Hertz, the United States’s second largest rental car company, and currently in bankruptcy proceedings, had the U.S. Bankruptcy Court for the District of Delaware rule June 12 that Hertz can now sell up to $1 billion in new stock. This appears to be without precedent. It would appear that the Federal Reserve’s bail-out of the bankrupt financial system, and the casino economy in general, are entering an unrestrained psychedelic phase.
Hertz filed for Chapter 11 bankruptcy on May 22. This had ripened over years. For example, in 2016, Hertz spun off its equipment rental business into a separately-traded public company, from which it raised $2 billion. It used some of those proceeds to pay down its debt, but also used some of the funds to buy back $395 million of its own stock shares. This was part of the stock buy-back phase that replaced investment in genuine real physical-economic expansion. Through incompetence, Hertz built up $20.6 billion in debt by March 31 of this year. This is the root of its problem. When the COVID-19 lock-down commenced in March, businessmen cut back trips and car rentals, and Hertz fell into deep trouble.
When a company files for bankruptcy, it submits a bankruptcy plan, in which it specifies, among other things, how it will get its debtors to write-down/write-off a significant percentage of the debt, and so forth. At this time, Hertz’s stock was $0.40 a share. A bankruptcy judge does not give permission for a bankrupt company, which can’t pay its bills, to sell up to $1 billion in new stock offerings. But that is what the U.S. Bankruptcy Court for the District of Delaware did, as it gave Hertz permission to sell up to 246.8 million of its unissued shares to Jeffries LLC, a Wall Street investment firm, which would sell them to investors.
