Wall Street Bets was right: Hertz’s bankruptcy auction will actually offer shareholders a handsome payout – even after Wall Street decides the stock is worthless
Reuters
Long before Reddit’s GameStop and Wall Street Bets became synonymous, the social media platform was in love with another title: Hertz.
The car rental company became the target of Reddit-powered traders last summer when it announced it would file for bankruptcy. Hertz shares have climbed to 825% in a matter of weeks. Onlookers on Wall Street were scratching their heads, wondering why retail investors were picking up shares of a company that couldn’t meet its debt obligations.
In June, retail investors who firmly believed “the stonks are only going up” were particularly excited that billionaire investor Carl Icahn missed Hertz’s massive rally. Icahn had sold his Hertz position at an average price of $ 0.72, a loss of over $ 1.8 billion.
“Good job guys. Hertz is a viable business again. Carl Icahn is a clown who bought high, sold low,” a Wall Street Bets user commented last summer.
Even Hertz himself was not as confident in his actions as the retail traders. When the company issued more shares in June, it said its shares could be “worthless.”
“We are in the process of conducting a reorganization under Chapter 11 of Title 11 or Chapter 11 of the United States Code, or the Bankruptcy Code, which has caused and may continue to decrease the value of our common stock, or could make our Common stock worthless. Investing in our common stock involves a high degree of risk, “the company said in a filing with the Securities and Exchange Commission.
Typically, in a corporate bankruptcy case like Hertz’s, shareholders would get nothing. In March, Hertz unveiled its reorganization plan, according to which shareholders would not receive any payment.
But on Wednesday, Hertz announced that it had accepted a $ 6 billion offer from a group of investors – Knighthead Capital Management, Certares Opportunities and Apollo Capital Management – to come out of bankruptcy. Knighthead’s plan values Hertz at around $ 7.4 billion including debt, according to Bloomberg. The winning bid would net shareholders close to $ 8 a share.
Under the Hertz proposal, institutional and accredited investors would receive approximately $ 240 million in cash and the opportunity to participate in a $ 1.6 billion rights offering or warrants for approximately 20% of the equity. company reorganized, Bloomberg reported.
Many traders who have speculated on Reddit are unlikely to qualify as institutional or accredited investors and therefore will not get new shares. But their instinct about Hertz’s share value turned out to be correct, even though much of Wall Street didn’t believe it.
The $ 8 share price is higher than what any retail investor who bought last summer paid.
Andrew Glenn, a managing partner of Glenn Agre Bergman & Fuentes who orchestrated the winning bid, told Insider that the stock payout to shareholders was “unprecedented.”
“Just six weeks ago, shareholders wouldn’t get anything, and now they get over $ 8 per share,” Glenn said. “It doesn’t happen every day in bankruptcy. In fact, I’ve never seen it happen.”
He added that a confluence of events led to success for shareholders and the valuation of Hertz: the V-shaped recovery, pent-up demand for travel and a shortage of rental cars as many companies sent in their cars. to the used car. market during the pandemic.
“It’s just a perfect storm that happened first gradually, then very quickly in the first quarter of this year and really over the last two months,” he said. “Our clients saw this trend happen before it happened, they were convinced of the assessment, and they went bankrupt and became the court spokesperson for the Knighthead proposal.
Hertz shares extended their gains for the second day in a row on Thursday, climbing as high as 11%, to $ 6.36. This follows an increase of almost 70% on Wednesday.