lenders are being handled by company executives, as well as Icahn, who owns a 39 percent stake in Hertz. Pleas to the feds are being directed by Sharon Faulkner of the American Car Rental Association through Treasury Deputy Secretary Justin Muzinich, a source said.
Icahn, who’s had a long relationship with President Trump — first as a business rival and then as an adviser — has stayed away from the fed talks, sources said.
In seeking a government bailout, the car-rental industry has argued that its failure could directly impact Detroit, which relies on it for bulk sales.
The industry is also forecasting that its services will be needed in the wake of the pandemic as more Americans seek to rent cars, which could be considered safer modes of travel than crowded planes or trains.
“I am cautiously optimistic,” said an industry source involved in the government bailout talks.
