US car rental company Hertz Global Holdings has just received approval from the US Bankruptcy Court for the District of Delaware for it to sell up to $1 billion worth of its stocks. Similar to other businesses that depend mostly on tourism for their revenue streams, Hertz had been forced to file for bankruptcy after incurring massive losses due to the global coronavirus pandemic.
In a statement released after it received approval to sell some of its stock last Friday, Hertz mentioned that the share sale was its last-ditch effort to increase its liquidity after it had filed for bankruptcy. Some traders had expressed concerns over the approval given that it was highly unusual for a bankruptcy company to be allowed to sell stocks. This is due to the fact that common shareholders are typically the last in line for allocation after court proceedings, which means that most may be left with worthless stock if the company does end up going under.
The approval from the district court comes just a day after the company submitted an emergency request to allow it to sell 246.8 million unissued shares to Jeffries LLC. In the filing, Hertz reasoned that the prices of its common stock are proving to be a much better deal for its debtors when compared to any debtor-in-possession financing. Selling its stock would also mean that Hertz will not be liable to make any payments in the future, unlike DIP financing. In the court's ruling, it was clarified that the approval will not result in any issuance of shares.
The selling of its stock also comes as Hertz continues to fight to retain its listing on the New York Stock Exchange. The company's stock prices have been very volatile, surging by as much as 37.4 percent on Friday before closing at $2.83 per share. According to exchange data, more than 240 million shares had changed hands during that one day. The volatility of its stock has raised concerns over how its prices may now be based on speculation rather on reflecting its overall business situation.
Analysts have pointed out that the sale of its stock to Jeffries will only end up diluting the value of its existing shares. While it may not be against the law, the approval still comes as a surprise for most. One of the company's shareholders, Gamco Investors, filed a limited rejection of the share sale after the approval was granted. The company, which holds around 3.9 million Hertz shares, claimed that it was not against the sale but it would like for Hertz to ensure that the positions of existing equity security holders will be preserved.
The Florida-based company originally filed for Chapter 11 bankruptcy protection back on May 22. The company was forced to resort to the filing after its car rental business had all but dried up amid the continued travel restrictions and shelter-in-place orders imposed by governments around the world. The company's stock prices hit a low of around 40 percent on May 26, eventually recovering in the days and weeks that followed.
