Hertz Investors May Be Wiped Out Under Latest Bankruptcy Plan
Joe Cortez March 02, 2021
Investors who rushed to purchase Hertz stock after the company declared bankruptcy may not see any return for their investment. While the company’s first- and second-lien creditors will get fully repaid, stockholders will get nothing for the shares they hold.
Nine months ago, Hertz Global Holdings declared bankruptcy at the height of the COVID-19 pandemic, as demand for travel plummeted. Afterwards, speculative investors rushed to buy shares of the company in the hopes of a quick return followed by long-term recovery. However, those shares may turn out to be worth less than the figurative paper they would be printed on. Bloomberg reports while creditors will get paid, shareholders could see a zero return.
Existing Hertz Shares Could Be Worthless Under New Plan
Under the plan forwarded by Knighthead Capital Management and Certartes Management, the two companies would buy Hertz out of bankruptcy. In turn, they would own 51 percent of the common stock issued by the emerged company.
Hertz would then pay their first-lien and second-lien creditors in full, while offering unsecured bondholders’ 70 percent of their investment face value. If they decide not to take it, they can also roll the debt into new financing.
At the end of the day, shareholders who once clamored to purchase shares would see no return for their shares. Shortly after the company declared bankruptcy, speculative investors hoping for a quick payout drove the stock price up 500 percent in June 2020. The stock quickly crashed, and after showing price spikes in October and December 2020, the price dropped to $1.30 at the market close on March 2, 2021.
According to Bloomberg, Hertz ultimately warned investors shares would be worthless by the time the bankruptcy closed, but it didn’t stop those looking for a quick payout. Although the U.S. Securities and Exchange Commission stepped in, the company still sold $28 million in stock.
Despite Stock Issues, Hertz Continues to Be a Flyer Favorite
Even though the shares may ultimately be worthless, frequent flyers still hold Hertz in high regards for their customer service and loyalty policies. In addition to winning several FlyerTalk Awards in 2020, the company took the top spot in the J.D. Power and Company North American Car Rental Satisfaction Survey.
I was a loyal Hertz customer for years. But I agree that over the past 5 years or so they have been in a downhill spiral. Last month I needed to rent a car for the day from LAX. After a quick search I found that Hertz was the most expensive option - even choosing the "Manager's Special". Check out the Yelp reviews also. Anyway, I chose Midway and it was fantastic. Not only was it less than half the cost of Hertz but I was assigned a brand new small SUV with only 6 miles on the odometer. What happened to you, Hertz?! 😞
If this is the "best rental car company" then the industry is in real trouble. After a lot of poorly maintained vehicles rented to me by surly employees I left and haven't missed them.
"Speculative investors" is an oxymoron. Speculators are not investors; true investors are in it for the long run.
So is Melvin Capital up to it again?
JD Powers must truly be smoking something. I was Hertz loyal for years, Chairman's Club, 5 Star, etc. They were my go-to rental car agency. But in the last 5 years or so, they've been terrible. High prices, shoddy cars with high mileage, etc. Since then I've shifted to Avis/Budget or Enterprise - much better than Hertz of today. Hopefully, with a cleaner balance sheet, they'll sharpen their pencils and update their fleet and return to providing a competitive product but they will have to do that to have a shot at my business.