Business Context and Reporting Period
Company: Hertz Global Holdings, Inc. (Hertz Holdings)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Hertz Holdings is a holding company for The Hertz Corporation, engaged in car and light truck rental and industrial/construction equipment rental. The company operates in a highly leveraged environment, significantly influenced by general economic conditions, airline passenger traffic, and the financial stability of automobile manufacturers.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $3,319.4 million | $4,314.4 million |
| Net Income (Loss) | $(152.7) million | $4.0 million |
| Net Loss Attributable to Common Stockholders | $(159.6) million | $(6.5) million |
| Net Cash Provided by Operating Activities | $698.4 million | $1,008.7 million |
| Total Debt Outstanding | $9,795.8 million | $10,972.3 million |
| Cash and Cash Equivalents | $570.9 million | $594.3 million |
| Consolidated Leverage Ratio | 4.32:1 | N/A |
| Consolidated Interest Expense Coverage Ratio | 2.46:1 | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 23.1% year-over-year. Car rental revenues fell 20.1% due to a 12.1% drop in transaction days and lower rental rates. Equipment rental revenues dropped 34.9% driven by a 27.7% volume decrease and pricing declines.
- Profitability: The company reported a net loss of $152.7 million for the six months ended June 30, 2009, compared to a net income of $4.0 million in the prior year period. This shift was driven by lower volumes, pricing pressure, and increased depreciation costs relative to revenue.
- Debt Reduction: Total debt decreased by approximately $1.18 billion from the prior year-end, aided by the repayment of maturing debt using proceeds from new capital offerings.
- Capital Raising: In May and June 2009, the company completed a "Common Stock Public Offering" (approx. $343.9 million), a "Private Offering" (approx. $200.0 million), and a "Convertible Debt Public Offering" ($474.8 million). Net proceeds of approximately $990 million were used to increase liquidity and repay maturing fleet debt.
- Restructuring: The company incurred $51.5 million in restructuring charges for the six months ended June 30, 2009, primarily related to involuntary termination benefits, facility closures, and asset impairments.
Guidance, Outlook, Risks, and Unusual Items
- Liquidity Outlook: Management believes it has sufficient liquidity to meet 2009 debt maturities and operational needs through the first half of 2010. Total liquidity as of June 30, 2009, was approximately $4.46 billion, with $2.6 billion available for immediate use.
- Manufacturer Bankruptcy Risks: General Motors filed for bankruptcy in June 2009. While "New General Motors" assumed repurchase obligations, Hertz has agreed not to access $825 million in availability under its Series 2008-1 Notes until New General Motors is certified as an "eligible manufacturer." Chrysler's bankruptcy had a negligible impact due to low fleet exposure.
- Monoline Insurer Risk: Credit guarantors MBIA and Ambac face financial instability. A bankruptcy of either insurer could trigger an "amortization event," requiring the liquidation of fleet assets to repay debt. Management is monitoring this closely and has contingency plans.
- Unusual Items:
- Debt Buyback Gain: Recorded a $48.5 million gain in "Interest and other income, net" from the open market repurchase of Senior Notes and Senior Subordinated Notes in April 2009.
- Derivative Gains: Recognized gains on gasoline swaps ($4.9 million) and foreign exchange options ($0.1 million) in the six-month period.
- Operational Strategy: The company is continuing to right-size its fleet, reduce headcount, and close underperforming locations to mitigate revenue declines. It expects per-car depreciation costs to remain elevated in 2009.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the 5.50:1 leverage ratio and 2.00:1 interest coverage ratio required by the Senior Term Facility.
- Refinancing Status: Monitor progress on refinancing the $2.99 billion of debt maturing in 2010, particularly the U.S. Fleet Debt maturing in November 2010.
- GM Eligibility: Track the certification of "New General Motors" as an eligible manufacturer to unlock the $825 million Series 2008-1 Notes liquidity.
- Monoline Insurer Solvency: Assess the financial health of MBIA and Ambac to evaluate the risk of an amortization event triggering fleet liquidation.
- Fleet Residual Values: Review trends in non-program car residual values, as the company has increased its exposure to residual risk by reducing the percentage of program cars in its fleet.