Hertz SEC Filing: Up to $500M Common Stock
sec.gov
sec.gov
You will lose all your money unless there is an unanticipated improvement in business condition! I love how you just can't bullshit in your SEC-filings.
To phrase less trollishly: there aren’t a lot of good investments now, and even government bonds seem overvalued.
Walter Bagehot, the de facto founder of The Economist, was of the opinion that people will never stand 2% rates (and he meant plus :) ). They would rather fund anything, any project, the weirdest thing that offers any hope of yield; no matter how stupid.
And here we are, 143 years after Bagehot passed away. Sir, you are still absolutely correct!
While we’ll likely never run out of need for human labor, it’s very possible we’re running out of capital investment opportunities that realize a risk adjusted return above 0. “Too much money chasing too few deals” and all that jazz.
1) The world's real GDP is still going up. Or at least has been till 2019.
2) Even if it was to slow down and remove prospects of gains on capital - it still doesn't mean that people will adjust quickly; you'd have to rewrite the entire concept of pensions for starters.
3) It seems to me that core rates are seriously manipulated down (interest rates, default spreads, equity discount rates); just look at ballooning of the balance sheets of pretty much everything, or look at the share of "zombie" companies, that is companies that cannot even service their interest payments.
3 is of course just an opinion, but if true will result in serious clogging of the machine with useless actors. 3 is where, I believe, things like "bullshit jobs" / "the office" come from, for example.
We don't know which type of volatility are we going to experience, the left tail or the right tail. So far major currencies are actually strengthening (deflation) against consumer baskets, but it's early days, I think.
Maybe even neither!
In either case, I'm watching the bond yields (while they are still visible ;) ), various consumer inflation measures and most importantly gold. Gold will tell you what's going on.
he whole point of capitalism is to make capital scarce, and thus necessarily rejecting certain ideas (prospectuses), prevent them from being funded. If everything gets funded/rescued - what is the point?
Is this true? automation is essentially a emphasis from human to physical capital. It seems like we're continuing to reduce and specialize human capital while growing other forms.
Now I definitely see an end to passive capital gains in traditional financial markets; there's a lot of money sloshing around with not enough good places to put it. Anything near-passive (i.e. real estate) is also feeling similar pressures. It seems like a great time to build big projects that take a huge amount of money, I'm just not on board with pure public funding and all the issues that go with that.
Carry this a little further, and this means either the death of the concept of retirement as we know it.
> Is this true? automation is essentially a emphasis from human to physical capital. It seems like we're continuing to reduce and specialize human capital while growing other forms.
Here is really the only hope. If we can recognize one day that it's just plain not necessary for humans to labor for ~50 years between ~20 and ~70, leaving them only with their "golden years" -- the ones where serious health problems start to take the life out of life.
I don't know what to call this type of society. It certainly wouldn't be "capitalist" in any real sense. It may be "post scarcity," but not necessarily. Perhaps it will be some weird techno-socialist thing?
Think about something as simple as phone support for pretty much any product or service. There's a ton of automation being employed there to relatively little effect - just try to do anything meaningful at any company yourself and you'll find you need to be shunted to a representative.
I recently needed to switch my phone plan ownership from a personal account to a company account. There were a couple of wrinkles that made my case more complicated than normal which I can't share. Despite 4 or 5 calls, I couldn't get it done. It just didn't seem like the process for doing this type of transfer didn't exist in any codified way. I could explain what I wanted to do in plain language, but it wasn't a valid transition. Not only was it invalid, it seems like nobody at this major phone provider had ever planned for this scenario to happen.
Now imagine this scenario under full phone support automation. The system wouldn't even understand what I was trying to do. You could definitely argue that you could design some sort of scenario router that might handle a situation like this, but it seems unlikely that if they couldn't come up with a human process, I doubt they could swing an automated one.
Something like AGI could handle a problem like this, but it feels like we're dozens or maybe hundreds of years away from that.
It's quite easy to automate that outcome.
And it's true that between 1880-1900, inflation rates tended to be low or negative (the latter is NOT good for an economy, BTW), but the rest of the 19th century saw highly volatile inflation rates, ranging from -15.75% to +24.75%, if this source is to be believed. Not great for long term investment.
