Hertz, the rental car company that is going through Chapter 11 bankruptcy proceedings, can now sell up to $1 billion in stock as it seeks to tap into one of the hottest tickets in town: traders with an appetite for short-term speculative bets.
The decision Friday by the U.S. Bankruptcy Court for the District of Delaware gives Hertz permission to sell as up to 246.8 million unissued shares to Jefferies LLC. Hertz, which made the emergency request Thursday, has not entered into an agreement with Jefferies, the company noted in a regulatory filing.
Yes, that’s right. The company, which is fighting the New York Stock Exchange from being delisted, can sell stock that might soon be wiped out completely. And it appears there are plenty of retail investors willing and ready to jump in on this scheme.
Shares of Hertz closed at $2.83 Friday, a 37.38% rise from the previous day’s close. The company has seen its share price rise more than 400% since reaching a historical closing low of $0.56 on May 26.
Last month, Hertz filed for Chapter 11 bankruptcy protection. The filing was hardly a surprise. The rental company has been crushed by the COVID-19 pandemic. Once business trips and other travel was halted, Hertz was suddenly sitting on an unused asset — lots and lots of cars. It wasn’t just that the revenue spigot was turned off. Used car prices also went into free-fall, which further devalued the fleet.
The company said in its May filing that it had more than $1 billion in cash on hand, which it said it will use to keep the business operating through the bankruptcy process. Since then, another compelling source of capital has emerged. Robinhood traders, we’re looking at you.
This week, Hertz was No. 2 on the popularity chart at Robintrack, a website that tracks Robinhood’s data. The chart tracks the number of Robinhood users holding a particular stock over a one-day, three-day, one-week and one-month periods. This week, the most popular stock in terms of increases in traders was Nikola Motor, a company that saw its share price skyrocket despite forecasting that it wouldn’t generate a drop of revenue until at least 2021.
To fully immerse ourselves in this puzzling trend, let’s go into the TechCrunch time machine — bleep bop bleep — and look at February 21, 2020. Hertz shares closed at $20.29, the highest closing price since January 2018. At that time, about 1,064 Robinhood users held Hertz stock.
As the COVID-19 pandemic sent the economy into a tailspin, Hertz stock followed suit and 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). Meanwhile, over at Robinhood, Hertz’s problems started to look like a buying opportunity. Robinhood traders began to invest in Hertz as the stock price fell. By March 18, more than 3,500 Robinhood users held Hertz stock. A month later, that number popped to more than 18,000, and then nearly doubled to surpass 43,000 users by May 21.
Hertz filed for Chapter 11 bankruptcy May 22. And that’s when it got nutty. As of Friday, 170,046 Robinhood users held Hertz stock.
To be clear, Robinhood is just one of the many tools retail investors use. What’s popular on Robinhood might not reflect broader investor sentiment. However, it does provide a snapshot into what younger and newer investors are interested in.