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Hertz will pay $650M to stall bankruptcy battle over used car fleet

Hertz wants to cancel some of its car leases, but lenders want their money, so the rental company will throw cash at them for now.

The argument is just on hold.
Jeremy Moeller/Getty Images

A court standoff over the Hertz bankruptcy and what to do over its used car fleet will take a backseat, at least for now.

Bloomberg reported Tuesday that the rental car company agreed to pay $650 million to temporarily resolve a court standoff regarding its vehicle fleet. The battle took shape earlier this month as Hertz moved to selectively cancel some lease agreements on the cars. A separate Hertz entity controls the leases and the parent organization moved to cancel some of the 494,000 leases on cars worth $11 billion. The goal was to see the company shed cars to emerge from bankruptcy leaner.

The trouble is, lenders associated with the asset-backed securities want their money. Typically, during bankruptcy, a company decides to honor the master lease, in this case on all 494,000 cars, or reject it. That'd leave Hertz with two choices: to reject and liquidize the fleet to pay lenders or keep paying on the leases. Hertz wants a middle-of-the-road approach that lenders aren't fond of and they fear they'd be left with a different kind of collateral than when they first purchased the securities.

The battle is far from settled. Essentially, Hertz agreed to pay $650 million to tamp things down for now. Come next January, if lenders and Hertz don't reach an agreement on the nearly 500,000 cars, the rental car company can proceed to argue for selective cancellations once again. Hertz didn't immediately respond to a request for comment.

In the meantime, as Hertz does offload some of its cars, you can find some pretty stellar deals if you're ready to take some risks associated with purchasing a former rental car.