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.

Sean Szymkowski
It all started with Gran Turismo. From those early PlayStation days, Sean was drawn to anything with four wheels. Prior to joining the Roadshow team, he was a freelance contributor for Motor Authority, The Car Connection and Green Car Reports. As for what's in the garage, Sean owns a 2016 Chevrolet SS, and yes, it has Holden badges.
Sean Szymkowski
2 min read

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.

Hertz bankruptcy triggers bargain-priced selldown of used-car stocks

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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

RankVehicleAverage % Below Market ValueAverage SavingsAverage Price
1 BMW 7 Series13.7%$6,877$42,680
2 Chevy Trax13.4%$1,714$11,196
3 Mercedes-Benz A-Class13%$4,252$28,555
4 Infiniti QX5012.7%$4,145$27,760
5 Toyota Tundra12.6%$4,714$31,383
6 Nissan Versa Note12.4%$1,375$9,533
7 Buick Cascada12.4%$2,241$15,564
8 Kia Forte12.3%$1,468$10,851
9 Volkswagen Golf12.3%$2,023$14,434
10 Nissan Quest12%$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.

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