A year ago I told you about Hertz Global Holdings Inc (OTC: HTZZ). At the time, she was in the spotlight as she was on the verge of bankruptcy, and her shares were trading at less than 2 USD. This is a world-class company, and some market participants had doubts that it could go bankrupt. As a result, thrill-seekers bought Hertz shares in the hope that they would rise in value.
My goal then was to convey that it was not worth investing in Hertz, since there was a high probability of excluding shares from trading on the NYSE, and that in the future there would still be an opportunity to buy shares in the company when it improved its financial position. And, apparently, there is not long to wait. But first things first.
Hertz Global Holdings files for bankruptcy
In May 2020, Hertz Global Holdings still filed for bankruptcy to protect itself from creditors. In the United States, bankruptcy procedures allow a company to restructure loans without the consent of those who issued them.
Hertz Shares Excluded from NYSE Trading
Immediately after the company filed for bankruptcy, the NYSE began delisting its shares. But Hertz demanded that the exchange reconsider this decision. The second meeting on this issue was held on October 15, 2020, but the original decision to delist the shares was left unchanged. Thus, this was the last day that Hertz shares were traded on the NYSE. Bidding stopped at 1.01 USD per share.
Hertz Begins OTC Trading
But the Hertz stock story doesn’t end there. The next day, October 16, the company began trading on the OTC market.
90% of the shares traded on this market are companies that can disappear at any moment, often they can employ 2 – 3 people, and they may not conduct any operational activities. In other words, it is a market for high-risk assets. Working on it, you can get a good profit, and at the same time quickly lose your investment. Liquidity in this market is also low, which does not allow large investors to participate in transactions, since their positions can have a significant impact on the value of securities.
Hertz has become the favorite stock of speculators
The arrival of such a major player as Hertz Global Holdings on this market delighted speculators. Demand for shares jumped sharply, and trading in securities began at a price of 2.4 USD.
Then everything was quite trivial: the shares fell below 1 USD, speculators bought them, the price rose above 2 USD, traders took profits. This continued until May 2021.
In May, the price rose above 2 USD, but after this expected fall did not occur. The shares continued to rise in price, and eventually the price reached 35 USD at the moment, that is, the profitability in two months exceeded 1600%.
What triggered the rise in the value of Hertz shares?
Bankruptcy does not mean liquidation of the company. At this stage, she receives protection from creditors, looks for ways to pay off debts and resume her activities. If the company is promising, then it may have sponsors who will help solve financial problems. Fortunately, Hertz was willing to help her out of bankruptcy proceedings. Moreover, there were even two groups of sponsors.
The first is the funds Knighthead Capital Management LLC (“Knighthead”), Certares Opportunities LLC (“Certares”) and Apollo Capital Management, LP, which are part of the KHCA Group.
The second is the funds Centerbridge Partners LP, Warburg Pincus LLC, Dundon Capital Partners, LLC, which are part of the CWD Group.
They began to compete among themselves for the right to finance Hertz, and the KHCA Group was the winner in this fight.
This event became known on May 12. By this time, the volatility in Hertz shares increased, and the news only accelerated the growth of the share price.
Hertz reduced debt by 80%
While in bankruptcy, Hertz was able to cut its debt by 80%. At the present time, this is an unprecedented event for the company.
Hertz is in the segment hardest hit by the coronavirus pandemic. Air carriers, travel companies, the restaurant business, the service sector are those who found themselves in outsiders due to the pandemic, and in order to survive, they had to either increase their debt burden, seeking help, or leave the market.
For example, some large US air carriers already have debts that exceed their assets and will have to work to pay them off in the near future. That is, the money that comes to the company due to the rapid economic recovery is spent on solving the problems accumulated during the lockdowns.
Hertz made net profit
Looking back, the Hertz executives made the right decision, choosing bankruptcy over new loans to save the business. This is evidenced by the financial results for the 1st quarter of 2021.
The company’s revenue for this period amounted to 1.3 billion USD, which is almost two times less than in the same period last year. But this result cannot be called bad, since during the bankruptcy proceedings Hertz reduced its vehicle fleet, sold its subsidiary car rental company Donlen Corporation, optimized the geography of its presence and sold part of the equipment. That is, the company’s assets decreased, which, naturally, should have led to a drop in income.
The next financial indicator is surprising in its value. The company’s net profit amounted to USD 190 million. Let me explain what is surprising here.
Hertz ended the first quarter of 2020 with a loss of USD 118 million. The company earned more than USD 190 million in net profit only in the fourth quarter of 2017 during the New Year holidays. Then Hertz was able to make a net profit of USD 616 million. If we exclude this quarter from the analysis, it turns out that the profit of 190 million USD is the highest in the last 6 years. Therefore, Hertz is now in a better condition than in the last 6 years of operation.
As a result, May became a positive month both for the company itself and for the speculators who bought its shares. But June was even more interesting.
The court approved the plan for the reorganization of Hertz
On June 10, the bankruptcy court approved the reorganization plan of Hertz, which was adopted by 97% of voting shareholders. This plan implied repayment of debt in the amount of more than USD 5 billion, opening a credit line for more than USD 11 billion and full satisfaction of all financial requirements of loans, as well as payment of more than USD 1 billion to existing shareholders.
On the news, Hertz shares gained another 30%. But the most interesting event happened on June 30th. On this day, the company’s management announced that the restructuring process had been successfully completed, and Hertz was emerging from bankruptcy as a financially and operationally stronger company with excellent prospects for the future.
The next day after this news, the securities soared in price by more than 200%.
Hertz continues to trade on the OTC market, but its ticker has changed from HTZGQ to HTZZ effective July 1.
Investors await listing of Hertz shares on the stock exchange
The over-the-counter market, where Hertz shares are currently traded, is of course interesting for a wide range of investors, but it does not impose strict requirements on financial reporting and information disclosure for companies. For this reason, many large players do not risk investing in issuers whose shares are traded on this market. As a result, investors are eagerly awaiting when Hertz shares will again become available for purchase on one of the American stock exchanges.
Hertz’s listing on the stock exchange will serve as a green traffic light for large investors. It is possible that in the first days there will be an increased demand for the company’s shares.
Probably the best solution during the pandemic was to declare bankruptcy, wait out the difficult period and enter the market at the moment when the economy begins to recover. It was this risky path that Hertz took, and, as time shows, this decision turned out to be justified.
Now Hertz has exited the bankruptcy procedure with a debt of 20% of the pre-crisis one, generates net profit and has a share capital of over USD 5 billion. We just have to wait for the shares to become available for purchase on the stock exchange. The only question that arises is: at what price will they be sold by that time?
Let me remind you that Hertz shares before bankruptcy reached 125 USD per share. Let’s hope that OTC speculators will not be able to raise the price to such levels. Well, those who have access to OTC should pay attention to the Hertz company.
Yes, it seems that all the most interesting things are already behind us, the shares have already grown very much in price, and this is a true statement. Now we need to wait until the volatility falls, and along with it the price of securities will decrease. Then the very opportune moment for their purchase will come. And the news that Hertz shares will start trading on the stock exchange will become an additional trigger for the growth of their value.
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