Hertz Stalls Stock Sale Amid Market Madness
The Securities and Exchange Commission has urged the recently bankrupted Hertz to halt the sale of stock. The rental agency had hoped to raise half a billion on the sale but repeatedly warned that would-be buyers were gambling, as the stock may soon be worthless.
Bizarrely, this hasn’t discouraged investors from glomming onto shares of bankrupt and near-bankrupt companies. Despite the global economy supposedly hurdling into a recession and mass unemployment, Wall Street hasn’t signaled that anything is amiss.
Still, the SEC has grown concerned with the trend and decided to address them with Hertz, according to a recent filing. Trading of Hertz Global Holdings Inc. was halted on Thursday, placing investors in a holding pattern as everyone speculates whether the bankrupt car renter will have to revise its plan to raise cash by selling new shares.
“We have let the company know that we have comments on their disclosure,” SEC Chairman Jay Clayton said in a CNBC interview on Wednesday. “In most cases when you let a company know that the SEC has comments on their disclosure, they do not go forward until those comments are resolved.”
Hertz did not buck the trend, announcing the prompt suspension of sales “pending further understanding of the nature and timing of the staff’s review.” It’s since been in routine contact with the SEC but informed us it could not say more on the issue at this time. Interesting, because it doesn’t seem to be breaking any rules — just taking an interesting approach to bankruptcy that could leave more than a few investors burned.
Bloomberg offered additional analysis of the situation:
While the SEC generally lets companies sell shares if their disclosures are robust, the regulator probably wants to take a closer look because of the unusual nature and risks of Hertz’s offering, said Thomas Gorman, a partner with law firm Dorsey Whitney and a former senior counsel at the agency.
“On one side of the line is, if you disclose everything then you can sell whatever you want,” Gorman said. “On the other side of the divide is, we have substantive problems with what you’re selling and the offering is so seriously flawed that it shouldn’t go out. I think they are looking at this and saying this is very troubling.”
Hertz’s most actively traded debt, $800 million of 5.5 [percent] notes due 2024, slid 4.75 cents on the dollar in New York to trade at 38 cents. The notes were among the biggest decliners in the high-yield market Wednesday.
Hertz wants to keep things moving in order to capitalize on whatever’s happening with the market right now. Investors seem anything but skittish — and that’s likely to play to its favor. It’s also already received approval from a bankruptcy judge, though the SEC said it will monitor the situation — noting that the bankruptcy proceedings had complicated the matter. But Hertz is in a bad situation, some of it out of its control, and has to do something to soften the blow as it goes through Chapter 11. Expect more on this as the SEC takes everything into consideration.
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