Hertz Suspends $500 Million Stock Sale Pending SEC Review

Hertz suspends its $500 million stock sale as SEC Chairman Jay Clayton says the agency "has comments" about the car rental giant's proposed stock sale.
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Hertz  (HTZ) - Get Report reportedly is suspending its planned $500 million stock sale pending a review by the Securities and Exchange Commission after the rental-car giant said the shares "could ultimately be worthless."

CNBC reported the suspension of the sale. Hertz shares were halted Wednesday.

The Estero, Fla., company has been hammered by the coronavirus pandemic shutdown. 

The collapse in the global travel industry overwhelmed its ability to reach long-term agreements with creditors on reduced payments, forcing the company to seek protection from creditors under the bankruptcy laws.

Earlier SEC Chairman Jay Clayton told CNBC that the commission had "comments" about the controversial sale.

“In this particular situation we have let the company know that we have comments on their disclosure,” Clayton said. “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.”

 On Monday Hertz filed with the SEC to sell $500 million of stock. 

"The SEC is basically telling Hertz that it has a problem with the idea of selling $500 million of stock to the public when the company acknowledges that shareholders are probably going to lose everything," said David Dierking, Editor of ETF Focus on TheStreet.

Dierking added that "lots of smaller retail investors are buying up shares of distressed companies like Hertz hoping that a post-COVID economic rebound can save the company and investors can see huge profits."

"In reality, when a company files for bankruptcy protection, it's usually the end of the line," he said. "Since common shareholders fall behind bond and preferred stock holders in the pecking order, they're usually left with nothing. I'm certain that the SEC wants to prevent this scenario from happening."

The company said in the filing that equity holders would not see a recovery from any bankruptcy plan unless those with more senior claims, including bondholders, are paid in full. 

Hertz said this would "require a significant and rapid and currently unanticipated improvement in business conditions to pre-covid-19 or close to pre-covid-19 levels."

Last week, Judge Mary Walrath of the U.S. Bankruptcy Court in Delaware said that Hertz, which filed for Chapter 11 protection on May 22 with nearly $20 billion in debts, could raise as much as $1 billion through the sale of new shares. 

Hertz told the court it would alert buyers of the new shares that common stock in the company "could ultimately be worthless” once its bankruptcy proceedings are concluded. 

The company has bonds that are about $2.3 billion under water, as well as what it owes to banks and any lease payments and other expenses, Bloomberg reported.

The company received a delisting notice from the New York Stock Exchange on May 26.

Neither Hertz nor the SEC immediately responded to a request for comment.