Hertz drops plan to sell $500 million of stock after SEC review

by SpeedLux
Hertz logo

After the company missed a $400 million lease payment in early May, they had to file for bankruptcy protection.

Hertz abandoned its plan to sell $500 million in common stock Wednesday pending a review from the Securities and Exchange Commission (SEC) after the rental car company stated the shares “could ultimately be worthless”.

The company’s stock stopped trading late in the morning following concerns voiced by SEC Chairman Jay Clayton.

“In this particular situation, we have let the company know that we have comments on their disclosure,” Clayton said on CNBC’s “Squawk on the Street.” “In most cases, when you let a company know that the SEC has comments for their disclosure, they do not go forward until those comments are resolved.”

Hertz filed for bankruptcy protection May 22 after it was battered by a sudden stop in travel as a result of the coronavirus pandemic.

“With the severity of the COVID-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery,” Hertz President and CEO Paul Stone said in a news release following the announcement.

Shares of the beleaguered company dropped to about 55 cents the next day, sparking smaller retail investors to purchase the shares, betting that the company would rebound, leading to profits afterward.

By June 8, shares closed at about $5.53 — an 80 percent increase from where the company’s stock price had been trading a day before it filed for bankruptcy.

Amid the increase in demand for its stock, the company won bankruptcy court approval Friday to sell up to $1 billion in new stock, which would permit it to capitalize on its recent rally. In its filing, the company cautioned that the new common stock could “ultimately be worthless” due to bankruptcy filing.

But the SEC, which is responsible for evaluating bankruptcy proceedings for regulatory issues, raised issues about the stock sell-off.

“What the SEC is saying is that just because there are aberrations in the market does not mean that you should take advantage of it,” said Josh Brown, the CEO of Ritholtz Wealth Management, to CNBC.

Hertz, based in Estero, Florida, has got $1 billion in cash to support its operations and about $17 billion in debt. It has a fleet of about 500,000 cars that are financed through leases.

It was after when Hertz missed a $400 million lease payment in early May, that the company had to file for bankruptcy protection.

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