The market dislocation wrought by the Corona-virus pandemic has a poster child in Hertz Global Holdings Inc. A bankruptcy court late Friday approved Hertz’s HTZ, -33.56% request to sell up to $1 billion in stock.
The car-rental company appears to be seizing on a wave of intense, speculative interest in its shares since it declared bankruptcy late last month, drowning in debt and hit hard by the global restrictions on travel designed to slow to spread of the Corona-virus.
Hertz Global Holdings warned potential buyers in its common stock offering that it’s almost certain that the equity will become worthless. Hertz said in a government filing Monday that it would sell up to $500 million in common stock.
In that very same filing, the company said those shares won’t be worth anything unless those with higher priority in a bankruptcy, such as the company’s debt holders, are paid in full.
And that, the company said, would only happen if there is an astounding change in the progress of Covid-19 and a significant turnaround in travel trends.
The U.S. Bankruptcy Court for the District of Delaware on Friday approved Hertz to sell up to $1 billion in stock in a last-ditch effort by the company to cash in on its volatile share price and haggles with the New York Stock Exchange to not be de-listed.
The stock sale is a rare move for a company going through Chapter 11 bankruptcy since common shareholders are last in line when assets are allocated during court proceedings.
People and entities that hold Hertz’s bonds will receive payouts first as debt holders receive priority during bankruptcies. But, this is not investing, it is gambling.
Also unusual is the volatility seen in Hertz stock over the last month, even after the company filed Chapter 11 on May 22. The share price, which bottomed around 40 cents per share on May 26, is up 475% since then at around $2.30.
Hertz stock has nearly tripled in June, and gained 10% this week, the Wednesday de-listing notice from the New York Stock Exchange notwithstanding.
The stock fell around 3% in the extended session on Friday after the court decision’s news, but ended the regular trading day up 37%.
CNBC / Market Watch 2020.