[NEW YORK] Hertz Global Holdings is asking a bankruptcy judge to let it take advantage of the quixotic surge in its stock by selling up to US$1 billion of new shares.
Stockholders of bankrupt companies typically get wiped out, but after an enormous two-week rally, the car renter envisions offering as many as 246.78 million common shares with help from Jefferies, according to a court filing. Those shares may wind up worthless, too, Hertz said, but in the meantime it would get some much-needed working capital. Judge Mary Walrath set a hearing for Friday to consider the idea.
Hertz's shares surged as much as 68 per cent shortly after the start of regular trading Friday. Investors are bidding up Hertz and other bankrupt companies on optimism that the economy and specifically air travel is poised to rebound. Hertz might also benefit from prices of used cars at auctions coming all the way back from a mid-April collapse.
"It is incredibly creative and they get props for that, but I wouldn't buy those shares," said Nancy Rapoport, a professor at UNLV's William S Boyd School of Law, who said she has never seen a bankruptcy funded this way."I guess they're trying to catch whatever the opposite of a falling knife is." Hertz based its request to the court on a nearly tenfold increase in its stock from 56 US cents on May 26 to US$5.53 on Monday. While the stock has slid since then, Hertz said in the filing that a sale of shares still could help cover its debts.
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