Hertz To Stockholders: You're Probably Going To Lose Everything

David Dierking

The recent rally in Hertz stock has done one thing for the company. It's given it the motivation to launch one last hail mary attempt to save itself from bankruptcy.

Hertz has made a filing with the SEC to execute another secondary share offering aimed at raising as much as $500 million.

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Normally, bankruptcy filings are the end of the line for companies, but Hertz stock actually rallied from around $1 per share to nearly $6 post-filing. Management is attempting to strike while the iron is hot, hoping that it can capitalize on the sudden interest in its stock.

But the company's filing lays out the stark reality that will come with buying up new shares.

You're probably going to lose everything.

From the SEC filing itself:

...recoveries in the Chapter 11 cases for holders of common stock, if any, will depend upon our ability to negotiate and confirm a plan, the terms of such plan, the recovery of our business from the COVID-19 pandemic, if any, and the value of our assets.

What this means is that if the company does indeed succumb to bankruptcy, anything they get for their shares will depend entirely on what type of agreements in can negotiate with creditors and how the post-COVID economy looks.

But here's the real dagger:

Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to preCOVID-19 or close to pre-COVID-19 levels.

Translation: Stockholders won't receive a thing unless bond and preferred shareholders are made whole first. In bankruptcy proceedings, common stockholders are last in line to receive anything leftover once remaining assets, if any, are distributed. That's rare in bankruptcy cases and common shareholders are usually left with a 100% loss on investment.

In other words, if you're going to gamble on Hertz stock, it's buyer beware.

Buying Hertz stock here will likely lead to significant, if not total, losses.

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