
Bankrupt Hertz targets Robinhood traders in plot to dump $1B in stock - vizzah
https://whatsnew2day.com/bankrupt-hertz-targets-robinhood-traders-in-plot-to-dump-1-billion-in-stock/
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nickff
This article is describing a very obviously risky investment as some sort of
"dastardly" plot. It describes the stock as "potentially worthless", and while
I would agree this is a bad investment, all stock is 'potentially worthless',
that's why investors get a risk premium (versus low-risk treasuries).

This post seems like a lot of fluff and pointless outrage.

~~~
dragontamer
> all stock is 'potentially worthless'

There's a big difference between most stocks, and Hertz which is currently
under Chapter11 bankruptcy proceedings.

~~~
qeternity
> There's a big difference between most stocks, and Hertz which is currently
> under Chapter11 bankruptcy proceedings.

Indeed. With "most stocks" you have to do lots of work to figure out if
they're actually insolvent. With HTZ, they've gone through the hassle of
telling you up front.

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OldHand2018
I'm thinking that this strange trading behavior with Hertz _and others_ is an
unanticipated consequence of commission-free trading combined with a lot of
fully-employed people getting free money from the government.

~~~
albntomat0
Matt Levine of Bloomberg has written a bunch of the "boredom market
hypothesis," which says a lot of folks are investing, who wouldn't otherwise,
because they're stuck at home due to coronavirus, and the stock market is the
most entertaining thing.

~~~
tick_tock_tick
No sports and the casinos are closed wouldn't surprise me.

~~~
albntomat0
Those are the literally the ones he mentions!

[https://www.bloomberg.com/opinion/articles/2020-06-09/the-
ba...](https://www.bloomberg.com/opinion/articles/2020-06-09/the-bad-stocks-
are-the-most-fun)

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refurb
This will spawn a new acronym...

IBO - initial bankruptcy offering

~~~
banana_giraffe
Reminds me of retail places that have annual "going out of business sales" as
a quasi strategy. I always loved the cheeky ones that even advertised "It's
our fourth annual going out of business sale!"

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smabie
“Hertz looks at the market and sees there is a group of irrational traders who
are buying the stock, and the response to that is to seek to sell stock to
these people in hopes of raising some amounts of money to fund their
restructuring,” University of California law professor Jared Ellias told
reporters.

Sounds like Jared is miffed that he didn't cash in. The fact that Hertz is up
like 200% since the beginning of the month means that the traders are, in
fact, rational.

What's great about the market is that it's a self-fulfilling prophecy. If
you're wrong, and everyone else wrong, you all become wrong. The only way to,
in fact, be wrong, is if everyone else disagrees with you. So what makes your
decision wrong is the fact that you were the only one to make it.

I applaud these Hertz traders and feel a little disappointed that I didn't
jump in on it. Man, I bet Icahnn is pissed. He could have made one the biggest
killing the Street has seen in a long time! Of course, according to our friend
Jared, he's the rational one in all of this.

~~~
cortesoft
> The fact that Hertz is up like 200% since the beginning of the month means
> that the traders are, in fact, rational.

You aren't factoring in time here... just because a stock has gone up over a
specific period of time doesn't mean everyone who bought the stock did the
right thing. What if the price collapses tomorrow?

Also, a good outcome for an action doesn't mean taking it was rational. If I
place my life savings on black in a game of roulette, there is an 9/19 chance
that I double my money. If I do, it doesn't mean I was rational to make that
bet. It means I was lucky.

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pdq
This is the current state of our SEC.

Regulators asleep at the wheel, while uninformed retail investors are going to
be hosed when the bankruptcy finalizes.

If they allow this, the investors who lose their money should be able to sue
the SEC for negligence.

~~~
nemothekid
> _If they allow this, the investors who lose their money should be able to
> sue the SEC for negligence._

Why? Hertz is not doing anything dishonest.

~~~
vizzah
They do. Because their bonds currently trade at ~0.4 of $1. And considering
equity owners are the latest who will receive any money following the
bankruptcy, they know well they aren't going to raise enough money to even
deal with other creditors.

And they go and issue another $1bn of a worthless equity because never in the
history of financial markets there would been so many idiots who would be
buying it in such a frenzy.

A little chance though that this cash raise could somehow help them get out of
the bankruptcy - sort of "a bailout by the shareholders" \- but it's still
unlikely.

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vikramkr
Hey, if people are willing to buy, might as well make use of it.

~~~
dragontamer
Even if this company is literally going bankrupt? The shareholders will be
wiped out in just a few months. Its extremely difficult for me to imagine a
situation where these new shareholders will make money over the next year.

The only part of my brain that agrees with you is the "Machiavellian" part.
Yes, there's something to be said about letting people do what they wish to
do. But on the other hand, if people start jumping off a cliff tomorrow, you
bet that I'm going to do what I can to save them.

Buying up Hertz right now is extremely dangerous. Encouraging the behavior
will cause lots of pain to the investors who almost certainly don't know what
they're doing.

\---------

These aren't hedge-funds or big banks who are "smarter" than me. These are
retail investors. The "dumb money" of the market.

In the best case scenario, these "investors" (really... gamblers at this
point...) are willing to play a Ponzi-like scheme of "selling to the greater
fool". There's no other reason to be buying companies up through a bankruptcy.

~~~
vikramkr
You dont have to encourage the behavior. You can discourage it. But at the end
of the day, it's their money, and it's not causing harm to society or to
anyone else directly. In a society that's willing to accept gambling and state
run lotteries, this level of personal risk taking is not remotely near the
level our society seems acceptable. And, they could actually be right in the
end, if by providing liquidity they help the company avoid onerous bailout
loans, and covid lifts up sooner rather than later, they could end up with
Hertz able to make a strong recovery. Or they could lose their money. But it's
their money.

