Hertz shares went into overdrive Friday after the bankrupt car-rental company announced plans to sell up to $1 billion in stock.
The Florida-based firm’s stock price surged as much as 65 percent to $3.40 in early trading as it sought court approval to sell more than 246 million shares as an alternative to typical bankruptcy financing.
Hertz’s share price increased tenfold in the two weeks after its May 22 bankruptcy filing as investors sought to capitalize on the rock-bottom rate. That presents a “unique opportunity” for the company to raise money during the bankruptcy process without the restrictions and costs of so-called debtor-in-possession financing, Hertz said in a Thursday court filing.
But the company admitted that “an investment in Hertz’s common stock entails significant risks, including the risk that the common stock could ultimately be worthless” — a fact it said it would disclose to potential investors.
Hertz shares closed at about 56 cents on May 26, the first trading day after it declared bankruptcy, but surged to $5.53 by Monday’s closing bell. The price has since tumbled to close at $2.06 on Thursday.
The boom coincided with the stock’s growing popularity among retail investors — more than 151,000 users on the Robinhood trading app held Hertz shares as of Friday, up from about 44,000 on May 26, according to data compiled by Robintrack.
While selling stock is a creative bankruptcy financing strategy, it may be “a bridge too far” for the bankruptcy court to approve, according to Bloomberg Intelligence analyst Philip Brendel. Hertz would have to sell the new shares for $4.05 apiece to raise $1 billion from the sale.
“Selling shares that could potentially be wiped out in Chapter 11 may leave Hertz exposed to securities lawsuits that would arise post-petition and could result in additional administrative claims,” Brendel said in a Friday note.
Hertz’s bid to sell shares came a day after it revealed the New York Stock Exchange moved to delist the company last month. Hertz has appealed the decision but there’s no guarantee it will stay on the exchange, it said in a Wednesday regulatory filing.