Small investors who were mocked last year for driving up shares of bankrupt car rental company Hertz scored a surprising victory on Wednesday when the company was bought at auction for as much as $8 a share.
Word of the deal vindicating the much maligned “Reddit Rally” crowd sent shares of Hertz up as much as 68 percent on Wednesday to $6.20 a share before closing at $5.72 a share.
Shareholders are usually wiped out in a bankruptcy. But Wednesday’s Miami-based auction had monied Wall Street firms vying for control of the car rental business at a time when pandemic-weary consumers are hitting the road again in droves.
Wednesday’s deal — representing expectations for a speedy pandemic recovery — stunned even Jamere Jackson, Hertz chief financial officer until September 2020.
“During the early days, nobody knew if we were going to survive. Even six months ago, nobody could have predicted this sort of demand for our cars,” he told The Post.
Last year’s frenzied trading in Hertz, which presaged GameStop’s meteoric rise, pushed Hertz shares up as much as $6.25 a share in June from the 42-cents-a-share low the stock hit in May after it sought bankruptcy protection.
Trading in Hertz got so heated that then-SEC chairman Jay Clayton went on national television to say the watchdog was concerned about the company’s plans to raise money by selling more potentially worthless stock.
Wednesday’s deal — hashed out by Knighthead Capital Management, Certares Management and Apollo Global Management — values Hertz at $7.4 billion, including debt.
In addition to making lenders whole, the buyers have agreed to pay equity investors as much as $8 for each share they own via a $240 million cash payment, as well the chance to participate in either a $1.6 billion rights offering or warrants for about 20 percent of the reorganized company.
One potential winner is billionaire Carl Icahn. He famously lost $1.8 billion last May after he sold out of his 39 percent stake in Hertz following its bankruptcy. But a source with knowledge of the situation says Icahn has since come into Hertz shares and expects to make some money on Wednesday’s auction.
The extent to which Hertz investors have recovered from the bankruptcy is stunning. Last year, Hertz bonds were trading at 10 cents a share.
Even as the economy showed signs of heating up in March, Knighthead and Cetares were offering nothing to shareholders and a deal for unsecured creditors representing 60 percent of the company’s $4.6 billion in debt of only 70 cents on the dollar.
The creditors rejected that bid, and soon after private equity firms Centerbridge Partners and Warburg Pincus made a better proposal, setting the bidding war in motion.
Even on Tuesday the stock closed at $3.69 a share, suggesting investors had no idea what was to follow.
“We are very pleased that our plan process produced such a tremendous result for our creditors and shareholders,” Hertz’s President and Chief Executive Officer Paul Stone said in a statement.