Car rental company Advantage to be placed under Chapter 11
Nov 5 (Reuters) - Advantage Rent A Car, which Hertz Corp hived off last year as part of its deal to buy Dollar Thrifty, would be placed under Chapter 11 bankruptcy on Tuesday, as its new owners question the book value of the fleet that was causing losses.
Hertz sold its Advantage brand, which competes with Dollar Thrifty in the low-cost segment of the market, to Franchise Services of North America and Macquarie Capital.
Simply Wheelz LLC, a unit of Franchise Services of North America (FSNA) that does business as Advantage Rent A Car, bought 24,000 vehicles from Hertz as part of the deal.
The master lease agreement required Simply Wheelz to bear the residual value risk of the leased fleet. Residual value shows how much an equipment is worth at the end of its lease, or at the end of its useful life.
Simply Wheelz, as part of its fleet management operations, began to sell Hertz vehicles in June and booked losses on these sales, FSNA said.
As of Oct. 25, Simply Wheelz had sold 5,295 vehicles through auctions for an average loss of about $1,633 per vehicle, and a total loss of about $8.6 million, according to FSNA.
Given the "significant difference" between the book value of the Hertz vehicles and the fair market value realized at the auction, FSNA said it requested Hertz to provide information to determine the calculation of the net book value of the leased fleet.
"Despite repeated requests, Hertz has not yet provided the company with such information notwithstanding the view of the company that Hertz is contractually obligated to do so," FSNA said in a statement.
Without access to this information, FSNA said it was unable to accurately quantify the potential loss it would experience as a result of its disposition of the Hertz leased fleet.
FSNA said that it has been in talks with three other parties, besides Hertz, for the sale of the Advantage car rental business and to obtain additional financing.
Hertz offered to provide interim financing to Advantage, a move rejected by FSNA as the company said the terms offered by Hertz would not lead to a broader auction that could fetch a higher sale price.
FSNA also ruled out a potential sale of the Advantage brand back to Hertz, saying the Federal Trade Commission may not approve it.
Advantage operates in 33 states including airport locations serving 60 of the top 70 airports across the United States.