Shares of Hertz Global Holdings (OTC:HTZG.Q), a vehicle rental company in the middle of bankruptcy, jumped over 10% before giving some gains back Wednesday.
First, it's important to note that investors should be taking Hertz's wild stock price swings with a big grain of salt, and with a $19 billion pile of debt it's almost certain that common shareholders will end up with no value. Hertz is currently appealing the NYSE's decision to delist the company, but in all likelihood shares of Hertz are slowly going to head to zero as the bankruptcy process plays out. Even today as the company's stock popped 10%, trading volume is at a very low 19 million, compared with its average 73 million volume.
Second, right now Hertz is in a battle with its creditors about how to deal with its roughly 500,000-vehicle fleet that is tied to asset-backed securities -- which represents most of that $19 billion in debt. As that fleet is essentially a whole package, what Hertz is attempting to do is get the bankruptcy court to turn the entire lease into roughly 500,000 separate agreements. That would enable creditors to liquidate some or all of those vehicle assets to recoup some of their financial investment, but it would also allow Hertz to keep some of those vehicles and make a smaller collateral payment if the value of those vehicle assets fluctuates. Bear in mind that a massive decline in those vehicle assets triggered a payment clause that Hertz couldn't afford, and that's why it's bankrupt.
Essentially, Hertz is attempting to shrink its vehicle fleet and restructure the company in a way that could wipe former shareholders out but enable new shareholders to buy stock of a new company, after which it could emerge from bankruptcy as a more capable and focused rental company. While there are many options still on the table, including a full liquidation, what's also concerning is that new COVID-19 cases are spiking in parts of the nation, which only adds economic and transportation uncertainty to an ugly Hertz situation. Common shareholders would be wise to continue watching this stock from the sidelines.