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The travel industry was first to suffer when the global pandemic hit America’s shores in March 2020, but one American company was more exposed than any other. Hertz, the iconic car rental company, had a debt pile of over $20bn, and its debt was unusually unstable. To borrow money it used its fleet of cars and trucks as collateral.
However, when travel and commerce collapsed in the spring of 2020, under stay-at-home orders, used car prices plummeted. Lenders immediately demanded that Hertz pay hundreds of millions of dollars to make up for falling auto prices. When the company decided it could not find the cash it filed for bankruptcy protection in late May.
The Hertz bankruptcy, however, would be like no other. Retail traders using the Robinhood smartphone app sent Hertz stock price soaring, something that almost never happened for companies in Chapter 11. Wall Street experts dismissed the phenomena as bored kids playing on their devices who had no idea how high finance worked.
But it was the masters of the universe who were taught a lesson by the spring of 2021. Leisure and travel were snapping back quickly as the coronavirus vaccine was being rolled out around the world. A bidding war had erupted between two private equity firms, each of whom were going to have to pay a hefty ransom to Hertz shareholders who had been left for dead just months earlier.
The showdown culminated in a Miami law office overlooking the Atlantic Ocean where the two groups took part in an all-night auction in May. The winning bidders, led by Knighthead Capital and Certares, agreed to pay existing Hertz shareholders $1bn, valuing the whole approach at $7bn, well ahead of its valuation at the time of bankruptcy a year prior.
Hertz has gone on to thrive since it emerged from court protection, even inking a deal with Tesla to buy 100,000 electric cars. Hertz is now the symbol of the wild ride financial markets went on during the unpredictable and unprecedented covid pandemic when even the most troubled companies found a shot at redemption.