The “bare bones” petition is a sign that “something was about to happen.” Pressure piles on the used-vehicle wholesale market.
By Wolf Richter for WOLF STREET.
The second major rental car company popped in less than a week – but this one is owned by a private equity firm, Catalyst Capital Group in Canada. Advantage Holdco Inc., the holding company of Advantage Rent-a-Car, the fourth largest rental car company in the US, filed for Chapter 11 bankruptcy on Tuesday late evening.
The filing included subsidiaries Advantage Vehicles, E-Z Rent A Car, Advantage Opco, Central Florida Paint & Body, Advantage Vehicle Financing, and RAC Vehicle Financing.
Advantage is far behind the three giants: #1 Enterprise, #2 Hertz, which last Friday already filed for what will likely be a messy bankruptcy, and #3 Avis Budget Group. Each of the three giants – after years of gobbling up competitors – has several major brands under its belt. And Advantage once belonged to Hertz; more in a moment.
It is a “bare bones” bankruptcy petition, Joseph Acosta, a partner at the international law firm Dorsey & Whitney, told me. The petition gives few financial details. It lists the top 30 unsecured creditors. And check boxes indicate that assets are between $100 million and $500 million, and liabilities between $500 million and $1 billion.
But that “bare-bones” petition triggered the injunction that provided the company with bankruptcy protection from antsy creditors.
It’s usually a sign that “something was about to happen,” said Mr. Acosta.
I suspect – but don’t know because Advantage is privately owned and doesn’t disclose this sort of thing – that the creditors that funded the fleet had not been paid and feared for the value of their collateral, the rental vehicles. The vehicle debt would account for the lion’s share of the company’s $500 million to $1 billion in liabilities.
That’s what happened to Hertz. It filed for bankruptcy after it failed to make the lease payment for its fleet of vehicles owned by its “bankruptcy-remote special purpose subsidiary.” This subsidiary had securitized the leases into asset-backed securities (ABS), for which the rental vehicles are the collateral. The owners of these ABS – from pension funds to bond mutual funds – have to observe a 60-day waiting period before they can foreclose on the vehicles and sell them at auction.
Advantage’s bankruptcy petition doesn’t list the secured creditors, such as the entities that funded the company’s fleet of vehicles, which would be the largest part of its debts.
But the petition lists the 30 largest unsecured creditors and the debts owed them. The top five include a $30.2 million loan and what looks like unpaid highway tolls of $3.5 million:
- Aberdeen Standard Investments, PA, a loan, $30.2 million
- Highway Toll Administration, NY, trade debt, $3.5 million
- com, CT, trade debt: $1.9 million
- P.S, CA, trade debt: $1.5 million
- Scottsdale Insurance Company, AZ, insurance: $1.0 million
For Advantage, it’s bankruptcy #3 in about a decade.
Bankruptcy #1: Advantage Rent-A-Car had been family-owned for decades until February 2006, when, upon the founder’s death, it was acquired by ARC Venture Holding, Inc. But it didn’t take long: In December 2008, ARC Venture and its subsidiaries, including Advantage Rent-a-Car, filed for Chapter 11 bankruptcy which was subsequently converted to a Chapter 7 liquidation. In 2009, as part of the liquidation, Hertz Global Holdings acquired certain assets of Advantage Rent-a-Car.
Bankruptcy #2: Hertz, on an acquisition binge, acquired another rental-car giant, Dollar Thrifty, in 2012. As a condition for approval of the deal, the Federal Trade Commission required that Hertz sell Advantage. But a dispute arose between Hertz and Advantage over part of the 24,000 vehicles Advantage was leasing from Hertz, and in November 2013, Advantage filed for bankruptcy again.
In bankruptcy court, a deal was worked out that allowed Catalyst Capital to buy Advantage for a song. When the acquisition closed in April 2014, Catalyst outlined what it had bought:
“At the time, Advantage was comprised of an aging, unattractive fleet, few/poor/inadequate systems, a disjointed management team, and cumbersome financial liabilities which handicapped the business. Advantage was under a very challenging position due to its remaining operational dependence with Hertz, its prior owner.”
