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Hertz is about to get a free upgrade… to a Sebring convertible. The rental car company got the green light from a judge to sell $1B worth of stock. Thanks to a recent rise in its stock price, Hertz is trying to raise some money while it has the chance.
Beat the rush
Normally, stock issuance wouldn’t be a big deal for a public company, but last month Hertz filed for bankruptcy. Yet, by the grace of God (read: day traders BTFD)last week, it’s stock price rose as retail investors started pouring money into the company.
So here we are. Judge Mary Walrath out of Deleware went all Ivan Drago on the case and decided that if investors want to make bad investments in Hertz’s stock, that’s on them. Hertz stock isn’t guaranteed to go to zero but typically, shareholder value of bankrupt stocks does become nil.
From the judge’s POV, As long as Hertz is upfront about its dire state, it can sell new shares. Investors can assume the risk if they want to go ahead and buy a bankrupt stock. This is America after all. Avis’ competitor will certainly take the money, and is planning to use it for restructuring costs as it goes through the bankruptcy process. *Ken Lay kicks himself for not thinking of this*
The bottom line…
Hertz isn’t the only company taking advantage of this “buying bankrupt” phenomenon. Whiting Petroleum and Chesapeake Energy have also seen big surges in share price after formally filing for bankruptcy. The speculative moves assume that the company will be able to turn things around but numbers are NOT on their side.
And that’s what makes the stock rise so interesting. Hertz has $18.8B in debt that it needs to pay off before shareholders can get their cut. The future looks bleak…
Water Cooler Talking Point(s)
💧 “I mean, look, I’ll throw a grand at it. I’ve spent $1k on dumber sh*t.” (Ian, The Water Coolest HQ)
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