HTZ - Hertz

[Jurgis]

Maybe that are the people that are trading stocks like HTZ nowadays:

 

Little Johnny is always being teased by the other neighborhood boys for being stupid. Their favorite joke is to offer Johnny his choice between a nickel and a dime Little Johnny always takes the nickel. One day, after Johnny takes the nickel, a neighbor takes him aside and says, “Johnny, those boys are making fun of you. Don’t you know that a dime is worth more than a nickel, even though the nickel’s bigger?” Johnny grins and says, “Well, if I took the dime, they’d stop doing it, and so far I’ve made $20!”

[Guest cherzeca]

equity committees usually get the hind teat.  for one thing, who holding HTZ equity is going to hire financial and legal advisors?  Icahn is long gone.  in a situation like this, some shareholders petition to set up an equity committee and do nothing and get nothing accomplished.

 

GAMCO owns a little less than 3% of HTZ and filed an objection to the issuance of new equity in court (which was overruled), but I highly doubt they'd get so involved as to create an equity committee.

 

the whole point is that in order to have a real functioning committee you need the court to permit the costs of the committee's financial and legal advisors to be picked up by the estate...and neither debtor nor any debt committee will want to see that happen and so they will object.  hard to see a judge going along with it

[Packer16]

It is also hard to believe that a judge in their right mind would allow a firm to raise equity (cash) without representation in the restructuring.  This would cause all kinds of litigation issues for anyone involved here.

 

Packer

[Guest cherzeca]

"representation in the restructuring"

 

this isn't confirmation stage, this is beginning financing stage.  no one had a vote. judge has found that this offering benefits estate since it is cheaper (actually, essentially costless) than normal DIP.  I would be quite surprised if this has happened before in a ch11. 

[Packer16]

It is only costless if the equityholders are given no consideration.  If they are given the value of debt & accrued interest & the asset value increases, what is given away is the upside above the debt & accrued interest. Even if this happens the best way to play this is the sub debt.

 

Packer

[Hielko]

Maybe new equity holders get something, but if they get something the debt will get a full recovery (or something close to it). So for current creditors it is cheap financing, unlike DIP financing that usually get super priority.

[SHDL]

https://www.sec.gov/ix?doc=/Archives/edgar/data/47129/000110465920073223/tm2022260d2_8k.htm

 

Quote from document:

 

As discussed below, recoveries in the Chapter 11 Cases for holders of common stock, if any, will depend upon our ability to negotiate and confirm a plan, the terms of such plan, the recovery of our business from the COVID-19 pandemic, if any, and the value of our assets. 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 (which is currently trading at a significant discount), 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.

 

[Dalal.Holdings]

Here we go...

 

https://www.cnbc.com/amp/2020/06/17/the-sec-told-bankrupt-hertz-it-has-issues-with-its-plan-to-sell-stock-chairman-jay-clayton-says.html

 

"We at the SEC, were are trying to carry out our responsibility in the situations like this as best we can...," Clayton added.

 

A bit late, Mr. SEC...

 

Stock is halted...

[Cigarbutt]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

[TwoCitiesCapital]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

 

I definitely think the SEC has more cause to stop this than the bankruptcy judge. The SEC specifically regulates capital markets and, in part, is responsible for protecting investors - even if that means protecting them from themselves.

 

There is a very reasonable case to be made to protect investors from an IPO of a bankrupt company when it's subordinated debt is still reflecting 50% of par.

 

Ultimately, I hope the SEC does stop this as those shares are all but guaranteed to be worthless.

 

Full disclosure, I'm short the stock via put spreads.

[Cigarbutt]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

I definitely think the SEC has more cause to stop this than the bankruptcy judge. The SEC specifically regulates capital markets and, in part, is responsible for protecting investors - even if that means protecting them from themselves.

There is a very reasonable case to be made to protect investors from an IPO of a bankrupt company when it's subordinated debt is still reflecting 50% of par.

Ultimately, I hope the SEC does stop this as those shares are all but guaranteed to be worthless.

