Roughly a week into bankruptcy proceedings, and looking to take advantage of its recent stock-price run-up, Hertz Global Holdings (HTZ) - Get Report is making an unusual move: seeking permission to issue more stock to pay off debts.
In a court filing, the car rental giant has proposed offering as many as 246.78 million common shares in what could amount to as much as $1 billion in additional equity to raise funds it needs to pay off creditors amid its own chapter 11 proceedings.
Hertz based its request to the court on a nearly 10-fold increase in its stock price from 56 cents on May 26 to $5.53 on Monday, according to the filing. Shares of Hertz were up more than 50% at $3.15 on Friday.
“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,” the company told a bankruptcy judge.
Hertz said it would warn any potential buyers “the common stock could ultimately be worthless.”
The move has raised attention not only for its robbing-Peter-to-pay-Paul vibe, but for its legality, given the New York Stock Exchange is in the process of delisting Hertz for falling below $1. The company has appealed the notice of delisting.
Jared Ellias, a law professor at the University of California, Hastings College of Law, told The Wall Street Journal that he had studied hundreds of bankruptcies but had never before seen a company try to fund a case with an equity offering.