Rental car companies are in a world of hurt. Their airport rental business has collapsed, with airport passenger traffic down over 90% in April compared to a year ago, and now still down 87%, as measured by TSA checkpoint screenings. Airport business was what Advantage was focused on.
In addition, the normally very liquid and huge used-vehicle wholesale market had frozen up in late March and April. When rental car companies needed to shed their fleets to bring them in line with the collapse of their business, the auction market wasn’t there for them.
Auction activity is now coming back, and dealers are back and buying, but volume is still much lower than before, and at the worst possible moment, as the rental car companies combined might have to shed 1 million vehicles over the next few months to bring their fleets in line with their business.
This might also involve forced selling, such as hundreds of thousands of Hertz vehicles that might hit the auctions starting in late July.
Wholesale prices dropped 12% in April, according to Manheim. In May, the wholesale market has begun to unfreeze, and dealers are buying again. The flood of rental vehicles will likely put further pressure on them. And if prices drop enough, there will be buyers. Price cures these issues in the used vehicle market. But that’s precisely the nightmare for creditors.
Then there is vehicle depreciation: each day that a vehicle sits and gets older, it loses value. For stiffed creditors that are thinking about foreclosing on their collateral, this is not a propitious scenario. They need to act sooner, rather than later, to cut their losses – but this would put even more pressure on prices in the wholesale market. And the Advantage bankruptcy is going to add to these pressures.
Here come the “bankruptcy-remote special-purpose subsidiaries” and $14.5 billion in rental-vehicle-backed securities. The stock market – other than Carl Icahn – smelled a rat for years. Read… Hertz Bankruptcy & Fleet Liquidation Threaten to Make Mess of Used-Vehicle Prices with Burst of “Pent-Up Supply”
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So are auto manufacturers
And car dealerships.
“Rental car companies are in a world of hurt.”
Car companies haven´t produced so the expectation is that new car prices will increase. Their hurt is only debt related and as such only a big deal for their stock owners
Wolf, maybe you could make a Wolf Street report video about all the major companies that have filled or are filling for bankruptcy during Coronavirus lockdown?
You mean like solemnly read the names one after the other, memorial like, with a minute of silence afterwards?
That said, I will get bankruptcy-filings data in early June for the month of May, and I will have spiky charts to entertain you with. I might include a list of companies that was included. There are a lot of them. I might do it by category: retailers, gyms, rental car companies, chain restaurants…
Nah, I like the NYT variation, a name followed by date of founding and date of bankruptcy….
Actually that might get long for companies that have had multiple bankruptcies.
Can you list all these companies filing for bankruptcy and arrange it in a V shape please? Cause apparently there’s a V shape bounce that all these WS jackass are seeing, must be off the backs of all these companies filing for bankruptcy
The bankruptcies have modest economic impact unless they are liquidations. In a Chapter 11, the business continues on and most jobs are retained. Shareholder interests are transferred to bondholders in a paper transaction.
In fact, a Chapter 11 might increase economic activity if the subject gets a debtor-in-possession loan used to fund operations adequately.
The Dunder Mifflin Paper Company starts to look healthier than many of these corporations with each passing day.
I have a friend who’s a sales manager at a Kelly Paper in San Diego. He kept his job, but they had a lot of layoffs.
Cross-references with stock buybacks and PE equity stripping please!
” … spiky charts … ”
No straight lines …
Vehicles as collateral in a time where all the marginal would be borrowers (those nice 60 month leases…) are just rushing to buy some used and fast depreciating assets… lol
Maybe Jerome and Muchkin and buy them on leverage 10 to 1 with tax payer funds at the auction lot at book value!
Fed has yet another chance to prevent price discovery and screw the Main St buyers from picking up a decent car at a reasonable price.
A reasonable price is a price at which the producer makes money. If i look at the profits of car makers in he last decade than prices are reasonable.
Honestly and respectfully, it is wonderful to see car volumes on the roads way down. No traffic jams. Most of the jerk drivers are staying home.
I’m conflicted. Tourism drives so much including rentals but after all I love the relative peace and quiet in my neck of the woods.