Full disclosure, I'm short the stock via put spreads.

i guess the SEC could look into certain market practices (brokerage, margin requirement, basic duty of care to the retail client) but they'd have to decide who the shareholders are. The turnover is very high and who can rule out that a wave of investors with a certain level of sophistication are in fact seeing a recovery. Once they conclude that the price action is not manipulated, how can they decide for the market if this is 'appropriate' or not? Isn't it the role of BK Courts to deal with competing interests? and then valuation submitted by opposing groups are typically quite divergent. Also, there are sophisticated investors like you (recognizing that some strategies may be costly) who openly participate in the market to help bring the price down.

i understand though that delay or inability to issue shares would have a detrimental effect on the estate (wherever you sit in the capital structure).

How is the SEC supposed to protect the retail investor in this specific case?

https://www.sec.gov/news/speech/speech-driscoll-042919

If the SEC starts to go after market areas that are influenced by cheap money and leverage, the Fed may have to expand some programs..

[KJP]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

I definitely think the SEC has more cause to stop this than the bankruptcy judge. The SEC specifically regulates capital markets and, in part, is responsible for protecting investors - even if that means protecting them from themselves.

There is a very reasonable case to be made to protect investors from an IPO of a bankrupt company when it's subordinated debt is still reflecting 50% of par.

Ultimately, I hope the SEC does stop this as those shares are all but guaranteed to be worthless.

Full disclosure, I'm short the stock via put spreads.

i guess the SEC could look into certain market practices (brokerage, margin requirement, basic duty of care to the retail client) but they'd have to decide who the shareholders are. The turnover is very high and who can rule out that a wave of investors with a certain level of sophistication are in fact seeing a recovery. Once they conclude that the price action is not manipulated, how can they decide for the market if this is 'appropriate' or not? Isn't it the role of BK Courts to deal with competing interests? and then valuation submitted by opposing groups are typically quite divergent. Also, there are sophisticated investors like you (recognizing that some strategies may be costly) who openly participate in the market to help bring the price down.

i understand though that delay or inability to issue shares would have a detrimental effect on the estate (wherever you sit in the capital structure).

How is the SEC supposed to protect the retail investor in this specific case?

https://www.sec.gov/news/speech/speech-driscoll-042919

If the SEC starts to go after market areas that are influenced by cheap money and leverage, the Fed may have to expand some programs..

 

I haven't looked at the securities regulation statutes and rules in several years, so my knowledge might be out of date.  But for better or for worse, the post-Depression federal securities regulation regime is based on mandatory disclosure, rather than merits-based regulation.  When it enacted NSMIA in 1996, Congress went further and preempted state merits-based regulation of, among other things, securities traded on NYSE and NASDAQ. 

 

Some scholars have suggested that suitability rules can be used to fill the merits-based "gap" (views differ on whether this is actually a gap at all) on an investor-by-investor basis.  See, e.g., https://scholarlycommons.law.hofstra.edu/cgi/viewcontent.cgi?referer=https://duckduckgo.com/&httpsredir=1&article=1214&context=jibl

This is a particularly timely topic given the issues being discussed in the other thread about the Robinhood suicide.

 

Turning back to the points being discussed in thread, I think it's important to understand the overarching disclosure-based philosophy of US securities regulation before saying that the SEC and/or state regulators are falling down on the job for failing to make a merits-based determination with respect to whether or not to permit a securities offering.

 

As for the bankruptcy judge, what provision of the Bankruptcy Code or bankruptcy case law would suggest that a bankruptcy judge ought to engage in merits-based regulation of securities offerings to prevent an estate from benefiting at the expense of third-party investors who presumably will have the received everything to which they are entitled under the disclosure-based Congress has enacted for securities offerings?

[TwoCitiesCapital]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

I definitely think the SEC has more cause to stop this than the bankruptcy judge. The SEC specifically regulates capital markets and, in part, is responsible for protecting investors - even if that means protecting them from themselves.

There is a very reasonable case to be made to protect investors from an IPO of a bankrupt company when it's subordinated debt is still reflecting 50% of par.

Ultimately, I hope the SEC does stop this as those shares are all but guaranteed to be worthless.

