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Last week one of the country’s largest car-rental companies, *Hertz Global Holdings Inc., filed for Chapter 11 bankruptcy. The bankruptcy, which was filed in the U.S. Bankruptcy Court in Wilmington, DE (Case Number 20-11218) comes after weeks of temporary closures and lost profits due to the COVID-19 pandemic, which led to roughly $19 billion in debt. Though Hertz did have its fair share of financial challenges prior to the pandemic (stating a loss of $58 million last year, its fourth consecutive annual net loss), the filing is one of the more high-profile corporate bankruptcies stemming from COVID’s impact on the transportation and travel industries.

Background

Like other rental car companies, Hertz doesn’t own most of its vehicles. Instead, they lease their rental-car fleet from separate financing subsidiaries. Hertz mostly financed itself by taking out loans secured by its fleet of cars. If the cars fell in value, Hertz’s lenders had the right to demand an immediate payment reducing the amount of the loan, so it was still comfortably covered by the cars’ now-lower value. However, due to the current economic crisis, used-car values plummeted at the same time Hertz lost most of its customers as a result of nationwide stay-at-home orders. These factors collectively led to Hertz having no way to pay its lenders, which ultimately led to the bankruptcy.

Hertz did not reach a deal with creditors before entering into chapter 11, which only increases the risk of a full liquidation of their fleet (nearly 700,000 vehicles in total). However, the company and its investors have several weeks to work out an agreement to avoid that outcome. Going forward, the bankruptcy is expected to be rather complex given the company’s massive debt and corporate structure, which includes $14.4 billion of vehicle-backed bonds at subsidiaries that are not a part of the chapter 11 filing.

How Can the Hertz Bankruptcy Affect You?

The Hertz bankruptcy filing will have large-scale effects on creditors of all types. From landlords, to lenders, to insurers and personal injury claimants, the bankruptcy filing could affect your rights to payment or to maintain a lease or contract with the Debtors.

Proofs of Claim

All creditors need to file a proof of claim to preserve their right to any payment or even to maintain a legal action against the Debtors. A proof of claim is a formal filing in the bankruptcy court that puts the Debtors on notice of the claim you hold. A bar deadline has not been set, but inevitably, the Debtors will establish a deadline to file such proofs of claim.

Landlords

While Hertz plans to shutter many locations, there are certain rights and obligations the Debtors must fulfill in order to assume the leases, or if they wish to assign the same. While unclear at the moment, Hertz may seek to either assume and assign certain locations, or may choose to reject certain leases entirely. As a landlord, your rights can be drastically impaired through such actions. Reger Rizzo & Darnall regularly represents commercial landlords in bankruptcy matters and is well-equipped to handle the myriad of issues a landlord may face during Hertz’s bankruptcy proceedings.

Personal Injury and Insurance Claimants

As a rental car company with hundreds of thousands of cars on the road, you may be involved in litigation with Hertz or may be an insurer who is handling such claims.

Asset Purchases

While currently unclear of Hertz’s plan, there may, and likely will be, a sale of certain assets of the Debtors. Whether these assets are fleets of cars, real property, intellectual property rights, or otherwise, our team of bankruptcy attorneys can assist in the purchase and acquisition of the Debtors’ property.

Vendors

Vendors will take many forms in this bankruptcy proceeding, including service centers, repair shops, and internet providers, among others. All vendors will need to assert and protect their rights throughout the Hertz bankruptcy process.

Preference Actions

All parties who do business with Hertz should keep in mind (and budget for) the potential future preference action. Under the Bankruptcy Code, a debtor (or trustee) may bring an action to recover certain payments made by the debtor to a creditor within ninety days prior to the debtor filing for bankruptcy. There are many defenses to these preference actions and the attorneys at Reger Rizzo & Darnall are well equipped to represent you in defending such actions.

We Are Here to Help

Reger Rizzo & Darnall’s dedicated team of bankruptcy attorneys have been involved in many of the world’s largest bankruptcy cases and stand ready to assist you through the Hertz Bankruptcy. The depth of our firm and range of experience across a multitude of practice areas enables our bankruptcy attorneys to offer full-service representation and address even the most complex bankruptcy and insolvency matters. If you have questions, or would like to speak with one of our bankruptcy attorneys regarding the Hertz Bankruptcy, please contact one of our dedicated team members today:

*The Hertz Corporation also operated under such well-known names such as Firefly, Hertz Car Sales, Dollar Rent A Car, Hertz Rent A Car, and Thrifty Car Rental, among other names.