The bankruptcy announcement of Hertz Global (NYSE:HTZ) sent the stock to as low as 40 cents. But by mid-June 2020, speculators bid the stock to above the $5.00 range. Robinhood speculators are betting on some kind of miracle.
If Hertz’s lawyers concede that the company shares are worthless, then why would anyone buy shares that the company is issuing?
A bankruptcy declaration will prioritize debtholders getting back money from the liquidation of assets. Preferred shares (if any) are next in line. At the last in line are shareholders. So, when Judge Mary Walrath allowed Hertz to sell up to $1 billion in shares, that does not change the rights shareholders have on its assets.
If Hertz somehow restarts its rental business amid an easing from the COVID-19 lockdown, cash flow may improve. The $1 billion in extra cash will dilute holders of the already worthless stock. But if the company may negotiate a new deal with bondholders to delay debt repayment, Hertz may have a chance in surviving.
Takeaway
Continuing on the bankruptcy path, wiping out shareholders, and paying back debtholders at pennies on the dollar is the best action for Hertz. The company will emerge with a lower debt profile. It may list itself again with new shares. That just means the current stock will eventually trade at 0.05 - $1.00 over the next few trading sessions.
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