Article/Intelligence
Hertz Cash Burn Creates Need for $750M Corporate Debt Raise
Credit Research: Krishan Sutharshana, CFA, Justin Spuma, CFA Relevant Items: June 20 8-K Q1’24 10-Q FY’23 10-K Amid challenges associated with electric vehicles in Hertz Global Holdings Inc.’s fleet and declining used vehicle prices, Reorg estimates that Hertz is burning cash at both its rental car business and in its fleet management activities. In particular, Reorg estimates that Hertz has burned cash at a corporate level even before accounting for the impact in residual car values in three of the past four quarters, potentially implying that the core rental car business is struggling under current market conditions based on the size and composition of its fleet. In addition to headwinds in its rental car operations, Hertz has faced cash flow pressure in its fleet management business in recent months because of declining used vehicle prices resulting in required monthly mark-to-market true-up payments (as discussed later) and lower cash generated from the sale of its vehicles. Hertz reported a $729 million cash burn in the first quarter, causing corporate liquidity to plunge to $1.33 billion as of March 31 compared with $2.03 billion as of Dec. 31, 2023. The company drew down $450 million on its revolver in the first quarter,[...]