“I mean, look, I’ll throw a grand at it. I’ve spent $1k on dumber sh*t.” – Jason

 

Hey there carnivores,

Markets partially recovered after Thursday’s sell off. 

And today we’re talking Hertz’s last resort. 

Keep raging,

Jeff & Jason

 

 

Hertz locker

Hertz is about to get a free upgrade… but it’s to a Sebring. The rental car company got the green light from a judge to sell $1B worth of stock. You see, thanks to a recent (and unprecedented) rise in its stock price, Hertz is trying to cash in.

Beat the rush

Under normal circumstances, issuing new shares wouldn’t be remotely noteworthy for a public company (seriously the interns sign off on this kinda thing at the SEC). But these aren’t normal circumstances. Last month Hertz filed for bankruptcy.

Yet, by the grace of God last week the car rental company’s stock price rose as retail investors (read: day traders who are BTFD) started pouring money into the proverbial dumpster fire.

So here we are. Judge Mary Walrath out of Delaware went all Ivan Drago on the case and decided that if investors want to make bad investments in Hertz’s stock, that’s on them. Hertz stock isn’t guaranteed to go to zero but typically, shareholder value of bankrupt shares become worthless. 

From the judge’s POV, as long as Hertz is upfront about its dire state, it can sell new shares. Investors can assume the risk if they want to go ahead and play with fire. This is America after all.

Avis’ older cousin will certainly take the dumb money and is planning to use it for restructuring costs as it goes through the bankruptcy process. *Ken Lay kicks himself for not thinking of this*

The bottom line…

Hertz isn’t the only company taking advantage of this “buying bankrupt” phenomenon. Whiting Petroleum and Chesapeake Energy have also seen big surges in share price after formally filing for bankruptcy. For “investors,” the speculative moves assume that the company will be able to turn things around but numbers are not on their side. 

You see, debtholders get first dibs at picking at the carcass of a dead company before shareholders even get a sniff. So, when you consider that Hertz is sitting on $18.8B in debt, the fact that COVID has more or less put a nail in the coffin of any revenue and that the share sale will only raise $1B… something doesn’t add up for stock investors.

 

☑️  Don’t call it a comeback.

Or do… 

Markets partially recovered on Friday after Thursday’s sell-off. If you recall, all three major indexes were down over 5% on Friday-eve due to coronavirus concerns. 

The Dow gained 477 points (up 1.9%) on the day and the S&P 500 and Nasdaq rose 1.31% and 1% respectively. Still, all three had their worst weeks since March 20th. Stocks that took the biggest hit Thursday saw the biggest gains on Friday, with Delta up 11.8%, Carnival up 14.5%, and American Airlines up 16.41%. Speaking of AA…

☑️  We have liftoff.

Not sure if you’ve heard, but American Airlines gained 16.4% on Friday. The airline stated that while it has decreased its daily cash burn from $50M to $40M (good news), it plans to cut that down to zero by the end of the year (even better news) thanks to higher than expected demand.

That being said, it still expects Q2 revenue to fall 90% compared to its second-quarter figure last year. American has put up a percentage of its frequent flier miles as collateral in its application for a $4.75B loan through the CARES Act.

☑️   pwned.

AT&T is considering a sale of its Warner Bros. video game division, WB Interactive Entertainment. Interactive Entertainment has released games like ‘Harry Potter Wizards Unite’ and ‘Mortal Kombat 11’.

The price tag is rumored to be somewhere near $4B… so roughly the same as the PS5. Activision Blizzard, Electronic Arts, and Take-Two Interactive Software are rumored to be interested. The cash would be used to pay down AT&T’s $190B in debt.

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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