June 11, 2020 – The Debtors filed a motion seeking Court authority to enter into a sale agreement with Jefferies LLC (“Jefferies,” agreement noting 3% commission at Exhibit B) whereby Jefferies would sell up to $1.0bn of the Debtors' common stock through at-the-market ("ATM") transactions (and leveraging an existing shelf registration statement). The extremely unusual notion that the Debtors might issue equity during the pendency of bankruptcy proceedings follows a recent (and to many inexplicable) rally in the share price of the Debtors' common stock; all the more striking when juxtaposed by the Debtors' June 10th announcement that it had been notified (as far back as May 26th) by NYSE staff that NYSE had begun the process of delisting the Debtors' common stock. Perhaps unsurprisingly, given the Debtors' $1.0bn plans, the Debtors have appealed that decision, noting that "the common stock of the Company will continue to be listed and trade on the NYSE pending resolution of such appeal."
The motion's preliminary statement is stunning in its brazen audacity, urging the Court to act on an emergency basis to allow the Debtors (and their secured creditors) to "capture the potential value" of this market anomaly before the opportunity disappears and assuring the Court that any sale of securities would include the requisite health warnings:
"The recent market prices of and the trading volumes in Hertz’s common stock potentially present a unique opportunity for the Debtors to raise capital on terms that are far superior to any debtor-in-possession financing. If successful, Hertz could potentially offer up to and including an aggregate of $1.0 billion of common stock, the net proceeds of which would be available for general working capital purposes. Unlike typical debtor-in-possession financing, the common stock issuance would not impose restrictive covenants on the Debtors and would not impair any of the creditors of the Debtors. Moreover, the stock issuance would carry no repayment obligations, and the Debtors would not pay any interest or fees to those who provide the funding by buying shares at the market. Hertz would include disclosure in any prospectus used to offer common stock highlighting that an investment in Hertz’s common stock entails significant risks, including the risk that the common stock could ultimately be worthless.
The Debtors bring this Motion on an emergency basis given the volatile state of trading in Hertz’s stock and to ensure that the Debtors are in a position to capture the potential value of Hertz’s unissued shares."
Its frankly hard to stop shaking one's gape-mouthed head at the temerity involved in telling a bankruptcy Court judge how and why almost certainly worthless equity (remember the Debtors have $24.355bn of total liabilities and $18.8bn of funded debt) is a "unique opportunity…on terms that are far superior to any debtor-in-possession financing" (you don't say) but not to worry about giving the Court's imprimatur to a $1.0bn stock offering of an about to be delisted stock of a company in bankruptcy because we have an ALL CAPS, in bold risk factor lined up for the prospectus ["Hmmm, so you say there will be a risk factor….well go on then."].
In any event, its really hard to see how any of this is actually going to happen, with the lights undoubtedly burning late into the night at the SEC and the publicity around the fact of the potential offer likely to provide something of a wake up call to otherwise game investors. Still, the Debtors have provided some must watch entertainment in the form of an emergency telephonic hearing set for 3pm today (June 12th).
The Debtors’ motion continues, “On May 26, 2020, the first trading day after the Debtors commenced the above-captioned cases, the common stock of the Debtors’ holding company, Hertz Global Holdings, Inc. (“Hertz”), closed at a price of $0.56 per share. Over the next two weeks, Hertz’s stock price rose significantly, closing at a price of $5.53 on June 8 — a nearly tenfold increase. Although the trading price of Hertz’ common stock has declined since then, closing at $2.52 on June 10, 2020, the common stock continues to actively trade. Given these developments, the Debtors now seek emergency relief from this Court to allow the Debtors to capture the potential value of unissued Hertz shares for the benefit of the Debtors’ estates. By this Motion, the Debtors seek an order pursuant to sections 105(a) and 363(b) of the Bankruptcy Code authorizing, but not requiring, the Debtors to (i) enter into a sale agreement with Jefferies, and (2) issue up to and including 246,775,008 shares of common stock through at-the-market transactions under Hertz’s existing shelf registration statement on Form S3 (File No. 333-231878) previously filed by Hertz with the U.S. Securities and Exchange Commission and declared effective on June 12, 2019.
There are currently 400 million authorized shares of Hertz common stock and 246,775,008 unissued shares. The Debtors now seek to capture the potential value in these unissued shares for the benefit of their estates by seeking approval to issue and sell Hertz shares at the market price…Under the Sale Agreement, the Company may offer and sell over time, and from time to time, shares of Hertz common stock having an aggregate offering price not to exceed $1,000,000,000, which in no event will result in the issuance of more than 246,775,008 shares of common stock…Jefferies would receive from the Debtors a selling commission at a mutually agreed rate, up to 3.0% of the gross proceeds of any shares of Hertz’s common stock sold through it. The remaining sales proceeds, after deducting transaction fees imposed by any governmental, regulatory or self-regulatory organization in connection with the sales, would equal the Debtors’ net proceeds for the sale of such shares. The Company would also pay all costs, fees and expenses incurred in connection with the transactions contemplated by the Sale Agreement, including fees and disbursements of Jefferies’ counsel not to exceed an aggregate of $200,000.”
The court scheduled a hearing to consider the motion for June 12, 2020 [Docket Nos. 389 and 393].
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The post The Hertz Corporation – In One for the Bankruptcy History Books, About To Be Delisted Debtors Urge Court to Greenlight $1bn Equity Offering; Hearing Set for 3pm on June 12th appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.