4 ms·
Zero shareholder value was the overwhelmingly likely outcome, but not completely certain. (If Hertz magically recovered from bankruptcy, however unlikely, the p
by ISL 6y ago
Zero shareholder value was the overwhelmingly likely outcome, but not completely certain. (If Hertz magically recovered from bankruptcy, however unlikely, the payoff might have been >1000%).
The prospectus clearly stated that there was negligible likelihood of return.
On the flip side, from the creditor's perspective: "We loaned you a bunch of money, you can't pay it back, and there are some people who would like to buy shares in your company today? How can you not sell it to them?"
The unsecured creditors in this situation don't appear to be investment banks, they appear to be auto repair companies, perhaps exposed to counterparty risks from transacting with Hertz[1].
Your question brings to mind part of an exchange from one of my favorite pieces of financial cinema [2]:
SAM ROGERS: And you are selling something you know has no value.
JOHN TULD: (cuts him off cold) We are selling to willing buyers at the current fair market price, so that WE may survive, Sam.
SAM ROGERS: You'll never sell a thing to any one of them again.
JOHN TULD: I understand.
SAM ROGERS: Do you?
JOHN TULD: Do you!!! This is it, Sam, this is it!
[1] https://www.repairerdrivennews.com/2020/05/25/hertz-will-continue-operating-paying-new-bills-after-chapter-11-bankruptcy/ https://www.repairerdrivennews.com/2020/05/25/hertz-will-con...
[2] https://www.youtube.com/watch?v=7prnY2FOxns https://www.youtube.com/watch?v=7prnY2FOxns
- lotsofpulp 6y agoEven that exchange is not analogous, since Hertz told everyone what they were selling is worthless.
- brandmeyer 6y agoNo. No! I reject this rationale. Just because its in the domain of finance and business doesn't make it ethical. For example, you can't just disclose your way into arbitrary medical experiments on people. Regardless of how you rationalize the principles, it will end up exploiting the most vulnerable citizens. While I readily admit that the law does not forbid all forms of unethical behavior, I do believe that it should forbid blatantly exploitative acts. Like this one.
- ISL 6y agoI understand the sentiment and might have had difficulty approving the sale if I were on the Hertz board of directors, however, there is a chance, however slim, that the dumb money knows something the smart money doesn't. This is much more-readily seen post-GameStop. The AMC theater chain, mid-hoopla, managed to discharge much of its debt. The gamblers at home literally saved a major US business from dire financial straits. Some of them got paid for it, too. The company is in an undeniably better position today, as are any of the retail investors who bought and held. (The share price is up 10% today, too. The world is a complicated place.) On the scale of exploitative acts, enabling informed gamblers to play chicken with the Bankruptcy Bus, while it may be exploitative at some level, may not be as egregious as other exploitation (Casinos? State lotteries?) that we tolerate every day.
- jjeaff 6y agoThen it should also ban gambling.
- Retric 6y agoWe largely did in the US. There are exceptions, but generally it’s illegal to bet on the winner of a collage football game etc. https://www.espn.com/chalk/story/_/id/19740480/the-united-states-sports-betting-where-all-50-states-stand-legalization https://www.espn.com/chalk/story/_/id/19740480/the-united-st... However, that’s slowly been changing over time.
- sigstoat 6y ago> We largely did in the US. https://www.cnbc.com/2019/12/12/americans-spend-over-1000-dollars-a-year-on-lotto-tickets.html https://www.cnbc.com/2019/12/12/americans-spend-over-1000-do...
- Retric 6y agoYea, there is a reason gambling was originally banned and we get to learn that lesson all over again.
- hrishi 6y agoMargin Call was exactly what I was thinking as I read this. Underappreciated movie - definitely worth a watch for a more realistic take on 2008nthan The Big Short.