Full disclosure, I'm short the stock via put spreads.

i guess the SEC could look into certain market practices (brokerage, margin requirement, basic duty of care to the retail client) but they'd have to decide who the shareholders are. The turnover is very high and who can rule out that a wave of investors with a certain level of sophistication are in fact seeing a recovery. Once they conclude that the price action is not manipulated, how can they decide for the market if this is 'appropriate' or not? Isn't it the role of BK Courts to deal with competing interests? and then valuation submitted by opposing groups are typically quite divergent. Also, there are sophisticated investors like you (recognizing that some strategies may be costly) who openly participate in the market to help bring the price down.

i understand though that delay or inability to issue shares would have a detrimental effect on the estate (wherever you sit in the capital structure).

How is the SEC supposed to protect the retail investor in this specific case?

https://www.sec.gov/news/speech/speech-driscoll-042919

If the SEC starts to go after market areas that are influenced by cheap money and leverage, the Fed may have to expand some programs..

 

I haven't looked at the securities regulation statutes and rules in several years, so my knowledge might be out of date.  But for better or for worse, the post-Depression federal securities regulation regime is based on mandatory disclosure, rather than merits-based regulation.  When it enacted NSMIA in 1996, Congress went further and preempted state merits-based regulation of, among other things, securities traded on NYSE and NASDAQ. 

 

Some scholars have suggested that suitability rules can be used to fill the merits-based "gap" (views differ on whether this is actually a gap at all) on an investor-by-investor basis.  See, e.g., https://scholarlycommons.law.hofstra.edu/cgi/viewcontent.cgi?referer=https://duckduckgo.com/&httpsredir=1&article=1214&context=jibl

This is a particularly timely topic given the issues being discussed in the other thread about the Robinhood suicide.

 

Turning back to the points being discussed in thread, I think it's important to understand the overarching disclosure-based philosophy of US securities regulation before saying that the SEC and/or state regulators are falling down on the job for failing to make a merits-based determination with respect to whether or not to permit a securities offering.

 

As for the bankruptcy judge, what provision of the Bankruptcy Code or bankruptcy case law would suggest that a bankruptcy judge ought to engage in merits-based regulation of securities offerings to prevent an estate from benefiting at the expense of third-party investors who presumably will have the received everything to which they are entitled under the disclosure-based Congress has enacted for securities offerings?

 

Like I said, I don't think it's the bankruptcy judges job.  But the SEC does other things that aren't disclosure based - like requirements that you be a sophisticated investor to invest in private offerings and hedge funds. If the SEC didn't want to step on anyone's toes, or provide merit based regulation, simply make it a requirement that you be a "sophisticated investor" to be eligible to participate in follow on offerings for companies in bankruptcy. We'll see real quick how capable Hertz is of moving $500 million when they're only selling to wealthy and sophisticated investors.

[bizaro86]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

I definitely think the SEC has more cause to stop this than the bankruptcy judge. The SEC specifically regulates capital markets and, in part, is responsible for protecting investors - even if that means protecting them from themselves.

There is a very reasonable case to be made to protect investors from an IPO of a bankrupt company when it's subordinated debt is still reflecting 50% of par.

Ultimately, I hope the SEC does stop this as those shares are all but guaranteed to be worthless.

Full disclosure, I'm short the stock via put spreads.

i guess the SEC could look into certain market practices (brokerage, margin requirement, basic duty of care to the retail client) but they'd have to decide who the shareholders are. The turnover is very high and who can rule out that a wave of investors with a certain level of sophistication are in fact seeing a recovery. Once they conclude that the price action is not manipulated, how can they decide for the market if this is 'appropriate' or not? Isn't it the role of BK Courts to deal with competing interests? and then valuation submitted by opposing groups are typically quite divergent. Also, there are sophisticated investors like you (recognizing that some strategies may be costly) who openly participate in the market to help bring the price down.

i understand though that delay or inability to issue shares would have a detrimental effect on the estate (wherever you sit in the capital structure).

How is the SEC supposed to protect the retail investor in this specific case?

https://www.sec.gov/news/speech/speech-driscoll-042919

If the SEC starts to go after market areas that are influenced by cheap money and leverage, the Fed may have to expand some programs..

