Hertz made the disclosure in a filing about its plan to raise $750 million by selling junk bonds
Hertz Global Holdings Inc.’s stock fell Thursday and its bonds were selling off after the car-rental company warned of a much larger adjusted loss for the current quarter as it tries to unwind its bet on electric vehicles and refresh its fleet.
Hertz HTZ, +15.95% also said it expects elevated vehicle-depreciation rates to continue through 2024 as it works to accelerate its fleet rotation, and that it will be further burdened by an elevated cost structure that doesn’t yet include any benefits from a major cost-cutting program.
Hertz called for an adjusted loss before interest, taxes, depreciation and amortization of between $435 million and $495 million in the second quarter.
Analysts polled by FactSet expect an adjusted loss of $37 million, following a first-quarter adjusted loss of $567 million and contrasting with an adjusted profit of $347 million in the second quarter of 2023.
Hertz’s stock dropped more than 3% in midday trading Thursday. The company made the disclosures in a regulatory filing about a planned issuance of high-yield bonds.
Hertz is seeking to raise $750 million in a two-part offering that’s expected to price on Friday.
That’s split between $500 million of first-lien secured notes that mature in 2028 and $250 million of senior second-lien secured PIK notes that also mature in 2029. PIK notes, or payment-in-kind notes, offer an issuer the flexibility to make interest payments with securities instead of cash.
Proceeds will be used to pay down part of the company’s $2.0 billion committed revolving-credit facility and improve liquidity.
In the filing, Hertz said it was accelerating its fleet refresh to rotate out of higher-capital-cost vehicles into lower-capital-cost vehicles, alongside its previously announced sale of about 30,000 electric vehicles. The company said that as of May 31, it had sold 19,000 of those EVs.
But the benefits of that fleet rotation are going to be slower to come. Meanwhile, depreciation per vehicle will increase to an expected $575 to $600 for the second quarter, compared with $592 for the first quarter.
The company said it hopes its cost-cutting plan will save it about $500 million a year. A faster fleet rotation also will translate into savings in maintenance and collision expenses, Hertz said.
The company earlier this month lost its chief financial officer and chief operating officer after short stints. Hertz named Scott Haralson, the former Spirit Airlines Inc. SAVE, +1.31% CFO, as its new CFO.
The company is expected to report second-quarter earnings in early August. The analysts surveyed by FactSet expect quarterly revenue to edge higher to $2.48 billion in the quarter, from $2.44 billion in the second quarter of 2023.
The company’s outstanding bonds, meanwhile, saw net selling on Thursday, even as some buyers emerged after 11 a.m. Eastern time, as the following chart from data-solutions provider BondCliQ Media Services shows.
As the stock sold off, the company’s bonds fell and yields rose in a continuation of the longer-term trend.
The bonds saw buying on Tuesday ahead of today’s launch, suggesting some investors were cheered by the reduction of the credit facility, before souring on the loss warning.
Adding to the gloom, Fitch said Thursday it had placed Hertz’s ratings on Watch Negative, meaning it may downgrade them in the near term.
The rating agency assigned the first-lien notes a BB-minus rating and the second-lien notes a CCC rating.
“Upon successful completion of the secured issuances, Fitch expects to
downgrade Hertz’s senior unsecured notes rating to ‘CCC-’/‘RR6’ from
‘CCC+’/‘RR5,’ reflecting lower recovery prospects given increased
secured debt in the capital structure,” Fitch said.