QUACK ATTACK

Talk about feeding the ducks. A memorable day on Wall Street saw a federal judge approve plans for bankrupt rental car agency Hertz Global Holdings, Inc. (HTZ on the NYSE, for now) to unload up to $1 billion in an at-the-market equity offering from an existing shelf-registered facility, to be managed by investment bank Jefferies LLC. That move will partially capitalize on the remarkable 10-fold rise in HTZ shares in the nine trading days since the company filed for Chapter 11 on May 26. 

While a subsequent pullback left shares at roughly four times that May 26 price, news of the proposal stirred up the hearty Hertz bulls once more. After jumping by as much as 70% in the pre-market, HTZ shares finished up by 37% (before tumbling 6% in after-market reaction to news of the approval), while trading volumes of 268 million shares were 15 times the one-year average turnover.  

“This is what I love about bankruptcy – never a dull moment.” Melanie Cyganowski, partner at law firm Otterbourg P.C. and a former chief judge in the Eastern District of New York, told Bloomberg. 

In its petition to the U.S. Bankruptcy Court in Delaware filed yesterday, the company argued: “The recent market prices of and the trading volumes in Hertz common stock could potentially present a unique opportunity for the Debtors to raise capital on terms that are far superior to any debtor-in-possession financing.”  

No buyer will be able to say the company didn’t warn them: “The common stock could ultimately be worthless,” the prospectus is expected to say. 

Time is of the essence, as the filing makes clear: “The Debtors bring this motion on an emergency basis given the volatile state of trading in Hertz’s stock and to ensure that the Debtors are in a position to capture the potential value of Hertz’s unissued shares.” 

According to data from Robintrack.net, 166,000 accounts on the Robin Hood trading platform held Hertz shares as of this afternoon.  That’s up from less than 2,000 users three months ago and 44,000 Robinhooders on May 26, the day that Hertz filed. 

While the retail masses assemble, the more routine trappings of court-administered debt restructuring proceed apace.  The New York Stock Exchange sent a delisting notice to Hertz on Wednesday, a measure which the company has appealed. The senior unsecured, 6% notes due 2028 last changed hands at 40.5 cents on the dollar (though up from 15 cents on May 26) for a yield-to-worst of 22.65%, implying that the common stock is worthless. Yesterday, Hertz filed a motion to wiggle out of lease commitments on 144,000 vehicles, claiming that it cannot afford to pay them.  

A good omen (for the stock sellers, that is) preceded today’s legal victory. This morning the Securities and Exchange Commission approved a registration statement by The United States Oil Fund, LP (USO is the ticker) to issue one million additional shares, continuing the expansion in the float to a current 185 million shares from less than 30 million shares in early March.  Shares in USO are down 74% year-to-date, double the decline in front-month WTI crude over that period, while both the Commodity Futures Trading Commission and the SEC are investigating the fund’s risk disclosures, according to Bloomberg. 

A call-to-action CNBC headline today: “No money? No expertise? Ditch your excuses and start investing anyway” 

Hertz’s creditors, among others, are counting on it. 

A modest rebound for stocks, as the S&P 500 finished 1% higher, near the midpoint of its intraday range, to narrow the weekly loss to 4.8%.  Some weakness in long-dated Treasurys pushed the curve steeper, as the 10- and 30-year yields rose to 0.71% and 1.46%, respectively.  Gold and WTI crude oil both edged higher, finishing at $1,731 an ounce and $36.5 a barrel, and the VIX fell to 36, down 11% today but up 47% for the week. 

– Philip Grant

Oil Rig Image by Kristina Kasputien? from Pixabay.