The entire hospitality industry is in big trouble from what I can see. I’m still trying to decide when and how to visit friends and family without flying.
Too bad I still hear and see plenty of loud douchebag Dodge Charger/Challenger drivers reviving it up going over 100+ down a relatively emptier freeway in LA & OC. Guess Charger drivers are pretty immune to CV19
Don’t forget the Harley Davidson morons whose bikes actually vibrate my house at rest. Christ only knows how they are legal for the sound level in the UK.
They aren’t legal.
They don’t care.
Vehicle noise is a massive blind spot for the entire tort legal system. I finally gave up and made “over a mile down a dead-end road” one of my primary house purchase criteria.
That was one major reason why I sold my home in town and moved rural. When weekend warrior pony tailers started to buy Harleys, the aging manly men would squeeze into leather clothes after dinner and go for their evening rides in a thunderous roar…..one too many times. It turned beautiful summer evenings into irritation. One too many times.
Nice and quiet now. The only ‘biker’ traffic here are the town guys who want to come up for an hour ride on sunny summer weekends. They’re gone by afternoon as there is nothing to do here and no one admires their bikes.
It’s a phase. Younger people can’t afford 30K bikes with 2K insurance for ‘fun’, and long term care facilities don’t allow residents to bring them along. I give it 5-10 more years.
Loud cars and bikes are their own pandemic. Maybe it’s just me getting older and more irritated, but in the past 5-10 years the noise on the street has increased dramatically. Seems like every other car/truck has a modified exhaust system (ie loud AF) as well as all the motorcycles.
I live 1/2 a mile away from a major street and even at that distance on quiet evenings I can hear the revving engines off in the distance if I have the windows open.
Loud noise alerts other drivers. Bikers have a high mortality rate. It’s part of their charm.
I always rode a motorcycle with stock exhaust which means complying with noise regulations. It was always my opinion that if you think you need loud pipes to be safe, you probably shouldn’t be riding as you’re just fooling yourself about the risks, and all because you just want to be a showboat.
What I really hate are lifted trucks, which violate bumper height rules and don’t just annoy with noise, they actually increase the danger of their vehicle to others. Once again, just so showboat.
Small penises really are a scourge.
I’m with you Michael. My only complaint with my new motorbike is that it makes just enough sound to be heard when I ride down the alley as slow and discreetly as I can. My older bike is very quiet. My neighbors don’t need to hear me ride IMO.
Power comes from airflow going through the motor and out the exhaust. This airflow can be acoustically attenuated and still have flow. A while back there was this invention called mufflers.
All I hear is “Get off my lawn!!”.
I wonder how many people here have seen Dennis the Menace – either the cartoon or the Sunday comic.
It was certainly part of my childhood back in the 80’s (my favorite was Calvin and Hobbes), but those things changed so rapidly over the next few decades.
OutWest, you must live in a city/state run by power hungry politicians and are still closed In most of the country, traffic is back to normal. It was nice to have those few weeks of traffic-less highways though. Although ironically enough, people seemed to drive more slowly during that time, not faster. Probably because they have no place to go and in no rush to get there. I think whoever was on the roads was just driving around as a way to get out of the house for an hour or two, with no real destination.
U and Me both,,, just itching to head Out West to see the friends and family in CA and OR and, as you say, ASAP when I can figure out to do so without flying and without exposing my older frailer ”mid 8th decade” body to even more lunk heads doing their best to provide ”herd” AKA ”NOT HEARD any damn thing about the benefits to each and every individual wearing face mask, etc.
What in the world these people are thinking about, I really cannot fathom, but wish they would go a fathom or ten deep in the pacific, as that is my ocean of choice for all such covidiots, eh, ( being the deepest!)
All seriousness aside,,, we can hope and pray that every hotel and motel will actually follow ”best practices” not just for the federally mandated cleaning of sheets and pillow cases, but for ALL surfaces and areas of each and every room between each and every occupant change…
With plenty of what is called these days ”disposable income” we are still the thrifty family that we have been since starting at nothing and now financially OK;; not rich, but no debt, and enough money to travel as we want, etc.
