over 3 years ago • 2 mins
Hertz – the bankrupt car rental company – stopped just short of going ahead with its share sale after US financial regulators began asking questions about the deal 🛑
Hertz was yet another business to fall victim to the coronavirus pandemic, which led the company to declare bankruptcy back in May. That meant its shares theoretically weren’t worth a penny. But that didn’t seem to put off “retail investors”, who stumped professional investors by buying up Hertz’s stock and boosting its share price. So the company figured it’d use all this newfound popularity to sell a bunch of new shares.
But companies usually call it quits when regulators start asking questions, and Hertz was no exception. All this attention on Hertz is notable because buyers – even willing ones – would likely have been left with shares worth nothing 😨 After all, Hertz would’ve been obliged to use any cash it did raise to repay its debt-holders – and there’d probably have been nothing left for shareholders.
Retail investors don’t usually have enough cash to make a difference to the share price of a big company. But when firms go bankrupt, they shrink sharply, fewer investors buy and sell their shares, and smaller investors can now single-handedly bump prices up and push them back down 📊 Case in point: Hertz planned to raise $1 billion from 250 million new shares, implying a share price of $4. But given its share price has halved since, selling the same number would now only net the company around $500 million.
The “YOLO day-traders” who’ve used so-called hot tips to inform their investments have been blamed for the peculiar rises in bankrupt companies’ shares lately. Some traders claim to have made a lot of money riding these waves, but other, much quieter folks have lost huge sums 💰 If only they’d had a certain app…
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