Early Prime Day Deals Amazon Prime Perk: Free Grubhub Plus Shop a Laptop on Prime Day? Suddenlink Internet Review Smart Home Discounts Echo Dot, Smart Bulb Bundle Best Mesh Routers Echo Show 5 at Lowest Price

Hertz bankruptcy turns into $11B standoff in court over used car fleet

The rental car giant and its creditors don't agree on what will become of its nearly 500,000 vehicles.

Hertz wants to avoid liquidation. Creditors want their money.
Spencer Platt/Getty Images

While Hertz's bankruptcy triggered a massive sell-off of low-priced used cars, the rental company still holds a master lease for nearly 500,000 vehicles -- some $11 billion worth. What becomes of them will be decided in court, and the decision could have major implications.

Bloomberg reported Wednesday the 494,000 used vehicles are tied to a master lease, further tied to Hertz's asset-backed securities. Typically, when a company with this type of ABS files for bankruptcy, the entity must accept or reject the master lease. That's not what Hertz wants to do in this case.

In court, it will argue to convert this master lease into 494,000 individual lease agreements, Bloomberg reports. Then, Hertz will work to shed 144,000 additional cars from its fleet as it restructures the business. The goal is to see Hertz return as a healthier entity and still operate a sizable rental fleet.

The problem is this decision could redefine the ABS market and creditors could stand to lose if the court accepts Hertz's argument. Its creditors would be left with a different kind of collateral than when they first purchased the securities. The alternative is basically liquidation -- Hertz would need to sell off its entire fleet, which would leave it in a poor position as it emerges from bankruptcy. Ideally, Hertz would continue making the master lease payment as it slowly offloads more cars. But cash is thin.

Best deals on Hertz rental cars, June 2020

Rank Vehicle Average % Below Market Value Average Savings Average Price
1 BMW 7 Series 13.7% $6,877 $42,680
2 Chevy Trax 13.4% $1,714 $11,196
3 Mercedes-Benz A-Class 13% $4,252 $28,555
4 Infiniti QX50 12.7% $4,145 $27,760
5 Toyota Tundra 12.6% $4,714 $31,383
6 Nissan Versa Note 12.4% $1,375 $9,533
7 Buick Cascada 12.4% $2,241 $15,564
8 Kia Forte 12.3% $1,468 $10,851
9 Volkswagen Golf 12.3% $2,023 $14,434
10 Nissan Quest 12% $1,810 $13,874

Used car prices have been on the rise due to the coronavirus pandemic, which makes liquidation less risky as creditors look to receive a return on their investment, i.e. the vehicle fleet. The final verdict should come as soon as next week, and it could trigger another raft of used cars for bargain-hunting vehicle buyers.

Hertz didn't immediately respond to a request for comment.

Now playing: Watch this: When you should buy a new car instead of repairing yours