MARKETWATCH 6:33 AM ET 6/17/2020 Symbol Last Price Change HTZ 1.95up 0 (0%) RRGB 12.04down 0 (0%) SHAK 53.87down 0 (0%) QUOTES AS OF 06:30:00 PM ET 06/16/2020
An unconventional Wall Street financing tool is increasing in popularity. Investors should make sure they aren't on the wrong side of the cash machine.
Hertz Global Holdings (HTZ), which has filed for chapter 11 bankruptcy protection, on Monday said it plans to sell (https://www.wsj.com/articles/judge-to-rule-on-hertzs-controversial-stock-sale-in-bankruptcy-11591980720) as much as $ 500 million in stock through an at-the-market financing. In this type of deal, Hertz can instruct its banker to sell stock on a rolling basis at prevailing market prices. That differs from a traditional offering, where an investment bank will sell shares to blocks of institutional investors in one shot at a fixed price.
At-the-market deals are often deployed by smaller public companies, like biotech firms that don't generate product sales or profits. Lately, however, bigger names have taken advantage as well. In addition to Hertz, Red Robin Gourmet Burgers(RRGB) announced a $40 million offering on Tuesday. Shake Shack(SHAK) announced a $75 million deal back in April. So far in the U.S. this year, there have been more than 200 at-the-market financings for slightly more than $31 billion in expected proceeds, according to Dealogic data. That is on pace to break last year's record volume of $56.7 billion.
There are important advantages for issuers. There is wide latitude to sell stock as desired, which allows companies to raise money at relatively favorable prices. Perhaps even more important, bankers can sell stock to the general public without having to organize a roadshow with institutional buyers.
That means higher takeup by individual investors, and many of these offerings might well be of shares that institutions don't want. Granted, that hasn't been a problem for most of this spring, as companies of all sorts have enjoyed surging share prices.
But should the euphoria of the current market (https://www.wsj.com/articles/davey-the-day-trader-deconstructed- 11591874100) ever subside, individual investors could find themselves holding shares in businesses that are poorly equipped to handle a downturn.
Even, or perhaps especially, in frothy markets, investors should remember that it is always a good idea to know what you own.
Write to Charley Grant at charles.grant@wsj.com (mailto:charles.grant@wsj.com)
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