Australian arm of Hertz could find its own road

The concern for the Australian subsidiary of Hertz will be that it could be sold off to meet the debt obligations of its parent Picture: AFP

The Australian subsidiary of rental car business Hertz is expected to soon tap an expert in the insolvency space to offer assistance, with predictions that its US-based parent company could be about to enter Chapter 11 bankruptcy.

The Wall Street Journal reported last week that the rental car company had failed to make lease payments to preserve cash amid the COVID-19 pandemic.

Negotiations have been under way with senior lenders with the aim of reducing payments over the short term.

The concern for the Australian subsidiary will no doubt be that it could eventually be sold off to meet the debt obligations of its parent.

A similar concern existed when Steinhoff International came close to collapse and later announced a restructure, with the local subsidiary, Steinhoff Asia Pacific, changing its name to Greenlit Brands and moving swiftly to preserve its interests.

Greenlit Brands, which owns Freedom Furniture, Plush and Fantastic Furniture, had earlier been earmarked for a sale before the market collapsed, potentially through an initial public offering.

In the meantime, it has sold its general merchandise business, which included Harris Scarfe, to Allegro Funds Management.

Following the sale, Harris Scarfe was placed into voluntary administration before later being purchased by Spotlight Group.

With respect to Hertz, the challenge is that most of the logical buyers are themselves reeling from the difficult market leasing conditions.

Private equity firms view vehicles as a difficult market in which to make money.

While the car rentals have fallen off a cliff with most refraining from travelling, Hertz still faces monthly payments under its operating lease, which it uses to lease vehicles for its rental car fleet.

The fallout from the new coronavirus has hit rental car companies doubly hard because their operations are reliant on two industries — automotive and travel — that have been pummelled in the past several weeks.

Hertz failed to make payments last week under the operating lease, kicking off a grace period that ended on Monday.

It has so far received required support from holders of the vehicle finance notes, but as of Monday it had not received sufficient support for a waiver from its senior lenders.

Hertz has $US17bn ($26.5bn) worth of debt.

Additional reporting: The Wall Street Journal