Judge Mary Walrath of the U.S. Bankruptcy Court in Delaware said Friday 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 filed papers with the Securities and Exchange Commission Monday for the sale of 500 million shares.
The Bonita Springs, Florida-based group, however, told the court it would alert buyers of the new shares that common stock in the group "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.
Hertz shares were marked 20% lower in early trading Monday to change hands at $2.27 each, a move that would still leave them with a month-to-date gain of more than 140%.
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.