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The difference here is that the company was already in the middle of chapter 11. So there is no "avoiding bankruptcy", that part has already happened. One comm

The difference here is that the company was already in the middle of chapter 11. So there is no "avoiding bankruptcy", that part has already happened. One common scenario for exiting chapter 11 is that you wipe out equity holders so that you can pay off your debts. (That's a major reason why stocks tend to get lower returns than bonds: less risk, less reward.) So, selling common stock like this in order to raise money is effectively robbing - or, more accurately, swindling - the poor to give to the rich, who tend to be the carriers of more senior debt. Which Hertz knew they were doing. Technically, they wrote, "We're selling you lots of $0 for the low low price of $2.50," in the prospectus, but they did that in the full knowledge that Robinhood users don't actually read prospectuses, and that Robinhood users were the only ones who would be buying these shares. So there's your deliberate deception. The spot where they "buy some breathing room and recover" is the bit where you wipe out your equity holders in order to pay off your lenders as well as you can, restructure whatever remaining debt you have, and carry on. That's more-or-less what chapter 11 (as opposed to, say, chapter 7) is.

ineedasername 6y ago
I was responding to a comment about a hypothetical, not this particular case. The hypothetical was a company with $4b in debt selling $5b in stock to remain operating. This is not only fine, it is common, especially for private companies where investors are betting on the future success of a company. Even in bankruptcy, it is not uncommon for investors or banks to give the company bridge loans which the lenders knows full well might be lost if the restructuring doesn't work. As for this case, it is not robbing shareholders. Chapter 11 is in not an automatic wipe out for shareholders, in fact you'll see other comments here about proposals for alternate plans for Hertz that would not wipe out shareholders. This is, if not common, certainly not unheard of: Restructuring a public corp and keeping it public post chapter 11 means it will still have stock on the market, and in some cases prior shareholders are able to exchanged their old shares for new ones. It is also not robbing because even retail investors know full well what "bankruptcy" means and no reasonable person would buy this stock without realizing the significant risk for total loss. And in any case, how would Hertz selling stock, knowing the likely risk for a complete loss, be any different than some other institutional investor selling their stock, also knowing the buyer has an excellent chance for a complete loss?
arcticbull 6y ago
Airlines are in bankruptcy a few times a decade, give or take. Doesn't stop them haha.

ineedasername 6y ago

I was responding to a comment about a hypothetical, not this particular case. The hypothetical was a company with $4b in debt selling $5b in stock to remain operating. This is not only fine, it is common, especially for private companies where investors are betting on the future success of a company. Even in bankruptcy, it is not uncommon for investors or banks to give the company bridge loans which the lenders knows full well might be lost if the restructuring doesn't work. As for this case, it is not robbing shareholders. Chapter 11 is in not an automatic wipe out for shareholders, in fact you'll see other comments here about proposals for alternate plans for Hertz that would not wipe out shareholders. This is, if not common, certainly not unheard of: Restructuring a public corp and keeping it public post chapter 11 means it will still have stock on the market, and in some cases prior shareholders are able to exchanged their old shares for new ones. It is also not robbing because even retail investors know full well what "bankruptcy" means and no reasonable person would buy this stock without realizing the significant risk for total loss. And in any case, how would Hertz selling stock, knowing the likely risk for a complete loss, be any different than some other institutional investor selling their stock, also knowing the buyer has an excellent chance for a complete loss?

arcticbull 6y ago

Airlines are in bankruptcy a few times a decade, give or take. Doesn't stop them haha.