As promised, there have certainly been more head-scratching developments since Tuesday regarding bankrupt car rental company Hertz Global (NYSE: STZ). Monday saw a cascade of Robinhood retail investors send the essentially worthless stock soaring up to a mind-blowing $6.25, which corresponds to a nearly 10-fold increase since the company began bankruptcy filings on May 22. Now however, the Robinhood investor’s clearly irrational behaviour has opened up a Pandora’s box of opportunities for Hertz to capitalize on.
For some bizarre and inexplainable reason, Robinhood investors have essentially been trading the meaningless stock between one another, with the hope that the next naive trader will buy it from them. As a result, Hertz is looking into a potential deal with Jefferies LLC, which would allow the car rental company to sell up to 246.8 million unissued shares or $1 billion worth via an at-the-market distribution -pending bankruptcy judge approval. If this absurd deal is in fact approved, then Hertz could ultimately bypass the entirety of the stringent debtor in possession loan, and instead sell equity as a means of raising capital.
According to Jared Ellias, who is a law professor at the University of California Hastings College of Law, he has never witnessed such an unusual case. When a chapter 11 bankruptcy is initiated, never has a company tried to raise capital via an equity offering. As such, a rational bankruptcy judge would send such an offering straight to the paper shredder, but lets not forget that rationality is a scarce commodity these days, as we have seen with Robinhood retail investors.
Information for this briefing was found via Wall Street Journal. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
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The great thing about the insolvency business is just when you thought you had seen it all……….