Hertz Global Holdings Inc. experienced a significant stock plunge, dropping 41% on Wednesday and an additional 11% on Thursday, making it the largest weekly decline since its 2021 re-listing after bankruptcy. This rout was triggered by the announcement of a concurrent stock issuance and bond offering, combined with preliminary earnings that fell short of analyst expectations.
The company is pursuing an unusual financing strategy, planning to issue $300 million in convertible payment-in-kind (PIK) notes and $100 million in shares. These shares are intended for buyers of the convertible notes to short the stock, thereby hedging their investment positions. Hertz will receive a nominal lending fee for these shares but no direct proceeds from their sale. The proceeds from the notes will be used to repay outstanding debts.
Hertz also issued a profit warning, stating that its second-quarter adjusted corporate earnings before interest, taxes, depreciation, and amortization (EBITDA) would be no more than $80 million, which is below analyst estimates. This weaker outlook is attributed to "unexpected softness in the used car market," which has increased depreciation costs. The company now expects net depreciation per vehicle per month to be approximately $300 during the second quarter. Matt Maley, chief market strategist at Miller Tabak + Co., noted that the equity offering, representing 21% of Hertz's float, would be significantly dilutive for existing shareholders. Mark Hackett, chief market strategist at Nationwide, called the move a "sign that they see the need to do something drastic" and a potential "capitulation of those that had been holding on."
Despite the specific Bloomberg article titled "Hertz Bears Boost Short Bets to Record After Shares Plummet 60%" not being directly accessible, the available search results detail the events leading to the stock plummet. By Thursday, July 1, Hertz confirmed it would sell 37 million shares at $2.70 per share, 10% below the previous closing price, and increased its notes offering to $350 million. This series of events, including the debt and equity offerings and the profit warning, contributed to the sharp decline in Hertz's stock value.
