Hertz Global Holdings, Inc. announced a unique capital-raising strategy involving a $100 million offering of its common stock. Instead of selling the shares outright, Hertz will lend these shares to J.P. Morgan Securities LLC, acting as a "share borrower." J.P. Morgan or its affiliates will then sell these borrowed shares. Hertz will not receive any proceeds from the sale of these shares, only a "nominal lending fee." The primary purpose of this arrangement is to facilitate hedging transactions for investors participating in a concurrent private offering by Hertz's subsidiary, The Hertz Corporation.
This concurrent offering involves up to $300 million (or $345 million if an over-allotment option is exercised) aggregate principal amount of Exchangeable Senior First-Lien Secured PIK Notes due 2030. Investors in these notes can use the short positions created by the sale of the borrowed shares to hedge their investments. Hertz has indicated that this activity could potentially affect the market price of its common stock. The offering of the borrowed shares is contingent upon the closing of the notes offering, but the notes offering is not dependent on the share loan.
The strategy is considered unusual by market observers, with one strategist calling it a "sign of capitulation." Hertz's stock plunged almost 41% on Wednesday, hitting $3.00 per share, its steepest single-day decline ever. This downturn followed Hertz's warning about "unexpected softness in the used-car market," which is expected to negatively impact its second-quarter adjusted corporate EBITDA, estimated to be at the lower end of its expected range ($50-$80 million). The firm later clarified that it sold 37 million shares at $2.70 per share and increased the notes offering to $350 million, leading to significant dilution estimates for existing shareholders.
