Looming Hertz Delisting Pulls Shares Back to Earth
1:02 pm ET June 10, 2020 (Dow Jones) Print
By Alexander Gladstone
Shares in Hertz Global Holdings Inc., after a brief head-scratching rally, are now in danger of being ejected from the New York Stock Exchange, calming a speculative frenzy around the bankrupt car-rental company.
Hertz said Wednesday it was appealing an NYSE delisting decision that would push trading of the company's shares to over-the-counter platforms. Delisting typically drains value from equities as investors lose confidence, raising risks for the many inexperienced traders who piled into Hertz after it filed for bankruptcy last month.
The trading surge pushed Hertz shares up nearly 500% after billionaire Carl Icahn dumped his stake in the company at 72 cents a share last month. On Wednesday, after the delisting disclosure, the stock was down 27%.
The shares will continue trading on the NYSE pending the outcome of Hertz's appeal, the car-rental company said. However, "there can be no assurance that the NYSE will grant the company's request for continued listing at the hearing and whether there will be equity value in the company's common stock," Hertz said.
The delisting notice was sent right before a steep run-up in Hertz's stock, driven largely by individual investors with a sudden appetite for risk who figured the company's well-known brand and large vehicle fleet are worth betting on. After hitting a low of 59 cents shortly after its May 22 bankruptcy filing, the shares skyrocketed in the past week, hitting $5.50 on Monday.
Shares of bankrupt companies are typically worthless, save for rare instances in which the debt is repaid in full and money is left over for equity holders. In some cases, creditors pay a token recovery fee, or "kiss," to settle with shareholders and avoid litigation seeking to hold up a repayment plan.
Hertz's roughly $3 billion in corporate bonds were trading Wednesday at around 40 cents on the dollar, indicating little faith among creditors they will be repaid in full.
"In bankruptcy, creditors have to be paid in full before shareholders get anything," said Jared Ellias, a law professor at the University of California, Hastings School of Law. "It seems that there is a segment of investors out there who are looking for deals and cheap stocks. This is retail investors setting money on fire."
Yet such trades have been profitable when timed correctly. Several other companies that are in bankruptcy or close to it have also gone on bull runs recently, particularly in the volatile energy sector. Shares of Whiting Petroleum Corp., which has been in bankruptcy since April, jumped by more than 400% between June 4 and June 8.
Chesapeake Energy Corp., which said in May that it is considering a bankruptcy filing, rose more than 500% during that time frame. Both stocks have since given back some of those gains.
My personal feeling is, after finding its day low around $2.70-80 again there will be a bounce tomorrow, but the $5.+ of a day or two ago was a short squeeze, don't expect that again soon UNLESS Hertz wins its appeal then it can soar. The appeal will take over a month (?) during which its risk-reward ratio is volatile.
But MO, obviously anything travel-related is down right now, car rentals, airlines, but I'm of the camp that says that Hertz's brand isn't going to disappear into the OTC without a big fight and the sector is already picking up.
It's "just money," enjoy it but can't let being upset about losing sometimes get in the way of enjoying your life.
