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While Hertz Stock Surged, CDS Auction Valued Bonds at 26 Cents

Jack Pitcher

(Bloomberg) -- Hertz Global Holdings Inc.’s bonds were valued at 26.375 cents on the dollar in a credit derivatives auction Wednesday, casting doubt on the possibility that shares will have any value when the company emerges from bankruptcy.

The price, determined in an auction that’s used to settle hundreds of millions of credit default swaps tied to the bankrupt company, means traders who bought protection against the car rental company’s failure will be paid 73.625 cents for every dollar insured.

The relatively low bond recovery level suggests Hertz shareholders are likely to see their holdings go to zero as the company reorganizes in bankruptcy court. Hertz is among several bankrupt and near-bankrupt companies whose shares have surged amid a burst of interest from retail investors, even though equity is typically wiped out in Chapter 11 proceedings.

Hertz shares at one point doubled early Wednesday after analysts at Jefferies wrote that firms like CarMax Inc. and AutoNation Inc. could be interested in purchasing Hertz’s roughly 150,000-car inventory. The stock closed at $1.61, up 30% from a day earlier.

In a highly unusual move, Hertz attempted to sell new shares last week to raise cash and help pay off creditors before calling off the effort amid scrutiny from the Securities and Exchange Commission.

Read more: Hertz killing share sale ends unusual bid to fund bankruptcy

In rare cases, it’s possible for a bankrupt company’s shares to have value, and recent developments like an increase in air travelers and a recovery in used car prices could help Hertz, according to Lehmann Livian Fridson Advisors Chief Investment Officer Martin Fridson.

Traders had wagered a net $419 million of CDS on Hertz as of May 22, according to the International Swaps & Derivatives Association.

(Updates with final auction results in first paragraph and closing share price in fourth.)

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