Bankrupt Hertz targets Robinhood traders in plot to dump $1B in stock | Hacker News Reader

Bankrupt Hertz targets Robinhood traders in plot to dump $1B in stock

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35 pointsvizzah51 comments

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.

> This article is describing a very obviously risky investment as some sort of "dastardly" plot.

It's worse than that. This article is using terminology that all but accuses Hertz of doing something illegal while offering no proof whatsoever:

> Multiple media reports have linked Hertz pumping stock to Robinhood traders, a group now notorious for short-term, speculative trading.

Is Hertz "pumping" stock to Robinhood traders? Or is it simply recognizing that a ridiculous situation exists and attempting to use the situation advantageously? Seriously, we've all been told that the share price represents the consensus view of future company performance. A 900% gain and a 3x increase in shareholder count is potentially evidence that the market believes that Hertz will emerge from bankruptcy without wiping out shareholders and will become profitable. That's an argument in favor of issuing new shares rather than taking on new debt.

> all stock is 'potentially worthless'

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

> 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.

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.

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.

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

Those are the literally the ones he mentions!

https://www.bloomberg.com/opinion/articles/2020-06-09/the-ba...

This will spawn a new acronym...

IBO - initial bankruptcy offering

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!"

That is a great term. I suggest you make use of it as much as you can for the next few weeks because likely this is going to end badly and then it will be the end of it.

Think of it as an ICO on a private blockchain. A more energy efficient way to part suckers from their money.

“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.

> 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.

> 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 feel bad that I even have to ask, but is this satire?

Icahn got in in 2014 when the stock price was in the $50-100/share range, he could have been less-dead on the deal if he hit dumb luck timing. Shares are still going to 0, this is a new offering on a company in bankruptcy court and deep debt and structural problems. Maybe these robinhood jokers will survive grabbing the third rail barehanded but that doesn’t make them smart, it just makes them lucky idiots.

Hard no. A favorable outcome doesn't convey rationalism upon the arguments used to justify the action.

Even Wile E. Coyote falls when he looks down after running off a cliff.

Yeah regards from Bitcoin. Your logic is impeccable.

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.

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

Anyone buying a company stock after it has declared bankruptcy is de facto a speculator.

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

On what ground? That their get rich quick scheme didn’t pan out?

I think this is down right genius on the part of Hertz.

>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.

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.

The company has literally filed for bankruptcy! How much more disclosure and notice are you expecting?

The SEC is there to ensure fairness, not profitable investments.

I hate this coddling of Robinhooders. There is nothing illegal or immoral about this. This is capitalism at its finest. Retail has flooded into a market thanks to trillions from the Fed, and Hertz is doing exactly as it should: raising capital in the most efficient way possible.

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

What?!? How can you justify this at all. People have flooded into a stock like gamblers chasing quick returns. The SEC has a duty to allow this. You believe that Robinhooders should be protected from themselves. This is so wrong.

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

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.

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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.

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.

> 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.

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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.

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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.

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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.

> 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.

> 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.

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

And here I thought that the "wisdom of crowds" has been shown to be, on average, better estimators than "experts".

But then again, the guessers of the weight of an ox all want to be right. Dunno if that's what's happening with HTZ or not.

>These aren't hedge-funds or big banks who are "smarter" than me.

I'm not sure your assumption here is correct.

https://images.markets.businessinsider.com/image/5eda5db3f34...

Its a well known fact that Robinhood traders are buying up the Hertz stock.

"Users holding" is a pointless metric. RH has no commissions.

How many are holding $10 as a joke?

And even with the "Users Holding" metric, it's not even in the top 100: https://robinhood.com/collections/100-most-popular

edit: Hrmmm, they don't show it on that list, but it has 170k holders, putting it around the 55th most popular holding (by user count, not $!)

https://robinhood.com/stocks/HTZ

> "Users holding" is a pointless metric.

This is a stock which had far fewer than 5000 holders a few months ago, and now has 170,000 holders in Robinhood.

> How many are holding $10 as a joke?

Fewer than 165,000 people. While I'm up for allowing a certain level of stupid waste their own money... the number of buyers is beginning to make me worried.

You know that any stock that goes up and down by 500%ish in a few days is going to attract the attention of "dumb money". We all know where this is going.

Yeah, dumb money will do what dumb money does. A fool and their money are soon separated, etc. etc. The morality question we have to pose to ourselves however, is how "stupid" is "too stupid". Surely you draw a line somewhere?

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...

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.

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.)

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.

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.

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.

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

That's what I think most people are missing. A loan comes with an interest rate and repayments. A new offering is just cash minus the fees. It's "free" in terms of future obligations.

If this "IBO" gives Hertz the breathing room to restructure, clean up, and come out the other side, then well done. If not, no one will be surprised. This is almost a "no lose" scenario from the Hertz side.

If this becomes systemic, that's when things get ugly. Imagine senior execs with a "plan" that they have no intent to execute on, making an offering, paying out its bonuses, and then saying "Oops, it died anyway! Sorry!"

Almost all restructurings (Chapter 11 Bankruptcy) results in the share price dropping to $0.

The bondholders will benefit from this. But its extremely unlikely for shareholders to benefit. This is a company with $17+ Billion in debt, gaining +$1 Billion from a stock offering won't create any value for the shareholders.

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Lets do another perspective: If a $1 Billion loan would have fixed the Hertz company, then the company wouldn't need to go bankrupt. The bankers would have simply provided the company another $1 Billion in loans.

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.

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 ?

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

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.

Applying logic to r/wallstreetbets is pointless.

Long Term Capital Management

Pets.com

Enron

Bear Sterns

Lehman Brothers

? Hertz

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