~~~
dragontamer
> And, they could actually be right in the end, if by providing liquidity they
> help the company avoid onerous bailout loans, and covid lifts up sooner
> rather than later, they could end up with Hertz able to make a strong
> recovery.

I don't think you understand bankruptcy. Hertz is about to receive a $17
Billion handout, in the form of its loans being largely forgiven and/or
reorganized through a process called "Chapter 11 Bankruptcy".

As part of "forgiving the debt", the shareholders get the stock set to $0.
This is virtually inevitable, it almost always happens.

\---------

The only winners here, are the banks. The banks (and other bondholders) will
collectively get $1 Billion more before the debt is forgiven. As such, this
move only helps the banks and bondholders.

\--------

The $1 Billion here is peanuts compared to the $17 Billion in loans that the
Hertz company obviously cannot pay in its current form. The shareholders are
wiped out without the secondary offering... the shareholders are wiped out
with the secondary offering. In both cases, the company will inevitably go
bankrupt... but the shareholders are collectively $1 Billion poorer after this
offering.

\----------

I cannot imagine how the shareholders benefit from this. In both situations,
the shareholders are going to be left with $0 in just a few months.

~~~
Scoundreller
> As part of "forgiving the debt", the shareholders get the stock set to $0.
> This is virtually inevitable, it almost always happens.

Not exactly, the current shareholders are getting paid interest to loan out
their shares to short sellers.

The longer this gets drawn out, the more interest they collect, and owners
could come out ahead of the short-sellers. Even if the shares themselves go to
$0 (as everything does in the long-run).

Or doing all that indirectly through options. If you know that the stock will
still be worth 12 cents in 4 months, that can earn a fortune.

~~~
dragontamer
> Not exactly, the current shareholders are getting paid interest to loan out
> their shares to short sellers.

I don't believe Robinhood traders get this benefit. A premium service like
Interactive Brokers provides the ability to lend shares. Sophisticated
investors buying/selling and trying to make money through bankruptcy is fine.

The issue I have is that normal, retail investors, are going to be caught up
in this game. Under traditional retailer strategy (ie: buy and hold, and/or
dollar cost averaging), the retail investor is going to be wiped out here.

> Or doing all that indirectly through options. If you know that the stock
> will still be worth 12 cents in 4 months, that can earn a fortune.

You don't need to own any shares to buy or sell options. You can play the
options market whenever you feel like.

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londons_explore
Is a government bailout of Hertz likely?

They could argue that they form a good chunk of the car industry, and without
them car manufacturers might fold, and their suppliers, etc. It's therefore in
the interests of the federal government to hand over large loans, and
eventually forgive those loans in a few years...

If that happened, these shareholders would be pretty happy...

~~~
user5994461
Depends how much lobbying power they have I guess? There are multiple
competitors that are less dysfunctional and provide the same service. There is
no legitimate reason to bailout Hertz in particular.

The debt itself must be car leased from the manufacturers (with some layers of
insurance/bank atop), the manufacturers could restructure the debt to not
bankrupt Hertz if they cared about it.

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kgc
There's an interesting duality here. Sure in the short term it hurts the stock
price, but in the long term it could save the company and raise stock price.
Maybe Robinhood investors are super forward-thinking. (Unless it gets
delisted.)

~~~
arkis22
you're technically correct but its generally unlikely. equity holders get to
keep money if there's money left after satisfying debts.

their bonds trade for about 40 cents on the dollar which means bondholders
don't think theyll make their money back. which means that there wont be
anything left for equity holders.

so to be of help, they'd probably need to sell a lot of stock. That also
dilutes existing owners as well.

~~~
Scoundreller
Or a competitor comes along and figures, let's eliminate this competitor and
merge their operation with ours, instead of it ending up in a bankruptcy
auction and who knows who will win.

I'll pay the bondholders 45 cents on the dollar TODAY and each equity holder
$1/share to get their vote. As with any private sale, this all avoids the
bureaucracy of a protracted bankruptcy (where accountants and lawyers get rich
off what would get paid to the creditors).

Likely? No. Possible? Very.

~~~
user5994461
Which competitor and where would it get the money from? They're all short on
cash. There is no more revenues from car rental since the virus has terminated
all personal and business travels.

~~~
Scoundreller
Uber has $56b in market cap to work with.

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asdf21
The ironic thing is that PG&E (PCG) is coming out of bankruptcy next week and
will probably close to double in value..

But people are buying up a stock (hertz) that is going into bankruptcy
instead.

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flr03
Pardon my ignorance but are people buying this stock even aware that Hertz has
filled for banktuptcy ? Or do they just buy the stock because they see that
the price is extremely low ?

~~~
dragontamer
They're buying the stock because its gone up 500%+ in the past few days.

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Scoundreller
I bet this was all driven by a huge shortseller that feared paying $2 or more
to cover its shorts.

Shorter: "Hey, I'll wire you $0.50/share TOMORROW if you sell stock to me
tomorrow".

HTZ: OK.

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cjsawyer
Applying logic to r/wallstreetbets is pointless.

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josephorjoe
Long Term Capital Management

Pets.com

Enron

Bear Sterns

Lehman Brothers

? Hertz

