Outlandish Ideas

Jun 22, 2020 | Sam Rook


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Do NOT do this

You have probably missed this, but US rental car giant Hertz filed for bankruptcy back in May. Hertz was taken over by private equity a few years ago and was ultimately undone by a terrible debt load that was exasperated by the onset of worldwide lockdowns from Covid-19. If you want the full gory details, this brilliant take down by Ben Hunt is worth your time.

 

It’s been less than a month since they filed for protection under Chapter 11, and that month has seen some wild things happening, but this one might take the cake. Hertz has filed to issue NEW shares for sale to the public. Why is this so incredible? Well, a Chapter 11 filing ultimately ends up with assets being sold to pay the debt holders off first, with any scraps remaining to pay off unsecured creditors and then finally, shareholders. In the case of Hertz, even the debt holders don’t expect to get fully repaid so there is likely nothing left for shareholders.

 

Here is the important part of Hertz’s filing with the SEC about the new share issue they are trying to do.

 

 

 

Let me offer some important advice. Do not fall for this. Don’t look at the wild swings in the existing shares that are still trading and think “hmmm…I can totally do this and make money”. YOU CANNOT. Hertz told you the truth directly in their filing document, so listen to them. Thankfully, it looks like the share offering is now blocked by the SEC which is exactly what should have been done.

 

The simple truth of investing is that avoiding outlandish things, like a new share issuance from a bankrupt company, is often the difference between good portfolio returns and bad ones.