Hertz, which filed for bankruptcy last month, halted its $500 million stock offering Wednesday after the U.S. Securities and Exchange Commission told the rental company it would review its controversial plan to sell shares that could soon be wiped out completely.
Hertz disclosed Monday that it would issue a $500 million stock offering following approval from the U.S. Bankruptcy Court for the District of Delaware. Last week, the court gave Hertz permission to sell up to 246.8 million unissued shares (about $1 billion) to Jefferies LLC.
The financially strained company was aiming to tap into a new pool of speculative short-term retail investors in an effort to raise capital. But that plan got the SEC’s attention. Staff at the regulatory agency reached out to Hertz on Monday afternoon and told the company it intended to review its Prospectus Supplement, according to an SEC filing Wednesday. Trading was halted briefly Wednesday prior to Hertz’s announcement.
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After discussions with the Staff, sales under the ATM Program were promptly suspended pending further understanding of the nature and timing of the Staff’s review. The company is not currently offering any shares under the ATM Program. The company’s advisors have been in regular contact with the Commission since the Staff’s initial contact on June 15, 2020.
As COVID-19 spread throughout the globe, business trips and other travel stopped, leaving Hertz with an unused asset — lots and lots of cars. It wasn’t just that revenue stopped coming in; used car prices plummeted, further devaluing its fleet.
Hertz filed for Chapter 11 bankruptcy May 22. But as its business dried up, prospectors jumped in. Retail investors, including those using the Robinhood trading app, invested in Hertz and drove up the stock price. Hertz stock dropped more than 83% between February 21 and March 18. It rose briefly and then continued to slide until May 26, when shares closed at $0.56 (that’s down 97.24% from the closing high in February).
Robinhood traders looked at Hertz and didn’t see the poor fundamentals; they saw opportunity. By March 18, more than 3,500 Robinhood users held Hertz stock, according to Robintrack. A month later, that number popped to more than 18,000, and then nearly doubled to surpass 43,000 users by May 21. It peaked June 14, when more than 170,000 Robinhood users held Hertz stock. The stock price rose 887.5% since that May 26 low, until it reached $5.53 on June 8. Shares of Hertz have since fallen 63.8% and closed Wednesday at $2.
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