Hertz Global Holdings (HTZ) - Get Report shares extended declines Thursday after it suspended plans to sell $500 million in potentially worthless shares following an investigation by the Securities and Exchange Commission.
Hertz said Wednesday that the prospectus for the plan, which it called an "ATM Program", was probed by SEC staff on June 15 and has now been suspended "pending further understanding of the nature and timing of the Staff's review."
"The Company is not currently offering any shares under the ATM Program," Hertz said in a statement filed with the SEC. "The Company’s advisors have been in regular contact with theCommission since the Staff’s initial contact on June 15, 2020."
Hertz shares were halted from trading on the New York Stock Exchange prior to the SEC statement. The shares were marked 2.75% lower Thursday to change hands at $1.94 each.
Earlier this week, a judge overseeing Chapter 11 bankruptcy proceedings for the car rental group approved the issue of new stock, even as lawyers for the Bonita Springs, Florida-based group argued the shares could "could ultimately be worthless” once bankruptcy proceedings are concluded.
The recent market prices of and the trading volumes in Hertz’s common stock potentially present a unique opportunity for the debtors to raise capital on terms that are far superior to any debtor-in-possession financing,” lawyers from White & Case, which is representing Hertz, told Judge Walrath last week.
Chapter 11 bankruptcy laws provide few, if any, guarantees for equity investors, which the courts consider owners of the company. Creditors are given priority in the restructuring of debts or the sale of assets, and usually walk away with most of whatever remains from the reorganization.
Bankruptcy lawyers, however, as well as those managing the company through the Chapter 11 process, can set up what are known as equity committees, a small sliver of stock in the re-organized company that will entice equity investors back to the table once its returned to market.
That could prove difficult for Hertz, however, given the size of its overall debts -- listed at $18.8 billion at the end of March -- and the New York Stock Exchange's move to de-list the shares later this year.
Hertz has appealed that decision and a hearing is scheduled for October 20.