Hertz: the original meme stock rises from the ashes of bankruptcy

Long before GameStop and Reddit's Wall Street Bets became synonymous, the social-media platform was enamored with another stock: Hertz.

The car-rental company became the target of Reddit-fueled traders in the summer of 2020 following its announcement that it would file for bankruptcy.

Hertz's business was decimated as the coronavirus pandemic ground travel to a halt, forcing the CEO to resign as the company missed lease payments and laid off 10,000 workers in a month. When Hertz filed for Chapter 11, it was one of the largest corporate casualties of the pandemic.

But Hertz caught the attention of retail investors. In a matter of weeks after the bankruptcy announcement, traders bid up shares of Hertz by 825% percent while Wall Street onlookers scratched their heads and wondered why retail investors were scooping up shares of a company that couldn't meet its debt obligations.

Even Hertz itself didn't have as much faith in its stock as the retail traders did. When the company issued more shares a month later, it said its stock could be "worthless."

But almost a year after declaring bankruptcy, the retail investors' instincts were proven correct. In May 2021, Hertz accepted a $6 billion bid from a group of investors - Knighthead Capital Management, Certares Opportunities, and Apollo Capital Management - to exit bankruptcy.

The reorganization plan also included a payout to equity shareholders, an unusual outcome in corporate bankruptcies.

"That doesn't happen every day in bankruptcy. In fact, I've never seen it happen," said Andrew Glenn, managing partner of Glenn Agre Bergman & Fuentes who orchestrated the winning bid for the equity shareholders.

Hertz estimated shareholders would get a payout of $7-$8 a share, which is more than what any retail investor who purchased in the summer of 2020 paid for the stock.

Accredited investors like wealthier individuals and institutions also were able to participate in an equity rights offering to buy shares of Hertz at a discount to Hertz's own valuation under its bankruptcy plan.

In total, more than $1 billion of value was to be returned to shareholders, Hertz said.

According to Glenn, a confluence of events had led to the success for the equity shareholders and Hertz's valuation: the V-shaped recovery, pent-up demand for travel, and a shortage of rental cars as many companies sent their cars to the used-car market during the pandemic.

By mid-June, ahead of its exit from bankruptcy, Hertz was hovering around $8 a share for a year-to-date gain of 536%.

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