That sounds very much like a description of the modern VC ecosystem.
Yes, and a bankrupt pile of garbage is not one of them, as any even half-sophisticated investor would tell you. You don't need to be up to your neck in 30-years to know buying a bankrupt company is a bad investment.
This is honestly not something I thought I'd ever have to type out in words on a forum full of tech folks.
Sure, you may get lucky, but the odds are unfavorable all along.
Because the odds on Hertz may actually be better than the odds in a Vegas casino and these people play that anyway?
Gambling odds are never in your favor--the house always wins.
Gamblers are always going into a situation where they are going to lose. The only difference with the Hertz situation is that if you can offload your stock to the next sucker before it tanks out, you "win".
That's pretty good odds for a gambler, actually.
The alternative I was thinking of was not a Vegas casino, but some other stock, or a derivative thereof.
The only way you're going to make any money -- at least in real terms -- on government bonds is if interest rates go even more insanely low so you can dump them on another superoptimistic person.
Similarly, those who plan to buy the "IBO" shares are probably expecting to profit when some good news comes up and bumps up the price long enough to sell.
They're both built on the assumption of being able to dump the security on another sucker.
Nobody is buying government bonds to beat inflation, nobody cares about the coupon payments. They are trading them on 10x leverage, its the price of the bonds that matter.
You can get 10x leverage on straight up 30 year bonds, and you can do way more in the bond futures market.
All you are doing is frontrunning the central bank. or going short. or trading options on bond futures.
and that's just US treasuries. other country's government bonds are interesting, and then the rest of the yield curve is full of fun quirks too.
The credit markets are actually pretty wild.
If someone offers you millions of dollars for your totaled car you’d be a fool not to take it, this is no different. Hertz management must be loving this.
there's at least a 1/2 dozen instances of "because we are in bankruptcy protection <potential bad thing>"
/Sorry, I couldn't help it.
Smithers: What would each of you say is your worst quality?
Man 1: Well, I a workaholic.
Man 2: I push myself too hard.
Hertz: Well, it takes me a long time to learn anything, I'm kind of a goof-off...
Smithers: Okay, that'll do.
Hertz: ... a little stuff starts disappearing from the workplace...
Smithers: That's enough!
Just telling people something is a scam is not enough, when the action of allowing it to go on implies that it must not be.
It's like, suppose you go to the hardware store and you buy a rake. And on it there is a label with the standard warning "this contains substances known to the state of California to cause cancer, etc.". So you buy it, take it home, and a month later you die horribly because it was radioactive or something.
You can argue about the percentage of guilt that accrues to the manufacturer, the store, the California lawmakers, etc. But it's not right to blame the victim, because when people get conflicting information, they have to disregard some of it, and you can't consistently go against the herd in such situations. It's necessary to have a level of trust that underpins the explicit language and gaming of rules that people engage in.
I know not to buy stock in bankrupt companies, but I don't think I'd be as dumb as the stereotype of Robinhood investors if I was naive enough to think, "well, they say it's worthless, but if the SEC allows it, it must not be a complete scam" and bought it anyway.
But let's stipulate that in some sense the warning is rare and extreme, that doesn't affect my opinion. If a new Apple laptop came with a warning that violation of a license would result in earth falling into the sun, the severity and rarity wouldn't make you say "gee it really might happen". You might look into whether it was really from Apple, if it was a joke, what other people thought. If millions of other people were buying them, you would assume that it can't happen, because the validation of things people do overrides the warning regardless of severity.
Deceiving someone by telling them the truth in a situation where they are conditioned not to believe it is not a trick that somehow transfers responsibility. It's not better than directly telling a lie. It's worse, because it sets people up to believe the next lie after you've proven they were wrong to ignore the truth. It's like, I don't know, cargo cult morality.
I wouldn't believe for a minute this is ok to buy because I'm untrusting. But if I trusted the SEC or the laws and concluded this can't be a scam, because it would be illegal otherwise, then it's a mark of corruption and rot in society to punish trust in the system as stupidity or lack of responsibility. The very fact that it is being allowed creates genuine doubt in my mind about who to believe and what's going on, even though I would not make the decision to buy.
