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Hertz Reports ‘Going Concern’ Doubts Amid Swifter Cash Burn

David Welch

(Bloomberg) -- Hertz Global Holdings Inc. cast doubt on its ability to pay debt obligations and continue as a going concern, putting fresh pressure on the rental-car company’s depressed shares.

The company, which has been working with its lenders to stay out of bankruptcy, said it may not have enough cash on hand to pay them amid dim prospects for a rapid recovery in its travel-dependent business.

“Management has concluded there is substantial doubt regarding the company’s ability to continue as a going concern within one year,” Hertz said in a regulatory filing Monday.

Hertz also said its first-quarter loss was $1.78 a share, worse than the $1.11 average analyst estimate. The Estero, Florida-based company burned through $502 million in the quarter, which included about two weeks’ worth of business hurt by coronavirus-related shutdowns.

Hertz dropped as much as 5.9% in post-market trading after closing down 2.4% at $3.19. The stock is down about 80% so far this year.

Preserving Liquidity

Since the end of the quarter, Hertz has seen its business unravel, culminating in a missed lease payment on some of its cars on May 5. It negotiated a forbearance until May 22 and is trying to find a remedy with other lenders in the next 11 days.

Though the pandemic didn’t start hitting the U.S. rental business until March, it had a large impact. Hertz said its U.S. fleet-utilization rate was 67% in the quarter, down from 79% a year earlier.

Hertz ended March with $1 billion in cash and liquidity on hand and expects cost-cutting measures to save it $2.5 billion annually. But to survive that long, analysts say the company will likely need a deal from bank lenders and possibly a cash infusion from controlling shareholder Carl Icahn, who holds almost 40% of the stock.

“As a responsible management team, we have to be pragmatic about the timing of an economic recovery, so we are doing absolutely everything we can to preserve liquidity,” Chief Executive Officer Kathy Marinello said in a statement.

Depreciation Rise

Marinello said the year started strong before demand withered in late March with the spread of the pandemic, dragging down U.S. revenue 9% for the quarter. International business also shrank 15%, which resulted in a more than doubling of its net loss to $357 million.

Hertz lost $243 million on an adjusted earnings basis before interest, taxes, depreciation and amortization.

A deep freeze in the used-car market as many wholesale auctions shut down in March triggered a plunge in used-car values, causing the company’s per-vehicle depreciation to rise 16% in the quarter to $298 a month.

(Updates with U.S. fleet-utilization data in seventh paragraph. An earlier version of this story corrected earnings per share figure in fourth paragraph)

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