LOS ANGELES, CA – AUGUST 27: A sign is seen at a Hertz Global Holdings car rental branch August 27, … [+]
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While the stock price of rental car major Hertz (NYSE: HTZ) fell to under a dollar post its Chapter 11 bankruptcy filing May 22, 2020, it recovered strongly, trading at levels of around $2.50 as of Friday, up about 3x from last week’s lows. Is this really warranted? What’s been happening with Hertz post its filling? We answer these questions and more below.
Could We Have Seen Hertz’s Bankruptcy Coming? View our analysis for more details on the company’s debt and cash flows prior to the bankruptcy.
What’s Happening With Hertz Post The Bankruptcy Filing?
While Hertz continues to run its day-to-day operations post-filing for bankruptcy, the company is working to settle with its largest secured and unsecured debt holders. The company has about $19 billion in debt and holds almost 700k vehicles that remain largely idled due to the Coronavirus. The process is expected to be more complex compared to other bankruptcies, as Hertz vehicle-backed bonds at its various subsidiaries – which account for a bulk of its debt – aren’t part of the bankruptcy filing.
Why Did The Stock Rally?
There are a couple of factors that may have driven the rally. For one, the positive jobs report for May boosted the broader indices and this likely also helped Hertz stock. Secondly, some of the largest airlines provided positive updates on booking and flight schedule trends on Friday, indicating that the airline industry could see a quicker than expected recovery. Hertz’s business is largely tied to customers traveling to and from airports, this likely helped sentiment. Thirdly, used car prices are apparently holding up better than expected, as used vehicle sales have been stronger than new car sales.  This might be providing investors some confidence that the company will realize stronger prices on its fleet, which accounts for close to $15 billion of Hertz’s total $19 billion debt.
TTIs This Warranted? Is There Room For More?
We think the current rally in Hertz stock is largely unwarranted. Common shareholders are typically wiped-out during Chapter-11 proceedings, as all of a company’s creditors must be repaid in full before common shareholders can recover anything. In Hertz’s case, this appears all the more certain given the company’s massive debt load and the fact that demand is unlikely to return to pre-crisis levels anytime soon. Even large, sophisticated investors have exited the stock. Carl Icahn, one of the company’s biggest shareholders, sold his holding of about 55 million shares for $0.72, booking a loss of over $1.5 billion. For more details on the bankruptcy process and how various investors are compensated, read our quick take on Bankruptcy: What, How and So-What? JCPenney, Hertz, & More