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Hertz’s plan to sell $500 million in shares was “promptly suspended pending further understanding of the nature and timing of the Staff’s [SEC’s] review”. Hertz (HTZ) stock is down in the pre-market.
On Monday, bankrupt Hertz Global Holdings Inc. (NYSE: HTZ) announced its plan to sell up to $500 million in ordinary shares to allow creditors to recover more of their claims during the bankruptcy process. However, two days later, Hertz suspended the plan because of the U.S. Securities and Exchange Commission (SEC) that raised some issues with the sale.
The second-largest U.S. car rental company has not managed to survive the COVID-19 crisis. With its $20 billion debts, Hertz failed to prove it can steer clear of bankruptcy. Its bonds alone are about $2.3 billion underwater, other debts 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.
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.
Plan to Sell Shares Went Sour
To somehow make up for creditors, bankrupt Hertz decided to take advantage of a strong rally in its stock and sell up to $500 million in ordinary shares. On Monday, Hertz released a government filing saying that its shares would be eventually “worthless”.
However, on Wednesday, after discussing the plan with SEC, Hertz released another regulatory filing saying that the offering was “promptly suspended pending further understanding of the nature and timing of the Staff’s review”.
SEC Chairman Jay Clayton said:
“In this particular situation, we have let the company know that we have comments on their disclosure. In most cases when you let a company know that the SEC has comments on their disclosure, they do not go forward until those comments are resolved.”
According to David Dierking, editor of ETF Focus on TheStreet, the issue is Hertz’s wording of “worthless shares”.
“The SEC is basically telling Hertz that it has a problem with the idea of selling $500 million of stock to the public when the company acknowledges that shareholders are probably going to lose everything.”
After Hertz said it would not sell the shares, its stock rose by 2.56% to close at $2.00 per share. But in the early trading today, Hertz shares are down. At the moment of writing, HTZ stock is at $1.85. It means that now teh stock is falling by 7.50%.