Hertz creditors face tough choices in coming weeks

Hertz Global Holdings’ creditors were offered two bad choices when hammering out a deal to keep it out of bankruptcy: Cut the 102-year-old company some slack and hope it recovers, or let it slip into insolvency and try to recoup their investment in sales of its devalued rental fleet.

The holders of Hertz’s asset-backed securities blinked and gave the company until May 22 to pay them about $400m (€370m). Hertz knew its creditors would want to avoid bankruptcy, which could trigger a fire sale of devalued used cars if the ABS trusts that hold the vehicles have to liquidate, according to people familiar with the matter.

That sets up a parallel quandary for Hertz’s bank lenders, which kept fighting after the ABS holders had agreed to a forbearance. In the next two weeks, Hertz’s banks -- led by Deutsche and Barclays -- must decide whether to allow Hertz to raise more money to pay the ABS holders, or let it slide into bankruptcy, said the sources. The possibility of a future bankruptcy filing is still on the table, the people said.

Rental-car companies in bankruptcy typically look to unwind their ABS by selling down the fleet that backs the bonds. The coronavirus pandemic that has squeezed Hertz’s finances, though, has also sent resale values for those vehicles plunging.

That leaves Hertz’s creditors, lenders and investors, including controlling shareholder Carl Icahn, in a three-way standoff.