- Hertz Global Holdings applying for bankruptcy
- Hertz shares get excluded fro NYSE
- Hertz shares start trading in the OTC market
- Hertz shares becoming favorite shares of speculators
- What triggered the growth?
- Hertz decreased the debt by 80%
- Hertz making a net profit
- The court approving the reorganization plan
- Investors are waiting for the listing of Hertz shares in the exchange
- Closing thoughts
A year ago, I told you about Hertz Global Holdings Inc (OTC: HTZZ). That time it was on the verge of bankruptcy, and its shares traded under 2 USD. This is a global company, and some market players had doubts that it could go bankrupt. As a result, adventurous investors bought Hertz shares hoping for growth.
At that moment, my goal was to make it clear that investing in Hertz was a bad idea because its stocks risked being excluded from NYSE, and that you would have a chance to buy them as soon as the company's business gets better. Now it seems that we are not going to wait long. Let us look into what is going on.
Hertz Global Holdings applying for bankruptcy
In May 2020, Hertz Global Holdings did apply for bankruptcy to get some protection from creditors. In the USA, bankruptcy lets one restructure loans without seeking for the approval of those who gave them.
Hertz shares get excluded fro NYSE
Right after the company applied for bankruptcy, NYSE initiated the procedure of delisting Hertz shares. However, Hertz asked for reconsidering the decision. The second meeting devoted to this issue happened on October 15th, 2020, but the initial decision about delisting remained without change. Hence, this day was the last one for Hertz shares in NYSE. Trades stopped at 1.01 USD.
Hertz shares start trading in the OTC market
However, this was not the end of the story. On the next day, the stocks started trading in the OTC market.
90% of stocks in this market belong to companies that can be gone any moment; there are 2-3 employees in them and might be no operational activity. In other words, this is a market of high risks. Working there, you can make a substantial profit — but lose all your investments at the next moment. Liquidity in this market is also rather moderate, which prevents large investors from making trades as their positions can influence stock prices significantly.
Hertz shares becoming favorite shares of speculators
The appearance of such a large player as Hertz Global Holdings at the market made speculators happy. Demand for these shares leaped up, and trades opened at 2.4 USD.
Then things were rather banal: when the stock price dropped below 1 USD, speculators bought them; when the price rose above 2 USD, traders took the profit. The same sequence continued until May 2021.
In May, the price rose above 2 USD but never fell as expected. They kept growing until the price reached 35 USD at some points, which means that profitability over 2 months was over 1,600%.
What triggered the growth?
Bankruptcy does not mean that the company gets eliminated totally. At this stage, it gets protection from creditors, looks for ways to pay off debts, and tries to start work again. If the company is promising, it might get sponsors able to get it out of trouble. Luckily, Hertz got those who were eager to help it end the procedure. Moreover, it got even two groups of sponsors.
The first group consisted of KHCA Group trusts: Knighthead Capital Management LLC (Knighthead), Certares Opportunities LLC (Certares), andApollo Capital Management, LP.
The second one included CAD Group trusts: Centerbridge Partners LP, Warburg Pincus LLC, Dundon Capital Partners, LLC.
Investors heard about this on May 12th. By that moment, volatility in the shares had increased, and the news sped up the growth of the stock price.
Hertz decreased the debt by 80%
Undergoing the bankruptcy procedure, Hertz managed to cut off 80% of its debt. This is a unique event for the company in current times.
Hertz belongs to a segment that suffered the most from the coronavirus. Airlines, tourist companies, restaurants, services — these are the businesses that were made outsiders by the pandemic. To survive, they had to increase the debt load, asking for help, or simply leave the market.
For example, some large American airlines have belts that are much larger than their assets, and in the nearest future they will be working on decreasing the debts.
Hertz making a net profit
Looking back, I should say that the management of Hertz made the right decision, choosing bankruptcy instead of new loans on saving the business. This is what the results of Q1, 2021 demonstrate.
The company's revenue over that period amounted to 1.3 billion USD, which is almost two times less than in the same period last year. However, this result cannot be called poor because during the bankruptcy Hertz decreased the car park, sold its car rental subsidiary Donlen Corporation, optimized the geography of presence, and sold some equipment. In other words, its assets shrunk, hence, its revenue did the same.
The next result is surprising. Hertz made a net profit of 190 million USD. Let me show you what is surprising here.
The first quarter of 2020 was completed with a loss of 18 million USD. The company made a net profit of over 190 million USD only in Q4, 2017, at Christmas time. At that moment, it made a net profit of 616 million USD. Taking this result away from the statistics, we will see that the net profit of 190 million USD is the largest over the last 6 years. In other words, Hertz now feels better than over the last 6 years of work.
In the end, May was a good month for the company and the speculators that bought its shares. However, June turned out to be even more interesting.
The court approving the reorganization plan
On June 10th, the bankruptcy court approved the reorganization plan for Hertz by 97% of votes. The plan implies paying off more than 5 billion USD of debts; opening a credit line for more than 11 billion USD; satisfying all financial requirements of creditors, and paying over 1 billion USD to active shareholders.
After such news, Hertz stocks grew by 30% more. However, the most interesting thing happened on June 30th. That day, the management announced that the company had been successfully restructured, and Hertz winds up the bankruptcy procedure as a financially and operationally stronger company than before, with bright perspectives for the future.
On the next day, the stock price sky-rocketed by over 200%.
Hertz shares keep trading in the OTC market but the ticker changed from HTZGQ to HTZZ on July 1st.
Investors are waiting for the listing of Hertz shares in the exchange
The OTC market at which Hertz shares are now trading is, of course, interesting for a wide range of investors, but there the company does not have to file strict financial reports and to reveal other important information. Hence, a lot of major players do not risk investing in issuers in this market. As a result, investors are looking forward to Hertz shares becoming again available in one of US stock markets.
When Hertz enters a stock market, major players will feel free to invest in it. Demand might be increased over the first couple of days.
Announcing bankruptcy might have been the wisest decision during the pandemic. This let the company be safe during hard times and then enter the market when the economy started restoring. Hertz risked it — an won.
Hertz now exited the bankruptcy procedure with 20% debts from their pre-crisis size. It is generating net profit and enjoys a shareholder s'mores capital of over 5 billion USD. We only have to wait for the shares to become available in the market. The question is: at what price will they be trading?
As you remember, before the bankruptcy, Hertz stock price reached 125 USD. Let us hope that OTC market speculators will fail to raise it to such levels. Anyway, if you have access to the OTC market, pay attention to Hertz shares.
It seems like all the interesting parts are over, the shares have grown significantly, and this is correct. Now you need to wait for volatility to fall alongside the stock price. This will be the perfect moment for buying. And the news about Hertz entering the market will be an additional trigger for growth.
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