 

I haven't looked at the securities regulation statutes and rules in several years, so my knowledge might be out of date.  But for better or for worse, the post-Depression federal securities regulation regime is based on mandatory disclosure, rather than merits-based regulation.  When it enacted NSMIA in 1996, Congress went further and preempted state merits-based regulation of, among other things, securities traded on NYSE and NASDAQ. 

 

Some scholars have suggested that suitability rules can be used to fill the merits-based "gap" (views differ on whether this is actually a gap at all) on an investor-by-investor basis.  See, e.g., https://scholarlycommons.law.hofstra.edu/cgi/viewcontent.cgi?referer=https://duckduckgo.com/&httpsredir=1&article=1214&context=jibl

This is a particularly timely topic given the issues being discussed in the other thread about the Robinhood suicide.

 

Turning back to the points being discussed in thread, I think it's important to understand the overarching disclosure-based philosophy of US securities regulation before saying that the SEC and/or state regulators are falling down on the job for failing to make a merits-based determination with respect to whether or not to permit a securities offering.

 

As for the bankruptcy judge, what provision of the Bankruptcy Code or bankruptcy case law would suggest that a bankruptcy judge ought to engage in merits-based regulation of securities offerings to prevent an estate from benefiting at the expense of third-party investors who presumably will have the received everything to which they are entitled under the disclosure-based Congress has enacted for securities offerings?

 

Like I said, I don't think it's the bankruptcy judges job.  But the SEC does other things that aren't disclosure based - like requirements that you be a sophisticated investor to invest in private offerings and hedge funds. If the SEC didn't want to step on anyone's toes, or provide merit based regulation, simply make it a requirement that you be a "sophisticated investor" to be eligible to participate in follow on offerings for companies in bankruptcy. We'll see real quick how capable Hertz is of moving $500 million when they're only selling to wealthy and sophisticated investors.

 

I think a sophisticated investor rule would make almost no difference as long as it didn't come with a mandatory hold period. The bankers would sell to hedge funds who would sell to retail. Just adds a step.

[TwoCitiesCapital]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

I definitely think the SEC has more cause to stop this than the bankruptcy judge. The SEC specifically regulates capital markets and, in part, is responsible for protecting investors - even if that means protecting them from themselves.

There is a very reasonable case to be made to protect investors from an IPO of a bankrupt company when it's subordinated debt is still reflecting 50% of par.

Ultimately, I hope the SEC does stop this as those shares are all but guaranteed to be worthless.

Full disclosure, I'm short the stock via put spreads.

i guess the SEC could look into certain market practices (brokerage, margin requirement, basic duty of care to the retail client) but they'd have to decide who the shareholders are. The turnover is very high and who can rule out that a wave of investors with a certain level of sophistication are in fact seeing a recovery. Once they conclude that the price action is not manipulated, how can they decide for the market if this is 'appropriate' or not? Isn't it the role of BK Courts to deal with competing interests? and then valuation submitted by opposing groups are typically quite divergent. Also, there are sophisticated investors like you (recognizing that some strategies may be costly) who openly participate in the market to help bring the price down.

i understand though that delay or inability to issue shares would have a detrimental effect on the estate (wherever you sit in the capital structure).

How is the SEC supposed to protect the retail investor in this specific case?

https://www.sec.gov/news/speech/speech-driscoll-042919

If the SEC starts to go after market areas that are influenced by cheap money and leverage, the Fed may have to expand some programs..

 

I haven't looked at the securities regulation statutes and rules in several years, so my knowledge might be out of date.  But for better or for worse, the post-Depression federal securities regulation regime is based on mandatory disclosure, rather than merits-based regulation.  When it enacted NSMIA in 1996, Congress went further and preempted state merits-based regulation of, among other things, securities traded on NYSE and NASDAQ. 

 

Some scholars have suggested that suitability rules can be used to fill the merits-based "gap" (views differ on whether this is actually a gap at all) on an investor-by-investor basis.  See, e.g., https://scholarlycommons.law.hofstra.edu/cgi/viewcontent.cgi?referer=https://duckduckgo.com/&httpsredir=1&article=1214&context=jibl

This is a particularly timely topic given the issues being discussed in the other thread about the Robinhood suicide.

