Another new development surrounding the infamously bankrupt car rental company Hertz Global (NYSE: HTZ) has emerged. As previously noted, Hertz, along with Jefferies, has decided to take advantage of the sudden cascade of Robinhood retail investors buying up the company’s worthless stock, and issue an initial equity offering. Shockingly, the bankruptcy judge approved the bizarre request, even though the New York Stock Exchange is in the process of delisting the company’s stock.
However, the Securities and Exchange Commission (SEC) has finally stepped in and pulled back the reins of the driverless carriage of irrationality that surrounds the bankrupt company. SEC Chair Jay Clayton recently issued a statement on CNBC, stating that the agency has taken up issue with Hertz’s plan to sell its bankrupt stock. When the SEC expresses concerns with a company’s disclosure, in most cases the plans in question are put on hold until the concerns are resolved.
It appears that someone in the retail investing world has taken SEC’s comments as “good news,” and began a frenzy of panic-buying. As a result, the stock temporarily went soaring to $2.27.
As such, Hertz stock will not become diluted via a stock offering for the time being. In a normal universe, share dilution possesses a potential risk to shareholders as it can decrease the equity price of a stock; so when a company refrains from issuing more shares, it means the risk of a lower stock value has been abated. Although retail investors have soundly picked up on the risks associated with a share dilution- and as a result went on a Hertz panic-buying frenzy, they are still ignoring the very basic fundamentals- like the fact that the bankrupt stock is still worthless.
Information for this briefing was found via CNBC. 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.