Why Carl Icahn’s Hertz near bankruptcy while rival Avis stays afloat

Carl Icahn’s Hertz — once considered the gold standard of car rental companies — is sputtering on the side of the road while its closest rival, Avis, is positioned to ride out the coronavirus storm.

The 102-year-old Hertz told shareholders last week that it had missed a debt payment tied to its 500,000 fleet amid a “rapid, sudden and dramatic negative impact” on its business amid the pandemic.

Sources tell The Post the company has until Monday to fork over roughly $500 million or obtain a waiver from its lenders. If it fails, it will be in default on its fleet financing and will likely seek bankruptcy protection in a matter of days, multiple sources said.

By contrast, Avis Budget Group — the nation’s only other publicly traded car rental company — is expected to weather the crisis despite similar issues with its fleet financing, according to Wall Street analyst Hamzah Mazari of Jefferies.

The one-time rental Goliath — which was famous for its O.J. Simpson “airport-running” ads in the 1970s — has suffered from “bad management for years,” said Mazari, including as recently as March when the company appeared to be shrugging off the impact of COVID-19 on its financials even as Avis braced for an onslaught.

In mid-March — as states of emergency were being declared from New York to California — Barclays had proposed loaning Hertz between $300 million to $500 million at a about 12 percent interest rate, sources said. But Hertz, run by former General Electric executive Kathryn Marinello, turned the offer down due in part to the high cost of the loan, several sources said.

On March 26 — amid shelter-in-place orders from New Jersey to Illinois — Hertz filed a baffling public document that appeared to suggest the company’s fleet financing wouldn’t need any more attention through 2020. Hertz “does not anticipate any vehicle debt financing requirements for its global car rental business for the remainder of the year,” it said.

But that outlook changed the first two weeks of April when the value of the average used car plummeted by 18 percent over the previous year, according to the Manheim car index. The drop was devastating because, as The Post has previously reported, it’s 500,000 cars act as collateral for $13 billion in financing — and when the collateral drops in value, the company has to make up the difference in cash.

“Hertz only woke up to all this weeks ago,” one lending source said.

Avis, which also owns Budget Car Rental and Zipcar, is in a similar debt position with $12 billion in fleet financing. But unlike Hertz, it used the pandemic as an opportunity to negotiate an additional $750 million in borrowing capacity from its JPMorgan-led lending group, sources said.

That $750 million is on top of the $1.6 billion in cash Avis had leading into the crisis, giving it leeway to survive the year even at a projected burn rate of $200 million a month, Jefferies’ Mazari said.

Hertz, which is also projected to be burning $200 million a month at a time of zero revenue, had just $1 billion in cash ahead of the pandemic. Without any additional funding, it’s expected to be down to about $700 million since the crisis kicked off. The combination of the $500 million collateral payment and $200 million in May expenses pitches the company on the financial cliff, sources say.

The situation is a far cry from when the Park Ridge, NJ-based Hertz, which didn’t return requests for comment, had Avis eating its dust during the 23-year reign of Frank Olson, who ran the business until 1999.

“Hertz was the Google of the car rental industry,” Jordan Hymowitz of hedge fund Philadelphia Financial Management, who participated in its 1997 initial public offering told The Post, while Avis, 30 miles away in Parsippany, NJ, was know for its “We Try Harder” slogan.

Ford Motor Co. sold Hertz in 2005 to a group that included Merrill Lynch and private equity firms Carlyle Group, Clayton, Dubilier & Rice in a $15 billion deal that loaded the company down with debt — starting its downward trajectory, sources said.

Chief Executive Mark Frissora started buying Hertz’s cars through the asset-backed lending program that is now the center of its woes, sources said. Hertz also lessened its reliance on leases that would allow it to resell its cars directly back to automakers at a set price.

Currently, only 11 percent of Hertz’s fleet can be resold to automakers, compared to 21 percent at Avis, according to Jefferies. Overseas, 38 percent of Hertz cars can be returned to the makers versus 58 percent at Avis.

Icahn, who now holds a 39 percent stake in Hertz, became its biggest shareholder in 2014 and succeeded in forcing out Frissora. But the company continued to fall behind and with a market value of $500 million is now half the size of Avis, valued at $967 million.

Meanwhile, privately held Enterprise Holdings has zoomed into first place as the nation’s biggest rental car company with about 1 million cars — double Hertz’s total.

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