 

Turning back to the points being discussed in thread, I think it's important to understand the overarching disclosure-based philosophy of US securities regulation before saying that the SEC and/or state regulators are falling down on the job for failing to make a merits-based determination with respect to whether or not to permit a securities offering.

 

As for the bankruptcy judge, what provision of the Bankruptcy Code or bankruptcy case law would suggest that a bankruptcy judge ought to engage in merits-based regulation of securities offerings to prevent an estate from benefiting at the expense of third-party investors who presumably will have the received everything to which they are entitled under the disclosure-based Congress has enacted for securities offerings?

 

Like I said, I don't think it's the bankruptcy judges job.  But the SEC does other things that aren't disclosure based - like requirements that you be a sophisticated investor to invest in private offerings and hedge funds. If the SEC didn't want to step on anyone's toes, or provide merit based regulation, simply make it a requirement that you be a "sophisticated investor" to be eligible to participate in follow on offerings for companies in bankruptcy. We'll see real quick how capable Hertz is of moving $500 million when they're only selling to wealthy and sophisticated investors.

 

I think a sophisticated investor rule would make almost no difference as long as it didn't come with a mandatory hold period. The bankers would sell to hedge funds who would sell to retail. Just adds a step.

 

Possibly. But there is a risk the hedge funds are the bag holders b/c it's gonna be real difficult to move $500 million in stock quickly when the current market cap is $285 million.

 

Methinks most funds wouldnt accept the risk either from losing money on a bankrupt company's IPO or the reputational damage that could come along with flipping toxic waste to main street.

 

This is real life - not an episode of Billions where everyone is crooked and gets away with it. These things matter to investors and to funds.

[KJP]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

I definitely think the SEC has more cause to stop this than the bankruptcy judge. The SEC specifically regulates capital markets and, in part, is responsible for protecting investors - even if that means protecting them from themselves.

There is a very reasonable case to be made to protect investors from an IPO of a bankrupt company when it's subordinated debt is still reflecting 50% of par.

Ultimately, I hope the SEC does stop this as those shares are all but guaranteed to be worthless.

Full disclosure, I'm short the stock via put spreads.

i guess the SEC could look into certain market practices (brokerage, margin requirement, basic duty of care to the retail client) but they'd have to decide who the shareholders are. The turnover is very high and who can rule out that a wave of investors with a certain level of sophistication are in fact seeing a recovery. Once they conclude that the price action is not manipulated, how can they decide for the market if this is 'appropriate' or not? Isn't it the role of BK Courts to deal with competing interests? and then valuation submitted by opposing groups are typically quite divergent. Also, there are sophisticated investors like you (recognizing that some strategies may be costly) who openly participate in the market to help bring the price down.

i understand though that delay or inability to issue shares would have a detrimental effect on the estate (wherever you sit in the capital structure).

How is the SEC supposed to protect the retail investor in this specific case?

https://www.sec.gov/news/speech/speech-driscoll-042919

If the SEC starts to go after market areas that are influenced by cheap money and leverage, the Fed may have to expand some programs..

 

I haven't looked at the securities regulation statutes and rules in several years, so my knowledge might be out of date.  But for better or for worse, the post-Depression federal securities regulation regime is based on mandatory disclosure, rather than merits-based regulation.  When it enacted NSMIA in 1996, Congress went further and preempted state merits-based regulation of, among other things, securities traded on NYSE and NASDAQ. 

 

Some scholars have suggested that suitability rules can be used to fill the merits-based "gap" (views differ on whether this is actually a gap at all) on an investor-by-investor basis.  See, e.g., https://scholarlycommons.law.hofstra.edu/cgi/viewcontent.cgi?referer=https://duckduckgo.com/&httpsredir=1&article=1214&context=jibl

This is a particularly timely topic given the issues being discussed in the other thread about the Robinhood suicide.

 

Turning back to the points being discussed in thread, I think it's important to understand the overarching disclosure-based philosophy of US securities regulation before saying that the SEC and/or state regulators are falling down on the job for failing to make a merits-based determination with respect to whether or not to permit a securities offering.

