Advantage Rent A Car files bankruptcy amid Hertz fleet lease dispute

By Caroline Salls

Pittsburgh, Nov. 6 - Franchise Services of North America Inc. (FSNA) wholly owned subsidiary Simply Wheelz LLC, which does business as Advantage Rent A Car, filed for Chapter 11 bankruptcy on Nov. 5 in the U.S. Bankruptcy Court for the Southern District of Mississippi.

FSNA said in a news release that it acquired the Advantage business from Hertz Corp. through a series of transactions completed earlier this year. Hertz was required to divest the Advantage business as part of its acquisition of Dollar Thrifty Automotive Group, Inc. under a decision and order of the Federal Trade Commission.

Simply Wheelz acquired about 24,000 vehicles from Hertz as part of the acquisition of Advantage under master lease agreements, which require Simply Wheelz to bear the residual value risk of the Hertz leased fleet.

Sale losses

FSNA said Simply Wheelz began to sell vehicles forming part of the Hertz leased fleet at auction in June 2013 as part of ordinary course fleet management activities and immediately began to experience significant losses on these sales.

As of Oct. 25, FSNA said Simply Wheelz had sold 5,295 vehicles through auctions for an average loss of $1,633 per vehicle, and a total loss of $8.6 million.

Given the significant difference between the book value of the Hertz vehicles and the fair market value realized at auction, the company said it requested information from Hertz to determine the basis on which Hertz had calculated the net book value of the leased fleet.

Despite repeated requests, Hertz has not yet provided FSNA with the requested information, even though FSNA believes it is contractually obligated to do so.

Private placement stalls

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, and the company's largest shareholder said it was not prepared to participate in a non-brokered private placement of special warrants announced on Sept. 4.

On Oct. 10, FSNA determined that without the participation of its largest shareholder, it would not be proceeding with the private placement on the terms previously announced and began to seek alternative sources of financing.

In addition, FSNA said Simply Wheelz has not made a payment due on Oct. 9 under the Hertz master lease agreement.

FSNA said it entered into talks with Hertz in mid-October with a view to restructuring Simply Wheelz' credit arrangements with Hertz while it looked for new sources of capital.

Although those discussions did not result in an agreement to restructure the master lease agreements, Hertz did agree to forbear from enforcing its rights under the sublease agreements until Nov. 1.

Financing talks

FSNA said Hertz has made offers to provide interim financing in order to complete a sale process in the context of an insolvency of Simply Wheelz, but FSNA elected not to accept the proposed terms, as the board and management of the company believed those terms would not facilitate a broad auction of the Advantage business.

Instead, FSNA said its management believed that the terms may have been designed to ensure that Hertz would be the likely purchaser. The company said it also believes the Federal Trade Commission would not support a sale of Advantage to Hertz in light of the previous order.

The company said the terms proposed by Hertz also required that Simply Wheelz enter insolvency proceedings, whereas management believed at that time that a going concern restructuring was possible.

FSNA said it has been in negotiations with three other parties since Oct. 25 in connection with the provision of additional financing and/or a sale of the Advantage car rental business.

The company said these discussions resulted in two parties, in addition to Hertz, making written offers to provide financing and/or purchase the Advantage business. The board of directors of FSNA, together with members of management and FSNA's external advisers, continue to work with these parties in connection with the possible provision of interim financing and recapitalization of Simply Wheelz.

Agreement terminated

However, on Nov. 2, Hertz gave notice that it was terminating the master lease agreements and seeking the return of the leased fleet.

FSNA said it was not able to agree to terms that would have permitted Simply Wheelz to restructure on a going-concern basis. Instead, the company said Simply Wheelz filed bankruptcy to adequately protect its rights.

In its bankruptcy case, Simply Wheelz plans to argue that the purported termination of the master subleases is invalid and that it intends to continue to operate in the ordinary course pending judicial termination of the rights of the parties.

Debt details

According to court documents, Simply Wheelz has $100 million to $500 million in both assets and debt.

The company's largest unsecured creditors are

• Hertz, based in Park Ridge, N.J., with a $10.02 million claim;

• Bank of America of Melbourne, Fla., with a $7.5 million claim;

• CarRentals.com of Jersey City, with a $1.2 million claim;

• TSD of North Andover, Mass., with a $1.07 million claim;

• GCA Services Group of Cleveland, with a $1.05 million claim; and

• Travelport LP of Atlanta, with a $1.04 million claim.

The company is represented by Butler Snow O'Mara Stevens &Cannada PLLC.

Simply Wheelz is a Ridgeland, Miss., rental car company. The Chapter 11 case number is 13-03332.

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