Answer: because you bought a broad market index and didn't expect the standards to retroactively drop and let it get stuffed with junk. This is how the economic crash of 2008 happened.
A broad market index fund is not realistically affected by Hertz at this point, because the market cap is minute and the index fund simply holds all (most) stocks in proportion. The index fund inherently doesn't buy more stock just because it's cheap, if it's cap weighted.
So, while I'm not sure exactly what you are saying, I've seen other comments where people are upset at their index funds being somehow disturbed and it seems like nonsense to me.
I guess this episode raises some questions about equal weighted index funds, but those are relatively rare.
Not to mention, I would think that even total market funds sell bankrupt companies. You have to have some standards.
But in any case, worrying about what Hertz does to your total market fund seems like worrying about what a bug on your windshield does to your gas mileage.
Matt Levine's post about this is great as usual: https://www.bloomberg.com/opinion/articles/2020-06-12/if-you...
While the world is in a betting mood, I'm just going to bet my 2 cents on "I don't think this will end well."
Agreed, I think this is the craziest investing story in my lifetime.
Link to the company: https://bitcoinbuilder.com/
Looks like they're still in pending status! Wow
[1] https://www.bloomberg.com/news/articles/2019-04-30/tether-sa...
The problem with being a pessimist (your proverbial $0.02) is that if you are wrong, you miss out on the gains, and if you are right, it'll be hard to collect.
I'm a pessimist by nature, and I've learned this lesson the hard way. If it really does end badly, your $0.02 might be like the guy who shorted the German stock market right before WWII - there would be nobody with any money to pay off your short, and nowhere to go to collect it anyway.
(This is one reason that short-selling is so hard and there are so few that are good at it.)
That being said, if you're going to bet your $0.02, you might as well lever up because you're probably right. Darn - I just contradicted everything I just said. :)
Few things could symbolize "the YOLO Stock Market" better than the successful issuance of worthless stock by a company that is already in bankruptcy after it has explicitly warned in the prospectus that its stock is worthless unless there is an "unanticipated improvement in business conditions."
Boring details such as "how much is this worth?" or "does it have any value?" or "who gets what in this bankruptcy?" are evidently irrelevant to the buyers of the stock, who must be trying to "beat the gun," as J. M. Keynes described it nine decades ago[a] -- or maybe they just want to burn money with reckless courage and abandon as a novel form of conceptual performance art?
[a] See also https://news.ycombinator.com/item?id=23517657 and https://news.ycombinator.com/item?id=23515797 .
Never had a bad experience with them.
Tried a cheaper car rental place ONE time, and the brakes failed on the car...
It was an endless headache and run around to try to get them to cancel out the charge. That kind of run around should be illegal.
I normally used National (because you can pick any car on their 'aisle') and never had that issue with them.
I had a rental company claim I "totalled the right front side of the vehicle" and had $3000+ in damages. I asked for dated photos of the damage and all of a sudden the claim of damage went away. I always take a dozen or so photos of the car before and after I drop it off. Takes 2 minutes but can save a ton of time and money down the road.
For some reason all the contracts I've seen want a written description of damage. That just isn't enough. Take photos of everything you find before you move in and include them in the statement of the state of the house.
Of course, you have to ask for a refund first, but after doing so, skip the hassle and just charge it back.
They'll have to pay additional penalties, which discourages this kind of behavior in the first place.
I'm really disappointed in Hertz going bankrupt. Hopefully their operation can continue, I really enjoyed using them.
Check out was easy, about 2 mins at the gate. Check in was parking the car and walking off from the garage to the Airport terminal. No need to do anything.
What's the program they ran that had an annual fee?
They really catered to the business traveler market and if your membership was paid for by a corporate account then their unstated, unofficial policy was that if you could return a car under its own power you'd never be charged for damage.
My wife was a consultant for a construction company many many years ago and had at least 3 cars totaled from being parked near construction sites. She once drove a car with a flat tire for nearly 20 miles to avoid missing a flight. Hertz never batted an eye.
The bad: charged for a full tank of gas and a filling fee despite me filling it immediately before returning it. I didn’t keep the receipt or take a photo, mea culpa. Worked out as something crazy like £4 a litre, with the fee.
