Hertz Bankruptcy Court Approves $1B Stock Sale

Hertz Bankruptcy Court Approves $1B Stock Sale”

Hertz Global Holdings Inc said it won bankruptcy court approval on Friday to sell up to $1 billion in stock, capitalizing on a remarkable rally in its shares driven by speculators defying conventional market wisdom.

The US auto rental company Hertz (NYSE:HTZ) wants to use the current stock market phase and, despite the bankruptcy proceedings, issue new shares worth up to $ 1 billion.

According to the Wall Street Journal, Hertz - which filed for bankruptcy after lockdowns imposed to stop the spread of COVID-19 devastated the auto rental industry - is buried under $19 billion in debt.

Although Hertz recently filed for bankruptcy, the stock has grown incredibly in the past few weeks.

On Friday the stock climbed 37.38 percent during the day, but fell 10.5 percent to $2.53 at 2130 GMT in after-market trading. The company has a market capitalisation of $293 million, yet wants to raise $1 billion after eroding billions in investor value over the past few months. The proceeds would provide some much-needed working capital while Hertz tries to dig out from massive debts that forced it into court protection.

Also, investors who own shares in bankrupt companies are last in line, as the company pays creditors like banks and bondholders.

Hertz said it would warn any potential buyers that "the common stock could ultimately be worthless". The company's almost $3 billion of unsecured bonds traded at around 40 cents on the dollar Friday.

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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.

"As odd as it is, it might turn out to be brilliant move", said Bruce Grohsgal, a retired bankruptcy lawyer who teaches at Widener University's law school in Delaware.

Conversely, through more traditional forms of borrower-in-possession financing, bankrupt companies often obtain loans backed by company assets.

In the filing, Hertz said it wanted to send 144,000 cars back to the noteholders without paying them rent for the cars while those vehicles are for sale. "They want the master lease for the cars they want to keep and not think any more about the cars they want to reject".

The company filed for Chapter 11 protection in a USA bankruptcy court in DE after talks with creditors failed to result in much needed relief.

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