I still think this is a smart move for Hertz. A loan comes with an interest rate and repayments. A new offering is just cash minus the fees. It's "free" in terms of future obligations.
If this "IBO" gives Hertz the breathing room to restructure, clean up, and come out the other side, then well done. If not, no one will be surprised. It's a "no lose" scenario for them.
As an investor, nope. If it drops down to penny stocks, I'll go "all in" with the $6 I can't transfer out of my Etrade account but not willing to consider anything real.
Honestly, Hertz selling stock didn't seem that crazy to me. "We need more money, or we're going under." They're basically asking for new investors to make the business solvent. How is this any different than a startup asking for more investors prior to closing shop?
Frankly, not unreasonable either. The entire travel industry was destroyed overnight, so it's entirely possible they could emerge from insolvency with an infusion of capital and be just fine. I'm not putting my money on it, but it's not the most outlandish thing I've heard either.
I like his argument. Its pretty reasonable in its principles.
But it doesn't work in this situation. Hertz raised 10^7 dollars this way when they were 10^9 in the hole. Looks to me like the executives saw an opportunity to part some people from their money and took it.
An outside investor is sharing shares they already have, or short-selling shares with the promise to buy them back later. That's wildly different from issuing new shares when you have inside information which prices them at zero.
The hate is that it’s a hugely risky investment that Hertz is knowingly marketing to unsophisticated investors who don’t understand the offering enough to fully appreciate the risk and who aren’t in a financial position to absorb this kind of risk even if they do appreciate it.
It’s a money grab. The second the stock is issued it’s basically worthless and Hertz knows it. But when these investors are inevitably screwed over they’ll basically have no recourse against Hertz so why not?
Their shares irrationally have value on the market, issuing equity allows them to pay off more of their debts. Why shouldn’t they issue, it’s the company’s job to release accurate information, not to force the buyers to make wise decisions.
If someone offers you millions of dollars for your totaled car you’d be a fool not to take it, this is no different. Hertz management must be loving this.
What I don't understand is that Hertz specifically wanted to sell an amount of shares that wouldn't raise enough money to pay off their debts. Their prospectus noted that shares sold would automatically become worthless unless their debt was paid off, which they didn't anticipate.
But why not try? What if they sold so much stock that the bondholders could just be paid back? Why do the stock sale specifically planning for failure? Why include a limit that guarantees failure even if you would have otherwise succeeded?
Cost of borrow for hertz shares reached over 140 percent last week. Some of the purchasing could well have been driven by hedge funds which were short but had to buy stock to exit their positions after available shares to borrow dried up and their brokers forced them out of the position.
They planned to sell them before the current rally (the document is dated December 8). They haven't released details of how many they sold, or on what dates.
It's not clear what view the SEC would take if they fast tracked an ATM offering now. Hertz were told to knock it off, but they were literally trading in bankruptcy. There's a pretty good argument to be made that issuing more shares is if anything the responsible thing to do to in response to increased demand, since it would help to correct the anomalous price rally.
It was an at-the-market offering, and Hertz didn't know anything about its market value that wasn't already a matter of public record. Hertz stock was already being traded. I guess I don't understand the ethical system that says "everybody that holds Hertz stock should be able to benefit from an irrational enthusiasm for Hertz stock except for the issuer."
Hertz explicitly stated that shareholders were highly likely to get absolutely nothing. I think it's also highly obvious to even retail investors that this is an incredibly risky bet with potential for a total loss. I don't think there's a strong argument here that buyers didn't know what they were getting in to.
Besides, how is this different than any other shareholder selling their stock, also knowing full well it is entirely likely to be worthless?
I'm incredibly skeptical of the weak term sheets that would come out of this process. It looks like the crowd gets dilutable stock with no option for next round priority investing. Best of luck on their success - I hope my initial take is wrong, because this would be exciting at scale.
Bear in mind though that this is a company whose share price has dropped 66% in value over the last 5 years and is down 21% in the last 12 months. They're trying to re-structure at the moment, so this presented another option to shareholders.
Exactly the reason why Hertz did not proceed to do the same when their price irrationally rose during the pandemic. They wanted to do it, but the SEC sent them a letter asking for clarification, and that was enough for Hertz to get the message.
> Hertz was perhaps the most famous example, where the stock was bid up even though it was already in bankruptcy proceedings and was inevitably going to $0.
If this "IBO" gives Hertz the breathing room to restructure, clean up, and come out the other side, then well done. If not, no one will be surprised. It's a "no lose" scenario for them.
As an investor, nope. If it drops down to penny stocks, I'll go "all in" with the $6 I can't transfer out of my Etrade account but not willing to consider anything real.
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