• Market Crumbs

SEC Has Issues With Hertz


Image via Lubo Minar on Unsplash

Just a few weeks ago, Hertz—which has been in business for 102 years, filed for Chapter 11 bankruptcy as the coronavirus crippled demand for rental cars.


With nearly $20 billion in debt and $1 billion in cash, the company's former CEO said just a few weeks before the bankruptcy filing that "No business is built for zero revenue."


Despite the bankruptcy filing, which in normal times would be taken as a negative development, the stock became a hit among retail traders. On Robinhood, the number of users holding shares of Hertz jumped from about 45,000 before the bankruptcy filing to more than 160,000 currently.


For a while, they were making out pretty well despite Hertz's obvious solvency issues. Shares of Hertz jumped from a low of $0.40 per share after the bankruptcy filing to as high as $6.25 per share just last week.



Taking advantage of the disconnect between its stock price and reality, Hertz announced last week that it would sell $500 million worth of common stock. In the filing, Hertz warned stockholders that they could lose all of their money if debtholders aren't paid in full.


"Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness, are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels," Hertz said.


With the stock falling back below $2.00 per share, the Securities and Exchange Commission appears to finally have stepped in and let Hertz know it has issues with the planned offering.


"In this particular situation we have let the company know that we have comments on their disclosure," SEC Chairman Jay Clayton said. "In most cases when you let a company know that the SEC has comments on their disclosure they do not go forward until those comments are resolved."


Clayton did not explicitly disclose what issues the SEC has with the language, but Hertz announced the offering would be "promptly suspended pending further understanding of the nature and timing of the Staff’s review."


"We at the SEC, were are trying to carry out our responsibility in the situations like this as best we can and I expect the other professionals around the situation to carry out their responsibilities and best they can," Clayton said.


Despite the importance of a company's fundamentals all but having been eliminated in the current environment of the market, it appears Hertz's plan to sell shares may have taken it a step too far in the eyes of the SEC.

Leftover Crumbs

  • Mortgage demand surges. Mortgage applications to purchase a home jumped 4% last week and now stand 21% higher than the same period a year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. Last week's increase marked the ninth-consecutive week of increased demand for mortgages to purchase a home and the highest volume in 11 years. With mortgage rates continuing to fall, refinance applications jumped 10% last week and are now 106% higher than the same period a year ago.

  • Aunt Jemima to become thing of the past. PepsiCo announced it will discontinue its use of the 130-year old Aunt Jemima name and brand by the fourth quarter of this year. "We recognize Aunt Jemima’s origins are based on a racial stereotype," Quaker Foods North America chief marketing officer Kristin Kroepfl said. "As we work to make progress toward racial equality through several initiatives, we also must take a hard look at our portfolio of brands and ensure they reflect our values and meet our consumers’ expectations."

  • Beyond Meat starts a price war. Just a few weeks after Impossible Foods announced it would sell packages of its plant-based meat on its website, Beyond Meat has introduced value packs of its own meatless burgers at a significantly lower price. Beyond Meat will sell the 10-packs for $15.99 beginning next week at Walmart, Target and other select retailers in the U.S. The price of $6.40 per pound brings Beyond Meat's meatless burgers closer to the price of beef, which is currently at $5.26 per pound.

  • This will be a popular feature. Facebook announced users will be able to turn off political ads as the U.S. presidential election nears. "For those of you who’ve already made up your minds and just want the election to be over, we hear you — so we’re also introducing the ability to turn off seeing political ads," Facebook co-founder and CEO Mark Zuckerberg said. "We’ll still remind you to vote."

  • Target raises minimum wage. Target will raise its minimum wage to $15 per hour on July 5, ahead of its plan to move it to $15 per hour by the end of this year. The move is part of a plan announced three years ago in which Target vowed to increase its minimum wage from $10 per hour to $15 per hour over three years. Target will also give employees a $200 bonus for their work during the coronavirus, as well as extend benefits such as care for employees' children or needy adults, free mental health counseling and 30-day paid leave for those at higher risk to the coronavirus.