Is an over-levered car-rental business “essential”?

You can bet your devalued dollar that is the pressure from lobbyists on Capitol Hill right now as The Wall Street Journal reports that Hertz is preparing for a possible bankruptcy filing after the rental-car company failed to make lease payments to preserve cash amid the Covid-19 pandemic, according to people familiar with the matter.

If a sufficient amount of creditors don’t agree to waive any default by the end of the grace period, “Hertz could be materially and negatively impacted” the company said.

For veterans of past credit cycles, it should be no real surprise that the rental car business is on its last legs, but CDS spreads this time are screaming default is imminent (and that recovery values for any debt are extremely low).

Hertz has $17 billion worth of debt, which includes $3.7 billion of corporate bonds and loans and $13.4 billion of vehicle-backed notes. But despite that bankruptcy risk, the stock price remains ever hopeful that is has some value ($650 mm market cap).

After laying off 10,000 staff, as government-mandated lockdowns and travel restrictions related to the Covid-19 outbreak have hit rental-car companies hard, Hertz and its advisers are negotiating with senior lenders and certain holders of its vehicle finance subsidiary’s notes with the aim of temporarily reducing payments, the company said Wednesday in a securities filing.

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