Investment analysts have been left scratching their heads over the vagaries of the market in 2020 and 2021. From Tesla soaring over 700 percent to Gamestop’s revolutionary rally and the cryptocurrency’s meteoric rise and fall, the uncertainties over the last year have especially captivated market experts in the United States.

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However, before any of this, there was Hertz, the American car rental company, which is now in the middle of bankruptcy proceedings.

A bankruptcy court recently approved a winning auction for Hertz to a group of institutional investors after the auction for the control of the company heated up on better future prospects. The car renter picked Knighthead Capital Management and Certares Management to buy the company out of Chapter 11.

The company’s stock closed on $6.80 on May 14 this year and Hertz says that it expects stockholders to receive as much as $8 a share because of the deal. That’s nearly a 16 fold increase in the stock’s value since its lowest in a year.

Hertz’s story began in an unusual way, with the company filing Chapter 11 bankruptcy proceedings. Amid the COVID-19 outbreak and subsequent lockdown last year, the second-largest car rental company in the US announced on April 30, 2020 that it had missed lease payments on its fleet and was seeking the support of its investors to avoid bankruptcy.

As a result of missed payments and following no agreement with its top lenders, Hertz filed for Chapter 11 bankruptcy on May 20 last year. Hertz had a cumulative debt of nearly $19 billion at that point and a fleet of 700,000 vehicles. Chapter 11 bankruptcy involves reorganisation of the business so that debts can be settled while trying to keep the company alive. According to experts, only one out 10 Chapter 11 bankruptcies manage to stay afloat afterwards.

Many savvy investors unloaded the company’s stocks as they were soon deemed to be less than worthless. Billionaire Carl Ichan was one of them, as he offloaded almost 55 million shares of the company suffering a loss of $2 billion in the process, according to a CNN report.

However, even as many sophisticated investors and funds were offloading, justifiably so as shareholders are the last people to be paid back when a company goes under, many retail investors jumped onto Hertz. Many short sellers rejoiced at first but that quickly turned to abject horror as Hertz’s stock prices started to rise. Some of them joined as a meme, some of them bought the stock because they had different views of how the Chapter 11 filing would play out. Hertz stocks rallied to $5.5 on June 8, against the low of $0.56 in May 26 last year.

Seeing the rally, Hertz had announced on June 11 it would raise up to $1 billion by selling equity for its legal fees during the bankruptcy process. The company even announced that there was a "risk that the common stock could ultimately be worthless" but still managed to raise up to $29 million before the Securities Exchange Commission (SEC) stepped in and halted trading of the stock on fears of a speculative bubble. The company’s stock was finally delisted from the NYSE in October 2020.

Many said the company had managed to dupe retail traders and hobby investors as the chances of them recovering any value on their shares seemed non-existent. But it is these investors who are now having the final laugh.

(Edited by : Shoma)

First Published:May 19, 2021 7:30 PM IST