New York (CNN Business)Bankrupt Hertz won’t be selling $500 million in stock after all.
Hertz, which filed for bankruptcy four weeks ago, said Thursday afternoon it was pulling the plug on its planned stock sale. It did so after learning Monday that the Securities and Exchange Commission was looking into the matter. The company announced plans a week ago to sell stock to help raise cash it needs to get through bankruptcy. That immediately raised questions because even Hertz warned that the stock was likely to be worthless at the end of its bankruptcy reorganization.
Even so, investors had continued to snap up shares since the filing, driving up the price of the stock about 250% from the time of the filing through Wednesday’s close.”The finance committee of the board of directors determined that it was in the best interests of the company to terminate the [stock sale] program and directed that the … program be terminated.”Read MoreShares of Hertz (HTZ) closed down 10% Thursday after it pulled the stock sale. The New York Stock Exchange threatened to delist the company’s shares, although Hertz is appealing that decision.A bankruptcy judge approved the stock sale a week ago. The judge is primarily interest in protecting Hertz creditors who are owed money. Raising money as cheaply as possible had an advantage for them.But the SEC is charged with protecting investors. Thus it’s decision to examine the stock sale.Hertz will still need to raise cash to fund operations while it tries to reorganize and stay in business. But now it will likely do what most bankrupt companies do and borrow the money.
The entire rental car industry has been devastated by the plunge in travel since the coronavirus pandemic hit earlier this year. Nearly two-thirds of its revenue comes from rentals at airport locations, and air travel has fallen sharply. Since the start of April, the number of people passing through TSA checkpoints at US airports has plummeted 90% compared with a year ago, even with a modest rebound in air travel in recent weeks.
Beware of bankrupt stocks like JCPenney and HertzA bankruptcy filing does not mean a company will be forced out of business. Many companies have gone through the process and gone on to post record profits, including automaker General Motors (GM) and many of the nation’s airlines. But many companies that have filed for bankruptcy with the intention of staying in business have not survived the process.
Source: edition.cnn.com
