Roughly nine months after the company officially filed for Chapter 11 bankruptcy, Hertz Global Holdings Inc (OTC:HTGZQ) announced a plan to re-emerge from bankruptcy this week.
Like most bankruptcy restructuring plans, the news wasn’t good for common stock shareholders, and former hedge fund manager Whitney Tilson said Wednesday that uninformed retail investors may learn some difficult lessons the hard way in coming weeks.
What Happened: Hertz shares dropped 28% on Tuesday and another 23% on Wednesday, but Tilson said it’s difficult to understand how Hertz shares still hold any value at all after the bankruptcy plan announcement.
“It would be hard to find a better example of retail investor naïveté than the fact that Hertz only fell 28% yesterday after it announced a deal that would allow it to exit from bankruptcy – but would also wipe out shareholders!” Tilson wrote in his daily newsletter.
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Shareholder Wipeout: Under the terms of the bankruptcy deal, Hertz will be acquired by Knighthead Capital Management and Certares Management for $4.2 billion, leaving common shareholders with no remaining ownership stake in the company. This type of shareholder wipeout is typical in the bankruptcy process of large public corporations, according to Bloomberg.
“To be clear: HTZGQ is 99% likely to be worth zero – yet yesterday it closed at $1.18, giving it a $185 million market cap,” Tilson said Wednesday.
Tilson said absolutely no sophisticated or institutional investors still owned Hertz stock following the bankruptcy plan news, yet its share price was still above 90 cents as of Wednesday morning. He said the entirety of that $185 million market cap will be lost by “average folks” and on Reddit, Robinhood and other platforms who misinformed or misguided about the situation.
Tilson called on the U.S. Securities and Exchange Commission to restrict trading in bankrupt companies in the future to institutional investors only to help better protect retail traders in the future.
Benzinga’s Take: Tilson has been all over the ridiculous trading in bankrupt Hertz since June 2020, when the stock was trading at $4.18. At the time, Tilson called the stock a “zero” when it gained 115% in a single day even after its bankruptcy filing.
Photo credit: Raysonho, Wikimedia
Latest Ratings for HTZ
|
Apr 2020 |
Barclays |
Downgrades |
Equal-Weight |
Underweight |
|
Apr 2020 |
JP Morgan |
Downgrades |
Neutral |
Underweight |
|
Apr 2020 |
Morgan Stanley |
Maintains |
Underweight |
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