buying Hertz bankruptcy turns into $11B standoff in court over used car fleet
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While triggered a , the rental company still holds a master lease for nearly 500,000 vehicles -- some $11 billion worth. What becomes of them will be decided in court, and the decision could have major implications.
Wednesday the 494,000 used vehicles are tied to a master lease, further tied to Hertz's asset-backed securities. Typically, when a company with this type of ABS files for bankruptcy, the entity must accept or reject the master lease. That's not what Hertz wants to do in this case.
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In court, it will argue to convert this master lease into 494,000 individual lease agreements, Bloomberg reports. Then, Hertz will work to shed 144,000 additional cars from its fleet as it restructures the business. The goal is to see Hertz return as a healthier entity and still operate a sizable rental fleet.
The problem is this decision could redefine the ABS market and creditors could stand to lose if the court accepts Hertz's argument. Its creditors would be left with a different kind of collateral than when they first purchased the securities. The alternative is basically liquidation -- Hertz would need to sell off its entire fleet, which would leave it in a poor position as it emerges from bankruptcy. Ideally, Hertz would continue making the master lease payment as it slowly offloads more cars. But cash is thin.
Hertz bankruptcy creates huge stock of bargain-priced used cars
As it navigates bankruptcy, the rental-car king is shedding its used-car stock, offering big discounts on Toyota, Kia, VW and Chevy models, among others.iSeeCars pored over 20,000 used cars, trucks and SUVs that Hertz currently has listed for sale, all in an effort to identify which models offer the greatest savings. Some of the cars are very typical models you'd imagine for a rental fleet, but others are a little more shocking. The list isn't made up of particularly old cars, either, since rental car companies work to keep their fleets updated for customers. Each car listed hails from the 2017 to 2019 model year.
Used car prices have been on the rise due to the , which makes liquidation less risky as creditors look to receive a return on their investment, i.e. the vehicle fleet. The final verdict should come as soon as next week, and it could trigger another raft of used cars for bargain-hunting vehicle buyers.
Hertz didn't immediately respond to a request for comment.
Hertz Forced To Sell 185K Cars in Bankruptcy .
It sounds huge, but the Hertz selloff will be a drop in the bucket of the total used car market. The deal still needs to be approved by a court, but if it does, Hertz will have to unload the vehicles by the end of 2020. The deal allows Hertz to keep a paltry 900 bucks from each vehicle, but that would add up to about $164 million for the company if all 182,500 vehicles are sold. The $650 million is actually only about half of what it needs to pay, but the bankruptcy deal also allows for greater flexibility in making good on the debts.