Hertz shares rose on Friday after the bankrupt car rental company announced plans to sell up to $ 1 billion of shares.
The Florida-based company’s stock price rose 65 percent to $ 3.40 in early trade, as it requested court approval to sell more than 246 million shares as an alternative to financing a typical bankruptcy.
The Hertz share price increased tenfold in the two weeks following the bankruptcy announcement on May 22, as investors sought to benefit from the lowest rate. This represents a “unique opportunity” for the company to raise funds during the bankruptcy process without restrictions and the costs of so-called debtor financing in possession, Hertz said in a court recording on Thursday.
But the company acknowledged that “investing in Hertz ordinary shares involves significant risks, including the risk that ordinary shares may ultimately be of no value” – a fact she said would be revealed to potential investors.
Hertz shares closed at about 56 cents on May 26, the first trading day after they were declared bankrupt, but rose to $ 5.53 by the closing bell on Monday. The price has since fallen to close at $ 2.06 on Thursday.
The recovery coincided with the growing popularity of the stock among retail investors – as over 151,000 users in the Robinhood trading app held Hertz shares until Friday, up from about 44,000 on May 26, according to Data collected by Robintrack.
Although selling shares is a creative bankruptcy financing strategy, it could be a “very far bridge” so bankruptcy court disagrees, according to Bloomberg Intelligence analyst Philip Brendel. Hertz will have to sell the new shares for $ 4.05 a piece to raise $ 1 billion from the sale.
“Selling the shares that can be wiped out in Chapter 11 could leave Hertz vulnerable to securities claims that may arise after the petition and could lead to additional administrative claims,” Brendel said in a note on Friday.
Hertz’s stock offer came one day after the New York Stock Exchange moved to remove the company last month. On Wednesday, she said, Hertz appealed the decision, but there was no guarantee he would remain on the exchange Organizational registration.