Hertz: a Robinhood story
Emailed on June 19th 2020 in The Friday Forward
Earlier this week Hertz announced they would raise $500M in equity financing despite also filing for Chapter 11 bankruptcy protection.
The car rental giant explicitly warned potential investors that their equity would be subordinate to debtholders and other creditors. It also said it expects “our stockholders’ equity to decrease” and warns there is “significant risk… that our common stock will be worthless.”
So that was something.
Then Hertz suspended its planned $500 million public offering of common stock, following SEC pushback and public criticism by SEC chairman Jay Clayton.
What seems to be making more headlines is how the recent day-trading craze is "causing" junk stocks like Hertz to be so volatile despite being... junk. Particularly among the Robinhood crowd that keeps bidding up Hertz shares even though the car rental company filed for bankruptcy last month and warned prospective investors that the risk is akin to "sticking your hand in an active blender". Axios' words, not mine, but couldn't have said it better myself.
"Hertz is the 48th most popular stock among Robinhood investors, ranking right between UCO and GUSH, which are both vehicles for making leveraged bets on the oil industry. Because the company is in bankruptcy, its stock will almost certainly end up worthless — but shareholders will see exciting volatility on the way to zero." — Felix Salmon, Axios
