Should You Sell Hertz Stock?
COVID-19 claimed a major corporate victim when Hertz (NYSE: HTZ) filed for bankruptcy protection last Friday. A question many investors might be asking right now amid this flurry of news is: Should I sell Hertz stock?
The answer is almost certainly yes. For more context, investors must better understand the situation facing Hertz and why its lenders refused to grant the rental company an extension on its auto lease debt payments. Hertz made a risky bet when it essentially financed a chunk of its massive vehicle fleet using asset-backed securities. The risk in doing that is that if the value of used cars fell -- as it certainly did during the COVID-19-fueled economic slump -- Hertz would be required to make up the difference in that lost value with cash payments to lenders.
So what did the Hertz situation look like, exactly? In rough terms, a 1% drop in vehicle value would require about $75 million in cash to remain in compliance. Wholesale prices of used cars dropped 11.4% during April -- a staggering blow to Hertz, which has about $1 billion in cash to support its operations.
Source Fool.com
