Whatās Going On Here?Hertz ā the bankrupt car rental company ā stopped just short of going ahead with its share sale after US financial regulators began asking questions about the deal. What Does This Mean?Hertz was yet another business to fall victim to the coronavirus pandemic, which led the company to declare bankruptcy back in May. That meant its shares theoretically werenāt worth a penny. But that didnāt seem to put off āretail investorsā, who stumped professional investors by buying up Hertzās stock and boosting its share price. So the company figured itād use all this newfound popularity to sell a bunch of new shares.
But companies usually call it quits when regulators start asking questions, and Hertz was no exception. All this attention on Hertz is notable because buyers ā even willing ones ā would likely have been left with shares worth nothing. After all, Hertz wouldāve been obliged to use any cash it did raise to repay its debt-holders ā and thereād probably have been nothing left for shareholders. Why Should I Care?For markets: Weāre in charge now.
Retail investors donāt usually have enough cash to make a difference to the share price of a big company. But when firms go bankrupt, they shrink sharply, fewer investors buy and sell their shares, and smaller investors can now single-handedly bump prices up and push them back down. Case in point: Hertz planned to raise $1 billion from 250 million new shares, implying a share price of $4. But given its share price has halved since, selling the same number would now only net the company around $500 million.
For you personally: You Only Lose Everything Once.
The āYOLO day-tradersā whoāve used so-called hot tips to inform their investments have been blamed for the peculiar rises in bankrupt companiesā shares lately. Some traders claim to have made a lot of money riding these waves, but other, much quieter folks have lost huge sums. If only theyād had a certain appā¦ | 