 

As for the bankruptcy judge, what provision of the Bankruptcy Code or bankruptcy case law would suggest that a bankruptcy judge ought to engage in merits-based regulation of securities offerings to prevent an estate from benefiting at the expense of third-party investors who presumably will have the received everything to which they are entitled under the disclosure-based Congress has enacted for securities offerings?

 

Like I said, I don't think it's the bankruptcy judges job.  But the SEC does other things that aren't disclosure based - like requirements that you be a sophisticated investor to invest in private offerings and hedge funds. If the SEC didn't want to step on anyone's toes, or provide merit based regulation, simply make it a requirement that you be a "sophisticated investor" to be eligible to participate in follow on offerings for companies in bankruptcy. We'll see real quick how capable Hertz is of moving $500 million when they're only selling to wealthy and sophisticated investors.

 

That's also quite difficult to do because, in general, the SEC (like most federal agencies) must use notice-and-comment procedures before promulgating new rules that have the force of law and that process takes time.  Perhaps there is an applicable statutory provision that would authorize the immediate issuance of an emergency interim rule, but I'm not aware of such a provision.  I also don't think it's reasonable to expect an agency like the SEC to move that quickly. 

[Cigarbutt]

^Thank you KJP for the link; very helpful.

What may happen, eventually, to the rules and regulations at large is somewhat irrelevant to Hertz now and the changes, if any, are likely to happen a posteriori. i have a feeling this may become relevant (again), from a systematic point of view.

The issue of merit vs disclosure is interesting and i read last night that when Apple issued shares in 1980, the issue was not permitted at the state level (Massachusetts and Illinois) because state-based regulations are still mostly merit-based (there has been no convergence to speak of since 1996). There are also (hidden) costs to regulation.

 

From an odds point of view, i still think a material move from the SEC is unlikely. However, they could still use a technical detail to slow or derail the secondary issue.

[KJP]

 

From an odds point of view, i still think a material move from the SEC is unlikely. However, they could still use a technical detail to slow or derail the secondary issue.

 

Yes, this can happen in practice.  Regulators can create an ad hoc quasi-merits based system (at least for a time) by repeatedly nitpicking the disclosure.

 

More broadly, there are tradeoffs here.  The more you restrict the options of individual investors, the more you both (i) prevent them from investing in frauds [good outcome], and (ii) push them into fee-based alternatives that create a drag on their overall returns [bad outcome].

 

Also, it's hard to know what media the average person is exposed to, but I have been saturated with the advice that essentially all individual investors are better off dollar cost average into low-cost index funds.  So, to the extent a large number of individuals are not doing that, why aren't they?  Is it because they have different media exposure and thus never receive that message, which suggests education would be very helpful?  Or do they receive that message, but nevertheless reject it, which suggests that more education would not help?

 

As I reread the paragraph I just wrote, I'm forced to ask:  Why don't I just invest in low cost mutual funds? 

 

I've taken this discussion far from Hertz, so I'll stop now. 

[Jurgis]

Also, it's hard to know what media the average person is exposed to, but I have been saturated with the advice that essentially all individual investors are better off dollar cost average into low-cost index funds.  So, to the extent a large number of individuals are not doing that, why aren't they?  Is it because they have different media exposure and thus never receive that message, which suggests education would be very helpful?  Or do they receive that message, but nevertheless reject it, which suggests that more education would not help?

 

As I reread the paragraph I just wrote, I'm forced to ask:  Why don't I just invest in low cost mutual funds? 

 

I've taken this discussion far from Hertz, so I'll stop now.

 

These are very good questions. I might disagree with second part of "do they receive that message, but nevertheless reject it, which suggests that more education would not help". Although, yeah, probably OT here.

[jckund]

Also, it's hard to know what media the average person is exposed to, but I have been saturated with the advice that essentially all individual investors are better off dollar cost average into low-cost index funds.  So, to the extent a large number of individuals are not doing that, why aren't they?  Is it because they have different media exposure and thus never receive that message, which suggests education would be very helpful?  Or do they receive that message, but nevertheless reject it, which suggests that more education would not help?

 

As I reread the paragraph I just wrote, I'm forced to ask:  Why don't I just invest in low cost mutual funds? 

