Business Context and Reporting Period
This Form 8-K Current Report, dated May 4, 2020, covers Hertz Global Holdings, Inc. and The Hertz Corporation. The filing addresses the severe impact of the COVID-19 global pandemic on the company's operations, specifically the dramatic decline in travel demand. The report details the entry into material definitive agreements to manage liquidity and debt obligations during this crisis.
Key Financial Metrics and Debt Status
The filing does not provide specific revenue, profit, or cash flow figures for the period. Instead, it focuses on debt structure and liquidity events:
- Missed Payments: On April 27, 2020, Hertz failed to make certain payments under its Amended and Restated Master Motor Vehicle Operating Lease and Servicing Agreement (Series 2013-G1).
- Amortization Event: The missed payment triggered an amortization event on May 1, 2020, under debt instruments used to acquire leased vehicles.
- Asset-Backed Debt: The filing involves the Series 2013-A Notes issued by Hertz Vehicle Financing II LP (HVF II). Approximately 60% of the aggregate principal amount of these notes is held by noteholders who entered into a forbearance agreement.
- Senior Facilities: The company holds a senior term loan facility, letter of credit facilities, and a U.S. vehicle revolving credit facility.
Material Changes and Agreements
On May 4, 2020, Hertz entered into critical agreements to prevent immediate liquidation and default:
- Forbearance Agreement: Executed with holders of approximately 60% of the Series 2013-A Notes. These holders agreed to forbear from exercising rights to direct the liquidation of vehicles serving as collateral. This agreement expires on May 22, 2020, or sooner if Hertz fails to comply with terms.
- Waiver Agreements: Executed with Senior Lenders under the Senior Facilities. Lenders waived defaults related to the missed operating lease payment and the failure to deliver the 2020 operating budget on time. They also extended the grace period for reimbursing letter of credit drawings.
- Restrictions: During the waiver period, Hertz faces limitations on restricted payments, investments, and prepayments of indebtedness.
- Vehicle Sales Proceeds: Due to the amortization event, proceeds from the sale of vehicles collateralizing the Series 2013-A Notes must be applied to principal and interest payments and are unavailable for new vehicle acquisitions. Hertz states it does not expect to need new vehicles for the remainder of 2020.
Management Commentary, Risks, and Unusual Items
Management Actions:
- Salary Restorations: Effective May 11, 2020, the company restored base salaries for employees who had voluntarily reduced them. Senior leaders will return to pre-reduction levels, except for CEO Kathryn V. Marinello, who voluntarily agreed to a 10% salary reduction.
- Financing Strategy: The forbearance and waivers provide time until May 22, 2020, to negotiate a financing strategy that reflects the economic impact of the pandemic.
- Expiration of Relief: There is no assurance that Hertz can negotiate further forbearance or waivers extending past May 22, 2020.
- Liquidity Constraints: The company faces significant ongoing operating expenses despite aggressive cost-cutting measures.
- Forward-Looking Statements: The filing includes standard cautions that statements regarding liquidity and fleet financing are subject to evolving risks and uncertainties.
Investor Verification Checklist
- Verify the status of negotiations with lenders and noteholders as the May 22, 2020 deadline approaches.
- Confirm whether Hertz can secure a comprehensive financing strategy to replace the temporary forbearance agreements.
- Monitor the company's ability to meet the specific covenants and financial information delivery requirements outlined in the Waiver Agreements.
- Assess the impact of the amortization event on the company's ability to manage its vehicle fleet without access to new acquisition financing.