SEC Puts Damper on Hertz Plan to Sell Possibly 'Worthless' Stock

Car rental company wanted to dump $500M in common stock during bankruptcy proceedings
By Jenn Gidman,  Newser Staff
Posted Jun 18, 2020 7:43 AM CDT
Hertz Had a $500M Stock Plan. The SEC Just Said Hold Up
In this Nov. 28, 2017, photo a Hertz rental car logo rests on the front of a Hertz location in Boston.   (AP Photo/Steven Senne)

After a tumultuous few months, Hertz now has another wrench thrown into its works. Unable to endure the coronavirus pandemic, the car rental company filed for bankruptcy protection last month, then noted Monday in a government filing that it planned to sell $500 million in common stock—all while warning investors that stock "could ultimately be worthless," NBC News reports. Now this "highly unusual" sale is under the SEC microscope, per CNBC, with Hertz noting in a Wednesday regulatory filing that the sale had been "promptly suspended." Hertz's stock stopped trading Wednesday morning after SEC Chair Jay Clayton appeared on CNBC and expressed his concerns on a company in bankruptcy proceedings trying to hold such a sell-off. "In this particular situation we have let the company know that we have comments on their disclosure," Clayton said on Squawk on the Street.

Bloomberg Businessweek notes that Hertz got the "bright idea" to sell its stock when, after it had filed for bankruptcy protection, the stock fell to 56 cents per share and "hordes of investors" suddenly started scooping it up, driving the price up tenfold. Jeff Sommer writes in the New York Times that when a company is in the throes of bankruptcy, it typically won't sell its stock, as there may be no assets left for shareholders after creditors are partially paid what they're owed. He calls it a move of "sheer audacity," though he gives Hertz credit for being upfront with investors. KDP Investment Advisors analyst Michael Cazayoux tells Sommer that Hertz could even pull off its plan—if it can sell the stock, the economy bounces back soon, and Hertz can fix its bankruptcy woes. Still, "it's extremely risky," Cazayoux says. (More Hertz stories.)

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