buying Hertz bankruptcy turns into $11B standoff in court over used car fleet

While Hertz's bankruptcy triggered a massive sell-off of low-priced used cars, 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.

© Provided by Roadshow Hertz wants to avoid liquidation. Creditors want their money. Spencer Platt/Getty Images

Bloomberg reported 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.

Hertz bankruptcy triggers bargain-priced selldown of used-car stocks

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.

© Spencer Platt/Getty Images

Used car prices have been on the rise due to the coronavirus pandemic, 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.

This was originally published on Roadshow.