 

I've taken this discussion far from Hertz, so I'll stop now.

 

These are very good questions. I might disagree with second part of "do they receive that message, but nevertheless reject it, which suggests that more education would not help". Although, yeah, probably OT here.

 

As having a bit of a finger on the pulse of some of these investors (roughly my demographic), I'll say that a lot of people making these stupid trades are college educated. A lot of times it isn't educational, as much as it is boredom and a propensity to gamble. Some people may legitimately not realize that stock in a bankrupt company is worthless, but many others do and just see the volatility and get rich quick schemes. See wallstreetbets for example.

[Jurgis]

Also, it's hard to know what media the average person is exposed to, but I have been saturated with the advice that essentially all individual investors are better off dollar cost average into low-cost index funds.  So, to the extent a large number of individuals are not doing that, why aren't they?  Is it because they have different media exposure and thus never receive that message, which suggests education would be very helpful?  Or do they receive that message, but nevertheless reject it, which suggests that more education would not help?

 

As I reread the paragraph I just wrote, I'm forced to ask:  Why don't I just invest in low cost mutual funds? 

 

I've taken this discussion far from Hertz, so I'll stop now.

 

These are very good questions. I might disagree with second part of "do they receive that message, but nevertheless reject it, which suggests that more education would not help". Although, yeah, probably OT here.

 

As having a bit of a finger on the pulse of some of these investors (roughly my demographic), I'll say that a lot of people making these stupid trades are college educated. A lot of times it isn't educational, as much as it is boredom and a propensity to gamble. Some people may legitimately not realize that stock in a bankrupt company is worthless, but many others do and just see the volatility and get rich quick schemes. See wallstreetbets for example.

 

Yes, I agree with this evaluation - greed / gambling is often the driving force. I'd naively think that even for greed/gambling appropriate education might help. But perhaps not.  ::)

[bizaro86]

^This continues to be entertaining and potentially interesting.

Some suggest "fraud" but how does that fit in Judge Walrath's ruling or the SEC mandate?

i think the SEC did the right thing and is sort of buying time here (telling 'investors': are you sure this is what you want) but after their "review" and potential "comments" what else can they do to prevent selling shares in an open market? There is even a 'risk' in this (gambling?) atmosphere that putting a more risky twist to the story may even stimulate more the infatuation with the stock.

It looks like the stock has started trading again. Interesting times.

I definitely think the SEC has more cause to stop this than the bankruptcy judge. The SEC specifically regulates capital markets and, in part, is responsible for protecting investors - even if that means protecting them from themselves.

There is a very reasonable case to be made to protect investors from an IPO of a bankrupt company when it's subordinated debt is still reflecting 50% of par.

Ultimately, I hope the SEC does stop this as those shares are all but guaranteed to be worthless.

Full disclosure, I'm short the stock via put spreads.

i guess the SEC could look into certain market practices (brokerage, margin requirement, basic duty of care to the retail client) but they'd have to decide who the shareholders are. The turnover is very high and who can rule out that a wave of investors with a certain level of sophistication are in fact seeing a recovery. Once they conclude that the price action is not manipulated, how can they decide for the market if this is 'appropriate' or not? Isn't it the role of BK Courts to deal with competing interests? and then valuation submitted by opposing groups are typically quite divergent. Also, there are sophisticated investors like you (recognizing that some strategies may be costly) who openly participate in the market to help bring the price down.

i understand though that delay or inability to issue shares would have a detrimental effect on the estate (wherever you sit in the capital structure).

How is the SEC supposed to protect the retail investor in this specific case?

https://www.sec.gov/news/speech/speech-driscoll-042919

If the SEC starts to go after market areas that are influenced by cheap money and leverage, the Fed may have to expand some programs..

 

I haven't looked at the securities regulation statutes and rules in several years, so my knowledge might be out of date.  But for better or for worse, the post-Depression federal securities regulation regime is based on mandatory disclosure, rather than merits-based regulation.  When it enacted NSMIA in 1996, Congress went further and preempted state merits-based regulation of, among other things, securities traded on NYSE and NASDAQ. 

