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To sell the shares, Hertz has entered into an Open Market Sale Agreement, or sales agreement, with Jefferies LLC. In the pre-market today, Hertz (HTZ) stock is 9.52% up, $2.07 per share.
Last month, the second-largest U.S. provider of car rental services Hertz Global Holdings Inc (NYSE: HTZ) started preparing for bankruptcy. The company held talks with some of its creditors to gain more time to develop a rescue plan. Now, to allow creditors to recover more of their claims during the bankruptcy process, bankrupt Hertz is taking advantage of a strong rally in its stock and planning to sell up to $500 million in ordinary shares.
On Monday, Hertz released a government filing saying that its shares would be eventually “worthless”.
The company wrote:
“We are in the process of a reorganization under chapter 11 of title 11, or Chapter 11, of the United States
Code, or Bankruptcy Code, which has caused and may continue to cause our common stock to decrease in
value, or may render our common stock worthless.”
According to Hertz, equity holders will not see a recovery from any bankruptcy plan unless those with more senior claims, including bondholders, are paid in full.
To sell the shares, Hertz has entered into an Open Market Sale Agreement, or sales agreement, with Jefferies LLC. The latter will receive 3% of gross proceeds and as much as $200,000 for its lawyers.
Hertz Stock in Rally
On Friday, a bankruptcy judge approved the company’s request to sell up to $1 billion of common stock, which could benefit the creditors. Currently, Hertz is taking advantage of its volatile stock price and sparring with the New York Stock Exchange to not be delisted.
Meanwhile, HTZ stock is showing quite a strong performance. On May 26, a couple of days after filing for bankruptcy, its stock closed at just 56 cents. Last week, Hertz stock shot up 112.69% to $5.53 on record trading volume of more than 517.5 million shares. On June 12, it ended at $2.83 per share. Yesterday, HTZ stock’s closing price was $1.88. In the pre-market today, it is 9.52% up, $2.07 per share.
Hertz stock has gained 123% this month. So far this year, it’s down 85%. The average analyst price target stands at just $2.33, which implies 11% upside potential in the shares over the coming year.
Hertz has suffered because of the COVID-19 pandemic and failed to survive the crisis.
In March, Hertz Global started laying off employees. On April 27, Hertz failed to make payments in accordance with an operating lease. The company had to come up with a decision for its further actions before May 4. Then, it missed a deadline to pay about $500 million tied to $13 billion in financing for 500,000 rental cars.
The company has a number of debts. Its bonds alone are about $2.3 billion underwater, it doesn’t even include money owed to the banks and any lease payments, interest or depreciation that the courts could make the company return to owners of securities backed by its rental cars. To date, selling shares is the only way out for bankrupt Hertz to somehow make up for creditors.