Hertz Allowed To Sell Potentially Worthless Stock By Bankruptcy Court

Hertz Global Holdings Inc. HTZ received the go-ahead to sell potentially worthless new shares from a bankruptcy court on Friday.

What Happened

The planned offering could rake in up to $1 billion and is designed to take advantage of a rally in its shares.

The proceeds from the sale of shares will help the car rental firm clear its massive debts, reported Bloomberg Law.

Hertz attorney, Tom Lauria, said the company intends “to move very swiftly.”

Why It Matters

According to Bloomberg Law, Lauria, along with other lawyers, agreed that the sale of stock, led by Jefferies LLC, was unprecedented.

Hertz would warn investors that "the common stock could ultimately be worthless,” Lauria informed the court.

A committee of Hertz’s unsecured creditors supported the sale of shares as it could bring in $500 million, removing the need to resort to expensive bankruptcy loans.

Hertz bonds soared after the ruling with 5.5% notes due 2024 rising approximately 13 cents on the dollar to 48.5 cents, the best performance in two months.

Purchase of stock in bankrupt companies is risky for investors, as bondholders, suppliers and other creditors must be repaid in full before shareholders can be compensated, and this rarely happens.

The New York Stock Exchange began the process of delisting Hertz in May, but the company is now appealing it.

Price Action

Hertz shares traded 13.78% lower at $2.44 in the pre-market session on Friday. The shares had closed the regular session 37.38% higher at $2.83. 

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