Please ensure Javascript is enabled for purposes of website accessibility

Hertz Seeks Highly Unusual Move Amid Bankruptcy

By Daniel Miller – Jun 12, 2020 at 1:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The rental car company might issue new shares, but buyer beware.

In the latest wild turn for Hertz (HTZG.Q), the well-known vehicle rental company that is progressing through the bankruptcy process, the company's seeking to take advantage of the recent speculative pop in its share price.

Hertz is asking the bankruptcy court to approve the company to issue up to 246.78 million common shares and generate anywhere from $600 million to over $1 billion, looking at recent closing prices for the stock. "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 in a court filing.

When Hertz filed for bankruptcy on May 22, the company had roughly $1 billion in cash to continue funding its operations while the bankruptcy process plays out. Sure, this potential offering could give the company more capital to fund its operations. But make no mistake: When a company files for bankruptcy, its primary objective is to pay back its lenders in full or as much as possible.

Investors buying these newly issued shares, if approved by the court, are essentially handing money to Hertz lenders, and they'll end up holding worthless shares of a stock likely heading to zero.

paper showing "Petition For Bankruptcy"

Image source: Getty Images.

Most common shareholders of companies that file for bankruptcy receive little to no value for their shares, and Hertz appears especially unlikely to have any value for common shareholders after it attempts to satisfy over $19 billion in debt to lenders of secured and unsecured debt. One of Hertz most valuable assets is its massive fleet of vehicles, but those assets are tied to nearly $15 billion in secured debt, and those lenders will be the first at the negotiating table, while common shareholders will be the last. Even Carl Icahn, a hedge fund billionaire with far more influence and power than your typical common shareholder, who had amassed a near-40% stake in Hertz, threw in the towel when the company filed for bankruptcy and sold his shares at a staggering loss.

Furthermore, this unprecedented move by Hertz could open up the doors for further legal action."Selling shares that could potentially be wiped out in Chapter 11 may leave Hertz exposed to securities lawsuits that would arise post-petition and could result in additional administrative claims," according to Bloomberg Intelligence analyst Philip Brendel, in a note.

Individual investors should watch the Hertz circus from a distance, and in fairness, the bankruptcy court might not give this idea a second thought before shutting it down.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.