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Illustration: Eniola Odetunde/Axios

Car rental giant Hertz filed for Chapter 11 bankruptcy on Friday, ostensibly felled by a pandemic that dramatically lowered demand at its airport counters.

Under the hood: Hertz is a Frankenstein of financial engineering, beginning with its leveraged buyout in 2005 and continuing long after its private equity owners cashed out.

History: Clayton Dubilier & Rice led a $14.8 billion purchase of Hertz from Ford Motor Co. in late 2005. The deal included just $2.3 billion of equity, split equally with the Carlyle Group and Merrill Lynch's private equity unit, and leveraged $6.9 billion of financing against its fleet.

  • Six months later it completed a $1 billion dividend recap, meaning the private equity firms de-risked while the company re-levered.
  • Hertz went public less than a year after the buyout. Leading into the IPO, it had a debt-to-asset radio of nearly 95% and very little cash on hand.
  • In 2012 the company overpaid to buy smaller rivals Dollar and Thrifty, and in 2013 the private equity firms completely exited.
  • Following an accounting scandal that dated back to 2011, activist investor Carl Icahn began to invest. At the time of bankruptcy, he was the company's largest shareholder with nearly a 39% stake.
  • In 2016, Hertz spun off its equipment rental company into a separate, stand-alone public company.

What to know: Hertz made money by renting cars, but it was more in the car-leasing business. Or, more specifically, creating special purpose vehicles that would issue debt to buy cars, then leasing those cars and renting them out.

  • All the while it would pay coupons on the asset-backed securities, hoping to turn profits via the rentals combined with vehicle resale.
  • Plus, resale prices have fallen sharply during the pandemic, and will come under further pressure if Hertz creditors force partial fleet liquidation.

Here's how the FT's Sujeet Indap summarized things:

"Hertz is basically a bank that rents cars. This structure reduces the overall cost of capital but when the music stops, look out."

The bottom line: Hertz elevated the Wall Street shell game that originally helped finance its 2005 takeover, without apparently noticing that the original operators had left town.

Go deeper

Acting Capitol Police chief: Phone logs show Jan. 6 National Guard approval was delayed

Pittman at a congressional tribute for fallen officer Brian Sicknick. Photo: Erin Schaff-Pool/Getty Images

Acting U.S. Capitol Police Chief Yogananda Pittman testified on Thursday that cell phone records show former USCP Chief Steven Sund requested National Guard support from the House sergeant at arms as early as 12:58 p.m. on Jan. 6, but did not receive approval until over an hour later.

Why it matters: Sund and former House Sergeant at Arms Paul Irving clashed at a Senate hearing on Tuesday over a dispute in the timeline for when Capitol Police requested the National Guard during the Capitol insurrection.

Manhattan prosecutors reportedly obtain millions of pages of Trump's tax records

Photo: Al Drago/Bloomberg via Getty Images

The Manhattan district attorney is now in possession of millions of pages of former President Trump's tax and financial records, CNN first reported, following a Supreme Court ruling that allowed prosecutors to enforce a subpoena after a lengthy legal battle.

Why it matters: Trump fought for years to keep his tax returns out of the public eye and away from prosecutors in New York, who are examining his business in a criminal investigation that was first sparked by hush-money payments made by Trump's former fixer Michael Cohen during the 2016 election.

Dion Rabouin, author of Markets
3 hours ago - Economy & Business

The digital dollar is now high priority for the Fed

Illustration: Aïda Amer/Axios

The U.S. is starting to get serious about a central-bank-backed digital currency, with recent comments from top officials laying out the strongest support yet.

Driving the news: On Tuesday Fed chair Jerome Powell told Congress that developing a digital dollar is a "high priority project for us," but added that there are "significant technical and policy questions."