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Business Observer Tuesday, May 26, 2020 1 month ago

Hurts so bad: How will Hertz bankruptcy impact region?

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Questions linger after bankruptcy filing.

The national business press took to the Hertz bankruptcy filing like the company had offered free weekend rentals of a red Corvette convertible: breathless and fast.  

There’s certainly a lot at stake in the Lee County-based company’s complicated Chapter 11 announcement filed May 22 — late Friday night of a three-day holiday weekend. Creditors could lose more than $20 billion, shareholders could soon be holding worthless stock and the company’s largest investor, Carl Icahn, might take a $1.6 billion loss. There’s also some 40,000 jobs worldwide in the balance, with the company, in a release accompanying is bankruptcy filing, saying it’s already slashed 20,000 jobs.

More hand-wringing stems from the reasons behind the bankruptcy. Hertz officials, including new CEO Paul Stone, appointed to the top spot five days before the bankruptcy, blame the COVID-19 pandemic. But while the crisis put a chokehold on car rentals, Hertz’s problems started long before coronavirus, including a 2005 leveraged buyout, which left the company more than $5 billion in debt.

The national coverage also misses an important local story: If Hertz liquidates its inventory or is acquired — two of the more prominent speculated possibilities — what does that mean for its Estero headquarters? It was only seven years ago, in 2013, that Hertz, then run by part-time Naples resident Mark Frissora, opted to leave New Jersey for Lee County.

In return for at least $10 million in jobs performance-based subsidies from Florida and Lee County, Hertz made the decision to build its new headquarters during a surge in similar relocation projects statewide. And by the definitions of the performance-based agreements, Hertz came through on its commitments — 700 jobs and invest at least $60 million on the new facility. Lee County made a pair of $2 million payments to Hertz, the last one in early 2017, while the state has doled out more than $7 million, according to Florida Department of Economic Opportunity data.

Notably, Hertz, which did $9.8 billion in revenue in 2019, is only contractually obligated with Lee County to maintain the new jobs through Sept. 30. So it wouldn’t be on the hook to return any county incentives if something happened to those jobs or its headquarters. A Lee County spokeswoman, in an email, says the county’s economic development executive director, John Talmage, wouldn’t be available for comment, due to working on CARES Act-related projects.  

Meanwhile, several Wall Street analysts noted a Hertz bankruptcy filing was bound to be complicated, given the company’s reliance on using debt-laden payment structures to lease cars it rents. One analyst pointed out the bankruptcy raises more questions than answers, since, unlike most other Chapter 11 filings, Hertz didn’t offer any support plans or a reorganization strategy. Now add one more question to the list: What’s the company’s future in Southwest Florida?

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