Usually referred to as ”bottom feeders” with regard to temporary ”stuff” including various forms of ”liquidity” motels, etc., that may have to change; and, if so, I am thinking a lot of the more marginal mots and hots will go out of biz as have these car rental places with inferior service.
Does this make late summer a good time to buy a 2-3 year old used car?
I think it would be a good time to look. I do think that next year sometime, the wholesale market will tighten up because rental car supply with drop sharply. This would indicate higher prices next year.
Always have found best prices the last few days, especially the very last day, of the months following the intro of the new model year Wolf.
Used to be in Sept fifty or so years ago when I started buying cars, but lately seems to be a bit earlier every year, so just look for the new year model ads..
Every sales manager has a quota to fill each month, and if your sales person will not deal, and do a ”real” job of negotiation for the vehicle you want, insist on dealing with his or her sales manager.
Of course that does not work if you go into the dealership with your eyes blind to every other vehicle than the one you MUST HAVE, etc…
OTOH, I have ordered several vehicles exactly the way I wanted them, through ”brokers” in CA, and through sales people in dealerships in AL and FL, and ended up with them all at least approx 20% off MSRP, ( 50% off in spring of 2009) paying cash on delivery for some, financing some to help out the dealer and sales person, then paying off in the minimum time so that they got their bonuses.
In good times, one of the best used-vehicle buyer’s moment I regularly observe is second half of September.
Means lot of offers pushing prices slightly down.
In bad times? Unpredictable. Might happen at next Hertz’s fleet liquidation.
Used car prices might take a cue from oil and go below zero for a while. We are in strange waters.
I love the open and free road uncluttered with useless rambling cars off the roads!
The silver lining is that Icahn has reportedly booked a loss of 1.6B on Hertz.
“The silver lining is that Icahn has reportedly booked a loss of 1.6B on Hertz.”. That does give me a schadenfreude moment.
On top of all that, for the selling all these petrol/diesel cars, is the fact that the range of electric cars is going up (and the guarantee on the batteries) at the same time as prices of EVs are coming down…. People might start to think that the two year old petrol car may be good value now but what will you get for it in three years. A good example, on top of that, is if I need to commute into London…the daily congestion charge for my car is between $13 and $17, ….EVs until 2026 go free. This will be coming to a city near you…lol…..and yes, we do have car hire companies in England, many of them American….
Here in Belgium, they’re killing off the market for diesel cars (which not so long ago accounted for more than 50 % of the national car park). We bought a second hand 2011 Fiat Freemont (formerly known as a Dodge Journey, but with a Fiat diesel engine under the hood) as our family car 5 years ago, but now all major Belgian cities are starting to implement low emission zones. Next year, we won’t be able to enter Brussels by car (unless we pay a fine or buy some sort of day pass – too expensive to bother, might as well take the train or the bus, which of course is the goal because of congestion problems), the year after that Antwerp and Gent will follow for our engine type, so it will rapidly become obsolete because of restricted possibilities of use. Consequently, on the second hand market these cars become increasingly difficult to shift. I figure we can keep ours for another 5 years and then we’ll have to turn to a hybrid or an electric car, if the range has become acceptable. Resale value of the Fiat by then? Around 1.000 euro, I figure, at the dealer who sells you a new car.
Provided there are still dealers by then that actually sell cars.
ICE cars bashing (especially diesel) is programmed in Europe indeed.
Yet I have a small hope that the affordable car usage as real economy enabler will be recognised very shortly,
And the role of real economy in the real life will be recognised too…
Milan invented that stuff: it has zero to do with environment or congestion and a lot to do with padding the city’s coffers.
Funny thing is they could not adapt it to motorcycles and mopeds (different license plates which the ultra-expensive software has problems reading and processing, very serious problems in the case of mopeds I may add) so the city “graciously” decided that motorcycles and mopeds can freely circulate because they “help eliminate congestion”. They have been trying to fix that “glitch” for over a decade now, which tells you all you need to know about who developed this system. ;-)
Florence instead has decided to simply slap a toll on tour buses and be done with it: politically it’s a much wiser move and it doesn’t require a network of cameras. Since Florenze is a tourist-heavy city and since these tolls are truly hefty I predict a big hole in the city coffers, well at least bigger than usual.
