Hertz is selling $500M in new shares, fresh after declaring bankruptcy
Everybody hertz... But Hertz didn't cry when its stock inexplicably soared after its bankruptcy announcement. The airport rental car classic was hurting pre-corona, thanks to competition from peers like Enterprise and ride-hailers. Then came this head-scratching timeline:
- May 22: Hertz files for bankruptcy, sitting on $19B in debt and 700K cars — most of which haven't felt human touch on their steering wheels since March.
- May 26: Hertz stock is trading at a low of $0.56, after filing with no deal in place from the creditors it owes.
- June 8: Hertz shares have soared 887% to $5.53, as investors inexplicably pile into the stock.
- June 15: Hertz announces plans to sell up to $500M in new shares, which it would issue to capitalize on its stock price.
Lenders get paid first... The "absolute priority" rule in bankruptcy means that creditors (whom Hertz is indebted to) must get back the money they lent before shareholders get a penny. That's why Hertz had to warn potential buyers of its new stock that they will likely lose all their money.
- "Worthless": Mentioned 5 times in Hertz's filing, in reference to what its stock could become.
- "Risk": Mentioned 49 times, in reference to what investors are involving themselves in.
- Translation: We hope you'll buy these brand new shares for X dollars... but they might actually be worth $0 — Hertz.
Investors aren't always rational... So stocks don't always move in sensical ways. People traditionally buy because they believe a company will generate greater cash flows in the future (and so, they believe, share prices will rise). But stocks also rise for reasons unrelated to actual/future value: if there are more buyers than sellers, a stock's price rises. The "buying reason" — whether that's thoughtful investment analysis or straight up speculation — still affects the stock's movement either way.