- 11th Apr 2023
- 06:03 am
Introduction
Hertz Global Holdings is one of the largest car rental companies in the world, with operations in over 150 countries. The company is headquartered in Estero, Florida, and operates through several subsidiaries, including Hertz, Dollar, Thrifty, and Firefly. Hertz was founded in 1918 and has been listed on the New York Stock Exchange (NYSE) since 2006. In this case study, we will examine Hertz Global Holdings' use of debt and equity financing and its impact on the company's financial performance.
Background
Hertz Global Holdings has a history of using both debt and equity financing to support its operations. The company has issued bonds and notes to raise capital for various purposes, including acquisitions, refinancing of existing debt, and general corporate purposes. Hertz has also issued common and preferred shares to raise capital.
In 2013, Hertz issued $500 million of senior unsecured notes due in 2023 and $1.2 billion of senior unsecured notes due in 2020. The company used the proceeds from these offerings to finance its acquisition of Dollar Thrifty Automotive Group, which was completed in November 2013.
Hertz has also used equity financing to raise capital. In 2014, the company announced a public offering of 60 million shares of common stock. The offering raised approximately $2.3 billion in net proceeds, which the company used to pay down debt and for general corporate purposes.
Use of Debt
Hertz has used debt financing to support its operations and growth. The company's debt-to-equity ratio was 9.33 in 2020, indicating that the company has a higher level of debt than equity. This is not necessarily a cause for concern, as companies often use debt financing to take advantage of the tax benefits associated with interest payments.
One advantage of debt financing is that it allows a company to leverage its assets to generate higher returns for shareholders. Hertz has used debt financing to acquire other companies and expand its operations. For example, the acquisition of Dollar Thrifty Automotive Group in 2013 was financed in part through debt financing. This acquisition allowed Hertz to expand its operations and increase its market share in the car rental industry.
Another advantage of debt financing is that it allows a company to maintain control over its operations. Unlike equity financing, debt financing does not involve giving up ownership or control of the company. Hertz has used debt financing to maintain control over its operations while still raising the capital it needs to fund its growth.
However, debt financing also carries risks. One risk is that the company may not be able to make its interest and principal payments, which could lead to default and bankruptcy. This risk is particularly high for companies with a high level of debt, such as Hertz. In May 2020, Hertz filed for Chapter 11 bankruptcy protection, citing the impact of the COVID-19 pandemic on its business.
Use of Equity
Hertz has also used equity financing to raise capital. Equity financing involves issuing shares of common or preferred stock to investors in exchange for capital. The advantage of equity financing is that it does not involve making interest or principal payments, unlike debt financing.
One advantage of equity financing is that it allows a company to raise capital without taking on additional debt. This can be particularly important for companies that already have a high level of debt. Hertz used equity financing in 2014 to pay down debt and reduce its interest payments.
Another advantage of equity financing is that it allows a company to raise capital without incurring additional debt. This can be particularly important for companies that already have a high level of debt. Hertz used equity financing in 2014 to pay down debt and reduce its interest payments.
However, equity financing also carries risks. One risk is
that by issuing additional shares, the company dilutes the ownership interest of existing shareholders. This can lead to a decrease in the value of existing shares. Additionally, equity financing can give investors a voice in the company's management and decision-making processes.
Hertz's use of equity financing has had mixed results. The 2014 public offering of common stock raised a significant amount of capital, but the stock price has since declined significantly. In May 2020, the company's stock price fell to $0.56 per share, and the company filed for bankruptcy shortly thereafter.
Impact on Financial Performance
Hertz's use of debt and equity financing has had a significant impact on the company's financial performance. The company's debt-to-equity ratio has increased over time, indicating that the company has relied more heavily on debt financing to support its operations and growth.
The COVID-19 pandemic has had a significant impact on Hertz's financial performance. The company's revenues fell sharply in the first quarter of 2020, as travel restrictions and social distancing measures were implemented around the world. This decline in revenue, combined with the company's high level of debt, led Hertz to file for bankruptcy in May 2020.
Conclusion
Hertz Global Holdings has used both debt and equity financing to support its operations and growth. The company has relied heavily on debt financing, which has allowed it to leverage its assets to generate higher returns for shareholders. However, debt financing also carries risks, such as the risk of default and bankruptcy.
Equity financing has allowed Hertz to raise capital without incurring additional debt, but it has also led to dilution of existing shareholders' ownership interest and can give investors a voice in the company's management and decision-making processes.
The COVID-19 pandemic has had a significant impact on Hertz's financial performance and led the company to file for bankruptcy. Overall, Hertz's use of debt and equity financing has had both advantages and disadvantages and highlights the importance of balancing the risks and benefits of different types of financing.
