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The bankruptcy of the American car rental company Hertz could have a significant effect on the US retail car market, as the company is a regular buyer of new vehicles, he commented. the company’s decision to declare bankruptcy protection attorney Joseph Acosta.
Joseph Acosta is a partner in the international law firm Dorsey & Whitney which is among the advisors of Hertz on the bankruptcy procedure. For more than 21 years as a lawyer, he has been involved in some of the largest and most complex restructurings, Chapter 11 bankruptcies, and lawsuits in the United States.
He warns that the possible liquidation of older Hertz lines could flood the retail market with cheaper vehicles.
According to Acosta, creditors who have lent based on assets through which Hertz rents vehicles for its operations in the United States have pressured the company to liquidate its fleet of rented cars to pay off nearly $ 11 billion in secured debt.
“If these creditors do not enter into another foreclosure agreement on 22 May 2020, Hertz may have no choice but to start a free fall. This could be one of the most expensive types of bankruptcies where many large companies do not survive, ”warns Acosta.
According to him, if it is forced to go bankrupt by its creditors, Hertz could reduce its operations and sell assets to pay off its large secured debt.
“The second-largest U.S. car rental company, with more than 100 years of history, has found itself in a financial predicament due to the blocking of the tourism industry as a result of the US government’s response to the coronavirus pandemic,” Acosta said.
Hertz is a $ 25 billion company that is heavily indebted and dependent on significant operating revenues to service its debt and maintain its vehicle rental and leasing business, Acosta said.
“The coronavirus came at a bad time for Hertz. By the first quarter of 2020, the company was facing $ 2.5 billion in short-term debt that it thought would be difficult to refinance within the next year. Because Hertz generates most of its revenue in the spring and summer months, the continued stagnation in the tourism industry could cause irreversible damage to its business, “warns Acosta.
Despite significant spending cuts of $ 2.5 billion, withdrawing $ 600 million through a credit facility and having approximately $ 1 billion in liquidity, Hertz feared as early as the end of the first quarter that the COVID pandemic effect 19 on her operations could jeopardize her ability to survive another year, Acosta added.
“We hope that the restructuring costs will not bury the company in this process,” concluded the Dorsey & Whitney lawyer.