Or... Hertz can organize Chapter 11 bankruptcy, wipe out large portions of its debt, and then bounce back.
Bankruptcy protects the company and allows a company to come back stronger. That's the ultimate issue: with debts this large, it makes sense for Hertz to give up on its debt rather than try to pay it off.
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Its not like Chapter 11 is a death-knell for a company. GM went Chapter 11 years ago, and came back much stronger in the past decade. Bankruptcy protects the company, while (usually) wiping out the shareholders... and bondholders only getting a fraction of their promised payments back.
That's the deal: investors get screwed, but the company survives. A bankruptcy court helps decide if the case truly is as terrible as they are pleading.
But ultimately: that's why Hertz's board voluntarily entered Bankruptcy Protection last year. Its to Hertz's advantage to declare bankruptcy.
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If you have a comeback plan for Hertz, it will be an even stronger comeback plan if you wiped out a huge portion of debt. It just makes sense.
Yep, and this is in fact the type of bankruptcy Hertz is pursuing. Re-org, not a chapter 7 liquidation.
But to clarify, not all investors get screwed. (or at least not completely). Stock owners, unless they're of a class with a higher claim than normal common stock, will usually (though not always) lose everything. However, many bondholders will receive some of their money. How much is determined by many factors, including the type of bond and how senior the debt associated with it.
Bankruptcy protects the company and allows a company to come back stronger. That's the ultimate issue: with debts this large, it makes sense for Hertz to give up on its debt rather than try to pay it off.
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Its not like Chapter 11 is a death-knell for a company. GM went Chapter 11 years ago, and came back much stronger in the past decade. Bankruptcy protects the company, while (usually) wiping out the shareholders... and bondholders only getting a fraction of their promised payments back.
That's the deal: investors get screwed, but the company survives. A bankruptcy court helps decide if the case truly is as terrible as they are pleading.
But ultimately: that's why Hertz's board voluntarily entered Bankruptcy Protection last year. Its to Hertz's advantage to declare bankruptcy.
---------
If you have a comeback plan for Hertz, it will be an even stronger comeback plan if you wiped out a huge portion of debt. It just makes sense.