The issue of car dealerships is pretty serious right now though. Incentives have already started even on usually unaffected models (Toyota Hilux to say one), but dealerships remain deserted.
During an ordinary recession you can still sell cars, albeit at a much reduced volume, but this time around everybody is sitting tight in his dugout and is not spending a penny more than strictly necessary. The only brand new vehicles you see around are delivery vans, and even then most are rentals/mid-term leases.
The government (yes, that same government that until one month ago was sending police helicopters to harass dog walkers) has predicted car sales will pick up in June, enter recovery in July and be strong for the rest of the year, but on what basis they are doing this nobody knows. May be they got those predictions from the OMS/WHO or perhaps straight from the Chinese government.
Congestion taxes are effective. They also do not need to be mandated and can be passed by referendum. Look at Stockholm.
Apparently somebody here does not know how Southern Europe works. ;-)
MC01, Jeremy, et alia,
Congestion fees or taxes or whatever you want to call them are very clearly needed in USA!
Last time across the Richmond/San Rafael bridge onto 80, late morning July 2 was a nightmare, with all lanes of 80 moving less than 10 miles per hour… got off a bit early in San Pablo, as I was going to Berzerkeley and know the ‘surface’ roads. And similarly , last time coming into the city north on the 101, forgettabout it…
And you certainly don’t want to consider driving east from Ventura to Barstow any time of the day,,, maybe between midnight and 3 am, but never otherwise, and the other direction equally bad most of the time…
White line MC riding the only way to go in CA these days, for which I am too old and slow, even though I did it for years.
We have family in Milan. Our young lawyer friend commutes to downtown Milan on a Piaggio MP3. Those three wheelers seem to be pretty stable and you can park them anywhere. His BMW is his weekend car. Makes good economic sense. He has managed to keep it a secret from his Doctor Mother. The three wheelers appear to be safer as well as fun. Adequate storage for rain cover and helmet also.
I’m truly surprised by the Bankruptcy of both Advantage and Hertz and all the others coming to us soon. I just can’t understand how all of them can’t just borrow more money to burn and get themselves out of trouble.
(Someone really needs to invent a sarcasm sign to add to posts on the Internet)
Uber had them on the ropes and decline for the last 5 years. Covid just sped it up for sure.
Hertz gave its top employees a $16M retention bonus for driving the company into bankruptcy. America, what a country!
I’m sure the government will come up with another ” cash for clunkers” program to destroy all of these excess vehicles. Can’t let someone get a great deal and let the market decide the price. That’s so old school.
What counts as a clunker anyway. I’m loathe to think of these guys driving their expensive identity trucks getting subsidized to buy newer identity trucks. My old starting to rust honda doesn’t really clunk but it’s got a hell of a lot of miles.
I end up getting schadenfreude when gas prices go up. The identity truck types are slowly getting squeezed by the labor markets anyway, but then again, going through a rich neighborhood recently I was surprised by the number of brand new looking identity trucks parked in the driveways. After working in construction I started to feel like there was something wrong with a truck that didn’t have scratches and dents in it.
One fault I find with my ’95 Dodge Ram Diesel pickup: Very flimsy bumpers. The front one is now held in place with bailing wire and the rear one has been replaced with a strong one, homemade out of angle iron
Not living in the USA I didn’t get this things with “trucks” until I had a look on Google street view on an ordinary housing estate in one those towns in the middle. Yes, every fourth house had a big “truck” on the drive,,,, amazing
Plus the trucks are so big, they won’t fit in an average sized garage! That’s why you see them in the driveways.
Crazy to package a quickly depreciation asset into ABS to sell bonds to “investors”.
How can a rapidly depreciating asset even be considered a security?
Just wait for these rioters to find the Dodger Stadium parking lot.
I live 1 km SSE of Minneapolis’ 3rd Precinct. Today, I finished my bicycle ride by checking out the damage on Lake street. It looks like a freaking war zone.
