#Bankrupt Hertz shares soar amid plans for $1 billion stock sale

Car rental giant Hertz has filed for bankruptcy because it doesn’t have enough money to pay its debts — and its stock is soaring.

Welcome to the coronavirus stock market, where mom-and-pop day traders addicted to free trading apps are taking control.

The bankrupt car-rental company announced plans to sell up to $1 billion in stock amid a surge demand since it filed for bankruptcy in May. News of the potential stock offering sent the Florida-based firm’s stock price up as much as 65 percent to $3.40 in early trading.

The company requested court approval to sell more than 246 million shares as an alternative to typical bankruptcy financing, citing the tenfold increase in its shares in the two weeks after its May 22 bankruptcy filing. The surge — brought on by investors seeking to capitalize on the rock-bottom rate — presents a “unique opportunity” for the company to raise money during the bankruptcy process without the restrictions and costs of so-called debtor-in-possession financing, Hertz said in a Thursday court filing.

Hertz shares closed at about 56 cents on May 26, the first trading day after it declared bankruptcy, but surged to $5.53 by Monday’s closing bell. The price has since tumbled to close at $2.06 on Thursday.

The boom has coincided with the stock’s growing popularity among retail investors — more than 151,000 users on the Robinhood trading app held Hertz shares as of Friday, up from about 44,000 on May 26, according to data compiled by Robintrack.

While selling stock is a creative bankruptcy financing strategy, it may be “a bridge too far” for the bankruptcy court to approve, according to Bloomberg Intelligence analyst Philip Brendel. Hertz would have to sell the new shares for $4.05 apiece to raise $1 billion from the sale.

“Selling shares that could potentially be wiped out in Chapter 11 may leave Hertz exposed to securities lawsuits that would arise post-petition and could result in additional administrative claims,” Brendel said in a Friday note.

Hertz’s bid to sell shares came a day after it revealed the New York Stock Exchange moved to delist the company last month. Hertz has appealed the decision but there’s no guarantee it will stay on the exchange, it said in a Wednesday regulatory filing.

Hertz also acknowledged that “an investment in Hertz’s common stock entails significant risks, including the risk that the common stock could ultimately be worthless” — a fact it said it would disclose to potential investors.