By Vince Sullivan

Law360 (May 27, 2020, 5:36 PM EDT ) Bankrupt car rental giant The Hertz Corp. told a Delaware judge Wednesday that it needs to significantly reduce the number of vehicles in its fleet to accommodate a lower demand for services due to the spread of COVID-19.

During a first-day hearing conducted via phone and videoconference, Hertz attorney Thomas E. Lauria of White & Case LLP said the business was humming along in 2019 and expanded its fleet in anticipation of continued growth into 2020, but the pandemic reversed those fortunes and wiped out nearly 75% of its revenue.

"The company felt it was positioned for strong success in 2020," Lauria told the court, detailing internal projections for over $10 billion in revenue and early-year performance that was in line with those projections.

Echoing a refrain that has been rattling the digital conference room walls of American bankruptcy courts in recent weeks, Lauria then said COVID-19 emerged and dashed any hopes for growth.

"In a matter of weeks and without any warning the company went from performing above prior year performance to well below prior year performance," he said.

Hertz's business declined by 75% almost immediately, which torpedoed its anticipated growth. The company had plans to expand its fleet to more than 880,000 vehicles by this summer, but took steps to cancel orders for new vehicles and to return recently acquired vehicles to bring its fleet size back down to about 730,000, Lauria said.

Early in 2020, Hertz had a fleet usage number of about 80%, which Lauria said was excellent, but the company has no hope of being able to deploy that many vehicles in the near future.

"We are studying the best way to reduce [our fleet] because we don't anticipate having fleet usage anywhere near that number," Lauria said.

With fleet usage down to 15% in the midst of the pandemic, the company has had to find ways to store its massive roster of vehicles and was unable to make rent payments in April or May. The various government shutdowns enacted in response to the coronavirus have frozen the used car market that Hertz routinely used to purge its fleet of older and unused vehicles, and fleet financing obligations mounted to the point that the company was forced to seek bankruptcy protection, Lauria said.

In April, the company declined to make a $400 million lease payment and negotiated a short forbearance period with its lenders that expired Friday, sending the company to court.

At Wednesday's first-day hearing, Hertz received court permission for a typical slate of initial relief requests, including for motions to pay employee wages and benefits, to continue customer programs, to pay the claims of critical vendors and to pay insurance premiums.

The company filed for bankruptcy May 22 with about $20 billion of debt, with about $14 billion coming in the form of fleet financing obligations. Another $5.2 billion of debt consists of first-lien secured revolving credit and term loan facilities and associated letters of credit, second-lien secured debt and unsecured note debt.

Hertz began in 1918, and over the years has been bought and sold by automotive players including General Motors and Ford. It currently operates 12,000 locations worldwide. Prior to the pandemic, the company had 38,000 employees, but a series of terminations and furloughs has brought that number down to about 17,000 at the moment.

Hertz is represented by Mark D. Collins, John H. Knight, Brett M. Haywood, Christopher M. De Lillo and J. Zachary Noble of Richards Layton & Finger PA and Thomas E. Lauria, Matthew C. Brown, J. Christopher Shore, David M. Turetsky, Jason N. Zakia, Ronald K. Gorsich, Aaron Colodny, Andrew Mackintosh and Doah Kim of White & Case LLP.

The case is In re: The Hertz Corp. et al., case number 20-11218, in the U.S. Bankruptcy Court for the District of Delaware.

--Additional reporting by Jeff Montgomery. Editing by Abbie Sarfo.

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