 

Some scholars have suggested that suitability rules can be used to fill the merits-based "gap" (views differ on whether this is actually a gap at all) on an investor-by-investor basis.  See, e.g., https://scholarlycommons.law.hofstra.edu/cgi/viewcontent.cgi?referer=https://duckduckgo.com/&httpsredir=1&article=1214&context=jibl

This is a particularly timely topic given the issues being discussed in the other thread about the Robinhood suicide.

 

Turning back to the points being discussed in thread, I think it's important to understand the overarching disclosure-based philosophy of US securities regulation before saying that the SEC and/or state regulators are falling down on the job for failing to make a merits-based determination with respect to whether or not to permit a securities offering.

 

As for the bankruptcy judge, what provision of the Bankruptcy Code or bankruptcy case law would suggest that a bankruptcy judge ought to engage in merits-based regulation of securities offerings to prevent an estate from benefiting at the expense of third-party investors who presumably will have the received everything to which they are entitled under the disclosure-based Congress has enacted for securities offerings?

 

Like I said, I don't think it's the bankruptcy judges job.  But the SEC does other things that aren't disclosure based - like requirements that you be a sophisticated investor to invest in private offerings and hedge funds. If the SEC didn't want to step on anyone's toes, or provide merit based regulation, simply make it a requirement that you be a "sophisticated investor" to be eligible to participate in follow on offerings for companies in bankruptcy. We'll see real quick how capable Hertz is of moving $500 million when they're only selling to wealthy and sophisticated investors.

 

I think a sophisticated investor rule would make almost no difference as long as it didn't come with a mandatory hold period. The bankers would sell to hedge funds who would sell to retail. Just adds a step.

 

Possibly. But there is a risk the hedge funds are the bag holders b/c it's gonna be real difficult to move $500 million in stock quickly when the current market cap is $285 million.

 

Methinks most funds wouldnt accept the risk either from losing money on a bankrupt company's IPO or the reputational damage that could come along with flipping toxic waste to main street.

 

This is real life - not an episode of Billions where everyone is crooked and gets away with it. These things matter to investors and to funds.

 

For sure, I doubt they would be able to raise the full $500 MM under those circumstances. But they could sell quite a bit (even if only for short covering).

[Cigarbutt]

It looks like the SEC was able to put enough sand in the gears:

"Effective June 18, 2020, the Finance Committee of the Board of Directors determined that it was in the best interests of the Company to terminate the ATM Program and directed that the ATM Program be terminated."

Now back to regularly scheduled programming: HTZ will be looking for 1B, using more highly super-secured pathways.

How long will the shares remain listed?

[Cigarbutt]

Excerpts from a recent interview with Harvey Pitt, a former top securities regulator.

"In its filing for the new offering, Hertz said, “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 (which is currently trading at a significant discount), are paid in full.” Pitt said that the disclosure could have been made stronger to remove any hint that a potential recovery for equity holders was possible."

!!!

"Still, the situation with Hertz is not something that policymakers expected, he said. “As an intellectual proposition, most securities experts had always thought you could offer garbage for sale to the public as long as you said ‘we are offering you garbage, and you really shouldn’t buy this but you have a chance to buy it,’” Pitt said. “No one ever really anticipated that people would be gullible enough to do that.”

Hmmm...

[Spekulatius]

Excerpts from a recent interview with Harvey Pitt, a former top securities regulator.

"In its filing for the new offering, Hertz said, “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 (which is currently trading at a significant discount), are paid in full.” Pitt said that the disclosure could have been made stronger to remove any hint that a potential recovery for equity holders was possible."

!!!

"Still, the situation with Hertz is not something that policymakers expected, he said. “As an intellectual proposition, most securities experts had always thought you could offer garbage for sale to the public as long as you said ‘we are offering you garbage, and you really shouldn’t buy this but you have a chance to buy it,’” Pitt said. “No one ever really anticipated that people would be gullible enough to do that.”

Hmmm...

 

Those that buy garbage, don’t read SEC documents. A lot of “garbage“ is IPO’d nowadays. In a way, the HTZ offering is a logical extension of this behavior. In a way, given access to enough capital, you can turn garbage into something that has worth. Just like turning lead into gold, it isn’t a very efficient process, but it can be done.