Hertz Seeks Unusual $1 Billion Stock Sale While Bankrupt

Hertz, the car rental group on the brink of bankruptcy, is seeking to sell up to $1 billion worth of stock to profit from rampant trading in its shares, in an unprecedented move for a company whose solvency is in jeopardy. doubt.

The proposed cash injection, described in a filing Thursday, would help fund the company’s reorganization process and replace the traditional senior loan sought by most companies in Chapter 11 proceedings.

Hertz filed for bankruptcy protection in May, after travel restrictions imposed due to the coronavirus pandemic effectively halted air traffic around the world, hurting his airport rental business – the cornerstone of his business.

Hertz shares hit $5.53 on Monday, implying a market value of more than $700 million, even as its bonds traded at very tough levels below 40 cents on the dollar. At such levels, shareholders are usually wiped out.

The increased trading and rising share price “present a unique opportunity for debtors to raise capital on terms far superior to any debtor financing in possession,” the company wrote, noting that equity would be free from restrictive covenants that typically companies chained together as part of the Chapter 11 process.

The company has $18 billion in debt, mostly in the form of bonds secured by its hundreds of thousands of vehicles. A sharp drop in used-car prices forced it to make additional payments to bondholders just as its cash flow dried up.

Hertz estimates it has about 250 million unissued shares that it wants to market through Jefferies, its investment bank.

A filing to issue new shares would include a disclosure that “an investment in Hertz common stock involves significant risks, including the risk that the common stock may ultimately be worthless,” the company wrote.

A veteran lawyer who has followed the situation said the gamble was unprecedented, saying he hadn’t seen anything like it in his 30-year career. “Hertz is bankrupt trying to sell stock and at the same time says they can’t afford leases on its cars,” referring to another company petition filed Thursday that sought to dismiss leases on 144 000 vehicles.

Line graph of Robinhood user count with Hertz shares (1,000) showing retail investors jumping into Hertz shares despite bankruptcy

The Delaware bankruptcy court is expected to hear the petition on Friday afternoon. The attorney representing the company did not immediately respond to a request for comment.

Hertz shares lost four-fifths of their value after the group filed for bankruptcy, but rallied after a wave of retail investor interest in the stock was downbeat. The buying spree led the stock to gain more than 800% on Monday from its May 26 low, the first trading day after it filed in Chapter 11. Since then, the stock has fallen nearly two-thirds and closed Thursday at $2.06, still well above the $0.56 nadir hit last month. Other struggling companies, including JC Penney, Whiting Petroleum and Chesapeake Energy, experienced similar volatility.

The phenomenon baffled Wall Street portfolio managers and shone a spotlight on stock market speculation among retail investors that has helped fuel the market rally since late March.

Hertz is now one of the most widely held stocks by users of Robin Hood, the free trading app. The number of users owning the stock on the platform has tripled since the car rental group filed for bankruptcy.

Speculation about Hertz and other companies on the verge of bankruptcy is a “very similar dynamic to what we’ve seen in bitcoin and what we’ve seen in the dotcom boom and bust,” Max said. Gokhman, head of asset allocation for Pacific Life Fund Advisors. The activity reflects “a sentiment of buying anything that’s down during the coronavirus in the hopes that those stocks won’t go bust.”

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