Hertz Exec Pay Reinstated After Lenders Grant Extension
Hertz was preparing to file for bankruptcy as soon as today, Tuesday, May 5, 2020, if this 100-year-old car rental company could not reach an agreement with its lenders. It had gone so far as to hire a bankruptcy adviser to help it prepare for what seemed like the inevitable. Today, however, Hertz exec pay reinstated became the new topic of conversation.
Today, a group of lenders threw Hertz a lifeline. Hertz then disclosed today that it was restoring the salaries of senior executives to pre-COVID-19 levels, citing heavy workloads required as the car rental company looks to fend off a default.
On April 14, Hertz notified 10,000 employees in North America that that they were losing their jobs. This represents around 30 percent of the 38,000 employees in its US workforce. Ever since the coronavirus, travel has almost come to a standstill. Hertz stock (HTZ) fell 11% today and is down 80% this year.
Previous to this, on March 26, Hertz senior leadership took a “significant reduction” in their pay, as the company suffered a significant drop in demand as a result of the coronavirus pandemic. Chief Executive Kathryn Marinello gave up 100% of her base salary, as the company moved “aggressively” to cut costs, including furloughing employees.
Hertz leases vehicles for its car rental fleet and had missed a lease payment due on April 27, 2020. The company was given a one-week extension which expired yesterday on Monday, May 4, 2020. This grace period has once more, however, been extended by the group of lenders.
The rental car company now has until May 22 “to engage in discussions … with the goal to develop a financing strategy and structure that better reflects the economic impact of the COVID-19 global pandemic and Hertz’ ongoing operating and financing requirements.”
Hertz has 568,000 vehicles and 12,400 corporate and franchise locations worldwide. Approximately one-third of those locations are at airports, which represents around 70 percent of the company’s revenue. Another portion of Hertz non-airport business is renting cars to people who are having their vehicles repaired after accidents. But with so many people out of work or working from home, the miles being driven and the number of car accidents are also significantly down.
Hertz posted annual revenue of $9.8 billion last year, a record for the company, comparable to that of rival Avis Budget Group. But Hertz has been having profitability problems that pre-date the COVID-19 pandemic. It posted a $58 million net loss in 2019, down from a $225 million loss in 2018. Hertz rents cars under the Hertz, Dollar, Thrifty, and Firefly brands. Firefly is a discount brand outside the United States.