HyreCar files for bankruptcy, prepares for sale

Car-sharing marketplace HyreCar on Friday initiated voluntary bankruptcy proceedings and took steps to ensure operations will continue as it prepares to sell the business to Holmes Motors . [caption id="attachment_57334429" align="alignnone" width="2048"] © Can Stock Photo / Fahroni [/caption] Los Angeles-based HyreCar provides short-term car rentals for people who drive for delivery or ride-sharing services through businesses such as Lyft and Uber . HyreCar filed for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court for the District of Delaware. Chapter 11 filings allow companies to restructure their debt, Ed Whitson, member at McGlinchey , told Auto Finance News . “Usually there is some kind of business issue with a company that they hope to be able to resolve, but they need some time to readjust their liabilities,” he said. “In the last five or six years, the trend in bankruptcy has been more toward orderly asset sales and orderly liquidation through Chapter 11.” Prior to the filing, HyreCar entered into a term sheet expressing intent to sell “substantially all” of the business’s assets to Holmes for $7.75 million, pursuant to approvals, according to a HyreCar release. Holmes is providing HyreCar with $5 million in debtor-in-possession (DIP) financing as part of the bankruptcy process, allowing HyreCar to continue operating during the sale and bankruptcy process, according to the release. Holmes will be allowed to apply the DIP financing against the purchase price if the sale goes through. “The $5 million loan was to provide liquidity to pay salaries, keep wages in place and … maintain the going-concern value of [HyreCar] … and realize a higher sales price for your assets in bankruptcy,” Whitson said. HyreCar, which also provides commercial auto insurance coverage for owners and drivers, last month unveiled a new platform offering higher-priced cars for rent . Bankruptcy as a tool Bankruptcy talks came after HyreCar raised $12.25 million in financing on Jan. 6 in a private equity transaction with four purchasers, according to bankruptcy filings. The financing included $4.25 million tranche that was funded and an $8 million tranche that was anticipated to be funded by this month but was never closed, “leaving [HyreCar] with limited cash to support operations” and resulting in the company pursuing a bankruptcy asset sale, according to the filing. The funding was meant to support HyreCar’s growth initiatives, including its joint venture with mobility-as-a-service company AmeriDrive Holdings , according to a company release. AmeriDrive began purchasing vehicles to list on HyreCar’s platform in October 2022 through a $100 million revolving asset-backed line of credit provided by Credit Suisse . Miami-based AmeriDrive, as of Jan. 6, had drawn $25 million of the line to purchase more than 1,300 vehicles, with 1,000 of the cars already bought to list on HyreCar’s platform, according to the release. HyreCar tried to restructure its debt outside of bankruptcy but was not successful, Whitson said. “Bankruptcy is the mechanism [for HyreCar] to sell their assets and maximize the value of those assets,” he said. HyreCar must plan liquidation of its assets and use proceeds from the business sale to pay off creditors, Whitson said. Bankruptcies likely to increase Bankruptcy cases will likely tick up in the next year as interest rates continue to rise and the Fed tightens monetary policy, Whitson said. “We’re going to see a very active troubled company solvency type of activity this year,” he said. “There is not the liquidity in the economy that we’ve seen before. That may be what’s happening to HyreCar — all this money they thought would be out there [isn’t] because of the shift in interest rates and more conservative monetary policy by the Federal Reserve. It trickles down and affects even private equity and every other aspect of financial markets.” Meanwhile, Delaware is an active bankruptcy jurisdiction as many large and small corporations were organized under Delaware law amid appealing corporate stipulations, Whitson noted. “Delaware, for the last 15 to 20 years has been the leading jurisdiction for bankruptcy filings,” he said. “It’s a very company-friendly jurisdiction.” Chief changes HyreCar has made leadership changes in tandem with the bankruptcy filing. The board of directors on Feb. 21 terminated HyreCar President Brian Allan and appointed Eduardo Iniguez as CEO, according to an 8-K filing with the Securities and Exchange Commission . Iniguez, who had served as interim CEO from Dec. 8, 2022, will continue to serve as chief financial officer as well as in the CEO role. Meanwhile, AJ Lee was named HyreCar’s chief operating officer. Auto Finance Summit East, Auto Finance News’ new spring event, is set for May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi, CEO of Chase Auto. Visit autofinance.live.

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