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Hertz, after filing for bankruptcy, looks to sell $1B in shares

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Hertz announces plans to sell $1 billion in shares, even after filing for Chapter 11 bankruptcy. Yahoo Finance’s On The Move panel discusses.

Video Transcript

ADAM SHAPIRO: Brian Cheung is going to stick around as we talk about a big issue with Daniel Roberts and Akiko Fujita about Hertz because they want to sell up to, what is it, a billion dollars of new shares as they are in the middle of the process of bankruptcy protection and reorganization. And some of us might think of this as, wow, how could they do that. On the other hand, it's not out of the ordinary for a company to seek financing from a bank. So why not seek financing from shareholders who might be willing to take that risk? Dan, you usually have an opinion on these kinds of things.

AKIKO FUJITA: Well, I want to start off by mentioning, Adam, the Robinhood effect here. You know, we didn't talk about it earlier in the show when we were discussing some of these recent bumps for not just Hertz but the airlines saw that and also, bizarrely, Luckin Coffee. So these are names that in some way were troubled. We know what happened with the airlines. And they're not going anywhere, most of them. But with Luckin, it was actually halted due to possible fraud. And then of course there's Hertz, which is filing for bankruptcy.

All of these names saw huge spikes on the trading app Robinhood in the last week or so, which is usually a good indication of where young and, sorry to say, not very schooled and well-informed investors go. It's you know, the millennial stock trading app. You can buy shares with a swipe. It's like on Tinder. And so that's been really interesting to see. And it's a sign that, at some point, the type of investors, retail investors who use Robinhood figured out, hmm, actually when a company files for bankruptcy, A, it doesn't mean they're going out of business necessarily. And B, it might actually be a good time to buy if I pay attention and do my homework and I'm ready to sell soon enough because of course, if you're still holding the shares later on, you're probably going to lose your shirt.

But that has been really remarkable to see the spike in Hertz, especially because it isn't as though the company is likely to avoid-- I mean, it has already filed bankruptcy. And it's also a company, I want to make sure someone mentions, that was in a lot of trouble before coronavirus came along. You know, I think coronavirus was just maybe a death blow.

But really interesting and a reminder that Robinhood for all of it's maybe issues-- you know, it's a larger story. But it's always interesting to look at Robinhood data when you can get it. This week Hertz became more widely held up by Robinhood users than Netflix.

BRIAN CHEUNG: And to Dan's point, it is an important distinction to know that a company that files for chapter 11 reorganization does not mean that the company is going to go away forever. Many companies have reemerged out of chapter 11. And the reason why is because they're able to find financing.

Now, in many cases, that's because when they file for chapter 11, the court helps work with the company and its debtors to figure out an agreement for what's the best way that the debtors can end up with some of the return. And the company can still survive in one piece.

Now, when it comes to Hertz, it's a very interesting situation that they still have that ability and the option, as I laid out earlier, to issue equity in this situation because in almost all cases because of the sheer virtue of the fact they are filing for chapter 11 bankruptcy, there's no demand for equity. But this is a weird situation where, because maybe of the Robinhood traders that Dan was just mentioning, the company is looking at its stock price and going, there is a demand for my equity even though I've already filed for chapter 11 bankruptcy. No one seems to care about that.

So if people will buy our stock and there's no worry about dilution here, let's just issue new equity. So a very unique situation that shows you there's many different ways you can get out of a bankruptcy. It just-- the question is whether or not those investment opportunities are good for investors.