By on June 18, 2020

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.

[Image: vieninsweden/Shutterstock]

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13 Comments on “Hertz Stalls Stock Sale Amid Market Madness...”

  • avatar

    I am mostly split on the whole government intervention thing. However I believe that this is a good move. I realize that people are stupid but companies should not be allowed to encourage it.

  • avatar
    schmitt trigger

    “…. 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.”

    Was PT Barnum the one who said that a fool and its money are soon departed?

    Unfortunately, some of those investors are risking the money from retirement or pension funds.
    The fire department of Chillicothe, OH or Lincoln, NE may find one day that its retirement savings have mysteriously evaporated.

    • 0 avatar

      I thought once you declared bankruptcy your company was de-listed from the exchange… guess not.

      Investing in a bankrupt company seems to be the worst idea ever, yet that didn’t stop some investors. Well I need to meet these people as I’ve been contacted recently with an amazing offer from a Nigerian Prince.

      • 0 avatar

        Companies that file for bankruptcy chapter 11 reorganization aren’t bankrupt, they continue to operate normally while their finances are reorganized. It’s a temporary measure in which a court prevents lawsuits from interfering with the negotiations between creditors and management.

        There’s no need to de-list if the company is expected to survive, though the value of the stock will usually be diluted by the measures taken. The stock market is where that dilution becomes apparent, in stock price, though a court-ordered reduction of debt, creditors taking a “haircut”, while some non-core assets are sold off, can sometimes enhance the value of the stock.

        • 0 avatar

          “Companies that file for bankruptcy chapter 11 reorganization aren’t bankrupt” Well, they are insolvent, which means that they either are or will inevitably become (in very short time) unable to pay their debts as they come due.

          Almost invariably, in any Chapter 11 proceeding the common shareholders get wiped out. The creditors (who rank ahead of the shareholders) exchange part of their debt for equity in the reorganized company – which is their haircut – and replace the previous shareholders, who get nothing.

          There is always a market in the shares of companies in Chapter 11, presumably made up of people who are looking to profit on the ups and downs of the stock before it becomes worthless.

          I frankly don’t begin to understand how Hertz could successfully market a common share offering to investors who are virtually certain to lose their investment.

  • avatar

    “Despite the global economy supposedly hurdling into a recession”. Hurdling? Whatever for? No Olympic Games this year.

    As for the “supposedly”, rubbish. What, you have a Nobel in the proud profession of circus booth/county fair soothsaying known as economics to go along with your already impressive roster of being expertly opinionated in dozens of fields of human endeavour? We’re going to have a depression.

    Give it a month to really get rolling when millions more people can no longer afford rent, get evicted and can’t afford food either, and the penny’s going to drop for you. We’re just at the beginning of the fallout from the virus quarantines/lockdowns, bar/restaurant/business/day care closings etc. Many businesses are not going to re-open or half-open thus not employing all the people back. Time to learn how to be a berry picker and live in a tent or the car. Hey, that’s how the 1930’s went for a lot of people.

    The old “joke” told me by my granpappy who went through those times goes like this:

    A hobo knocks on the door of a cleric’s well-kept home, and asks the pastor for some food. The pious man goes to the kitchen and brings back a stale crust of bread. “Now, my good man, remember this: I’m not giving you this bread for your sake, or indeed for my sake, but for the Lord’s sake.” To which the itinerant replies, “Well, then for Christ’s sake, put some butter on it!”

    Remember, it’s not charity if not freely given without a lecture, or free advice like “get a job” when none are to be had. Hertz’s problems are but nothing in the scheme of what’s coming.

  • avatar

    “The SEC doesn’t offer security, and the CDC doesn’t control disease.” Discuss.

  • avatar
    Michael S6

    Irrational exuberance to the extreme.

  • avatar
    Jeff S

    Pig Iron that is a great engine as well and I would add the 2.2 I-4 that I had in my 99 S-10 which I gave to my nephew. True it is far from being a performance engine but it is a very dependable and long lasting engine. Hard for me to pick a favorite and the only reason I choose the small block Chevy V-8 and the Mopar Hemi because they are great performance engines and legendary. Ford has some great engines as well with the Coyote, their 351 Cleveland, straight 6’s, and the 3.0 V6 DOHC Duratec engine in my wife’s prior 2000 Taurus was great with lots of power and very reliable. Honda, Toyota, and Mazda also make some great engines as well that all go the distance. PS add the Mopar Slant 6 as well.

  • avatar
    Jeff S

    @Arthur Dailey–If you haven’t already seen it go on Jay Leno’s site where he has a video on his Merlin engine going over the history of the Merlin and running his own Merlin engine which is not in a car or airplane. A really nice engine with lots of power.

  • avatar
    SCE to AUX

    Maybe Hertz’s fortunes are suffering from their former association with OJ Simpson.

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