Bankrupt Hertz wants to sell up to $1B in new shares after stock spikes

Hertz's shares rose to $5.53 earlier this week, a nearly 10-fold increase over their closing price of 56 cents following the company's May 22 bankruptcy filing.

By Becky Yerak Rental-car company Hertz Global Holdings Inc. wants to capitalize on the rally in its stock seen earlier this week by selling up to $1 billion in shares, despite a bankruptcy that threatens to wipe them out.

Hertz's shares rose to $5.53 earlier this week, a nearly 10-fold increase over their closing price of 56 cents following the company's May 22 bankruptcy filing.

Now the company is asking a bankruptcy judge to approve a deal with Jefferies LLC to allow the potential sale of 246.8 million unissued shares.

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"The recent market prices of and the trading volumes in Hertz's common stock potentially present a unique opportunity" for the company to raise capital on more favorable terms than the strings-attached loans that many other bankrupt companies get, the company's lawyers said Thursday.

The price of Hertz stock has fallen from this week's earlier high, closing Thursday at $2.06 a share, but the company said its stock is still actively traded.

Hertz also said Thursday it plans to ask the U.S. Bankruptcy Court in Wilmington, Del., for permission to get out of leases for 144,372 vehicles, a move it says would save it about $80.3 million a month. Last year, its U.S. fleet peaked at 567,000 vehicles.

Jared Ellias, a law professor at the University of California Hastings College of Law, said he has studied hundreds of bankruptcies and never seen a company try to fund a case with an equity offering at the start of chapter 11.

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"Hertz looks at the market and sees there is a group of irrational traders who are buying the stock, and the response to that is to seek to sell stock to these people in hopes of raising some amounts of money to fund their restructuring," Mr. Elias said.

Hertz shares trade on the New York Stock Exchange, which has moved to delist the company. Hertz has appealed the NYSE notice of delisting. Shares of bankrupt companies are typically worthless, save for rare instances in which the debt is repaid in full and money is left over for equity holders.

The shares would have to sell for more than $4 each for Hertz to hit $1 billion.

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Hertz's roughly $3 billion in corporate bonds were trading earlier this week at around 40 cents on the dollar, indicating little faith among creditors they will be repaid in full.

A Hertz spokesperson wasn't immediately available for comment.

Alexander Gladstone and Peg Brickley contributed to this article.