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Hertz surges on plan to sell US$1b stock in bankruptcy
[NEW YORK] Hertz Global Holdings is asking a bankruptcy judge to let it take advantage of the quixotic surge in its stock by selling up to US$1 billion of new shares.
Stockholders of bankrupt companies typically get wiped out, but after an enormous two-week rally, the car renter envisions offering as many as 246.78 million common shares with help from Jefferies, according to a court filing. Those shares may wind up worthless, too, Hertz said, but in the meantime it would get some much-needed working capital. Judge Mary Walrath set a hearing for Friday to consider the idea.
Hertz's shares surged as much as 68 per cent shortly after the start of regular trading Friday. Investors are bidding up Hertz and other bankrupt companies on optimism that the economy and specifically air travel is poised to rebound. Hertz might also benefit from prices of used cars at auctions coming all the way back from a mid-April collapse.
"It is incredibly creative and they get props for that, but I wouldn't buy those shares," said Nancy Rapoport, a professor at UNLV's William S Boyd School of Law, who said she has never seen a bankruptcy funded this way. "I guess they're trying to catch whatever the opposite of a falling knife is."
Hertz based its request to the court on a nearly tenfold increase in its stock from 56 US cents on May 26 to US$5.53 on Monday. While the stock has slid since then, Hertz said in the filing that a sale of shares still could help cover its debts.
"The recent market prices of and the trading volumes in Hertz's common stock potentially present a unique opportunity for the debtors to raise capital on terms that are far superior to any debtor-in-possession financing," the company said, referring to a traditional bankruptcy loan.
A share offering would avoid new interest, fees and restrictions on Hertz's finances and wouldn't impose any claims from a bankruptcy loan that would outrank existing creditors, the company said.
Hertz said it would warn any potential buyers that "the common stock could ultimately be worthless". The company also said it would agree to protect Jefferies against possible lawsuits resulting from the sale.
Some of Hertz's bonds, which rank well ahead of shares in the bankruptcy repayment line, continue to trade at steep discounts, suggesting a slim chance of any payout for the stock. The company's 6 per cent notes due 2028 changed hands at 35.75 US cents on the dollar Thursday.
Lawyers asked for an emergency ruling "given the volatile state of trading in Hertz's stock". Hertz shares changed hands for as much as US$3.47 on Friday, up from a close of US$2.06 on Thursday. Hertz insiders sold shares during the recent rally, according to data compiled by Bloomberg.
Hertz disclosed earlier this week that New York Stock Exchange (NYSE) staff had decided to commence proceedings to delist its stock. The company appealed the determination and requested a hearing before the NYSE.
The case is The Hertz Corporation, 20-11218, US Bankruptcy Court for the District of Delaware.