The mayor and chief of the MPD said in their press conference that the arson last night was instigated by people who had come in from outside the city. News helicopters are flying overhead as I type, and another demonstration is planned to take place soon at city hall.
Mob mentality and behavior is a powerful and frightening force!
They should arrest those four, disband your city’s entire police department or at least put them under federal control, and bring in national guard sourced from another urban area, so that the soldiers look something like the civilians they are protecting. Then it might start to feel fair. Let’s be done with cops killing civilians over nothing.
The National Guard has been called in by Governor Walz, and Minneapolis mayor Frey has declared a 72 hour emergency.
The crazy thing is that both the cop who killed Mr. Floyd and the deceased himself worked security at the same bar and club, El Nuevo Rodeo, that’s within a block of the 3rd Precinct headquarters. Mr. Floyd worked security on the inside for big events and Derek Chauvin worked outside at the entrance.
The first comment from Frey was that Chauvin should be in jail, and he and the chief fired the four cops ASAP. We are waiting to see how things proceed from here.
I rented from Advantage once. And then never went back. Garbage company that will be missed by no-one.
I read somewhere that Hertz was an immigrant working as a used car salesman in Chicago. He cannot sell any cars. So, he rented out cars as a taxi to jobless youth and got profits from it. Eventually, he became the business owner with rental cars. Little did we know…
Now, a man cannot rent a car and use it as a taxi profitably (regulations!). Uber on the other hand is not yet profitable but has user base and a growing business because, investors money. May be, Uber can buy all the used cars, rent it to people and collect profits from the taxi service. They must jump some legal loopholes here because traditional taxi is not profitable.
Another way is that, car companies will buy all these cars and smash them. That way common people have no other way but to buy the new cars.
Does the huge drop in sales plus the bankruptcy loss of some of their biggest customers foreshadow the collapse of at least 2 of the 3 us auto companies?
Several of us aren’t sure how these depreciating assets (vehicles) are used as collateral for loans (even fleet loans for car dealers), or for the asset-backed securities.
How does the industry account for the depreciation?
(For example, a pre-set low loan-to-value ratio; or perhaps a formula for each car where if the total collateral value falls below a set level, more collateral needs to be added?)
Pete in Toronto et al.
These ABS are securities — similar to MBS and regular auto-loan ABS — where principal payments (in this case, the payoff when the vehicle is sold and the amortization) are passed through to the holder, so the balance constantly falls as the holder receives these principal payments.
For example, if you want to maintain a $1 billion balance of ABS in your portfolio, you will have to buy new ABS all the time to replace the pass-through payments that you receive.
This is why the Fed has to buy MBS constantly just to maintain its balance. If it stop buying, the balance falls by the amount of the pass-through principal payments.
Meanwhile, regarding unemployment initial filing numbers, we seem to be closer to flattening the curve near the 2 million mark.
Would that that will be so; however, so far, the continuing scrambling of the UEI and stimulus and the trillions being tossed around like the candy it is will continue to distort any logical/reasonable analysis of the unemployment situation as it is clearly doing with the SM and other equity markets.
No way any real progress is going to happen unless and until some semblance of reality is allowed to happen IMHO.
Even though ready to do so, I will not be putting any of our hard earned cash into any market, even including RE (ok, maybe RE when it reaches a point I consider safe) until the nutso movements stop, or at least slow down to the ”usual BS levels” coming from WS, MSM, etc.
Sub-prime auto just got a lot more sub-prime. I think the value of all non-specialty vehicles less than 3-4 years old has dropped. The same way a bunch of forced sales of RE lowers the value of all RE in the area.
Private equity equals the worst of vulture capitalism. Should be a law against them. There is no free market despite the ongoing myth to the contrary.
I had an interview with Advantage in 2016, I still remember it. All the recruiter kept telling me was how what a heavy hitter and sharp person was I would be interviewing with. The woman was the biggest loon and idiot I have ever met. I asked how much cash they had on hand and told me I needed to tell her that because they were broke and the hedge fund wouldn’t give them any more money and everything was a real mess. This is what they hand in charge in the Finance department.