“If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flows and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet scheduled debt service obligations. “  Hertz Global Holdings 10-K

The list of risk factors in the Hertz (HTZ) 10-K is nearly a mile long. A great deal of them deal with the company’s debt and questions about whether it can make timely payments. Odd and ironic that Hertz, of all companies, would sue Audit Integrity over its list of the companies with market caps over $1 billion that are most likely to go bankrupt over the next twelve months.

There are a number of reasons to agrees or disagree with the Audit Integrity analysis. The research firm’s approach of using data that is accounting-based, market-based, and fraud-based is substantially different from other models that predict corporate bankruptcies.  But, AI offers a painstaking description of its methodology and makes it clear that public companies listed are not necessarily going to file for Chapter 11. In one section of its report, AI writes “Whether an actual bankruptcy filing occurs or not, these are companies with weak financial condition, raising the risks for losses,defaults and other high risk events.”

Hertz released a statement about the lawsuit–”Hertz alleges in the lawsuit that Audit Integrity and (AI CEO) Mr. Zwingli have defamed Hertz through a report published by Audit Integrity and public statements made by Mr. Zwingli. Hertz is seeking injunctive relief and monetary damages through its complaint.”

What Hertz did not say is the it is wasting shareholder money by drawing attention to something that most people who hold it stock would almost certainly have forgotten within a short period.  Its institutional holders have already drawn their own conclusions, long ago.

And, the Hertz SEC attorneys made the company put in those risk factors, which describe a company which is financially unsound.

Douglas A. McIntyre

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