The terrible: prepaid rental, pick up at one airport, return to another - paid the fee for the one-way up front. Was slightly bemused when the car they gave me had clearly come from where I was going, so I was paying €160 to do them a favour. Where it got terrible: the office at the airport I dropped the car at was unattended. It was meant to be open, but wasn’t - so I used the key drop and caught my flight.
They then charged me €4500 for extensive bodywork damage - two new doors, new mirror, new panels, new glass, etc. - the car was immaculate when I’d left it, and from the photo it looked like someone had t-boned it in their lot - broken glass on the ground around it, etc.
I had a walkaround video from when I dropped it off, showing no damage - but they pointed me at the section of the rental agreement that says that if I use the key drop I accept all responsibility for damage to the vehicle between me dropping the keys and them inspecting it. I didn’t have a leg to stand on.
To add insult to injury, they also charged me the one-way fee, again.
Needless to say, I never used them again after that.
I will never go anywhere near a Hertz again. The prices were about the same and every single aspect of the Enterprise experience is better. If you damage a Hertz vehicle, even with insurance, god help you. With Enterprise it's no hassle at all.
I once had Hertz try to change the price on a pre-paid rental at the counter. When I tried to show the counter guy my existing receipt with a different price he turned his eyes up to the ceiling and said "I'm not looking at that." Like a child.
I vowed off Hertz 6 years ago. It was around midnight after a long flight, my phone was dead and I had a rental booked from another company.
I was thrilled to see that the Hertz rental counter had a large box of car chargers with a label "$8.99" or something reasonable. So I walk up and ask to please buy one.
The person behind the counter looks at me in disbelief "No, these are for customers only. We're not a convenience store. Go find a Seven Eleven if you need a car charger."
Six years and $10,000+ in business rentals later, I've still never rented Hertz again. Customer service matters.
I left a Canadian National Park Pass in a rental car once ($120/yr, covers admission to park). I went to the rental counter and asked if they had it. The attendant asked me what month it expired and he pulled out a box with probably 500 park passes and found one with the month. I suspect many people fly into my city (Calgary), rent a car to visit Banff and the annual pass is cheaper than the daily rate for vacation. When they fly home (to another country) they have no use for the pass anymore so they just leave it in the car.
Do I think they will? No, I don’t.
However, as long as someone isn’t betting their life savings on this I don’t see or take any issue with it.
It's a nearly guaranteed loss, and and pretty much the only people who will invest in it are those that are too incompetent to realize that. It smells like a legal con to separate those people from their money.
Much like people buy/sell crypto with zero analysis of fundamentals.
I don't think it's a bad decision for Hertz to offer up shares if it allows them to repay a greater percentage of their debt.
I think the real problem is that there are a lot of people who are speculating (gambling) in stocks like Hertz. This has been the case since online brokers came in to existence, and has only been magnified by the recent trends toward $0 fee commission trades pushed by Robinhood and the like.
If there is anything that I'd say needs to change, it would be apps like Robinhood should make detailed company information more easily accessible so people realize Hertz is going to $0 before gambling on a short term swing (which would mean making the UI/UX a bit more clunky + dense, so it probably won't happen)
The hate is on the "investors" yes but I don't hate them. It is just that if they really thought auto rentals were going to rebound there are plenty of other opportunities out there that are currently not bankrupt. But hey, they aren't "99% off" like Hertz is.
...
Thai Gaon, a 23-year-old salesman in San Francisco, bought 35,000 Hertz shares on June 4 at $1.43, spending a little over $50,000, according to documents viewed by The Wall Street Journal.
“It was my entire life savings,” he said. “I decided, you know, if I’m gonna do it, I should do it big, and I’ll make a play and see what comes out of it.”
https://www.bloomberg.com/opinion/articles/2020-06-12/if-you...
Maybe a rule should exist for such edge cases to protect unsophisticated investors in a country not known for financial literacy?
But it also doesn't mean we can't put barriers on those bridges that prevent people from jumping off. A rule preventing a company from selling stock when it's pursuing a bankruptcy would be just such a barrier.
Because some people are incompetent at judging risks, and offerings like these seem primarily designed to take advantage of those people.
1. These risks aren't reasonable.
2. It's practically simpler to ban this kind of weird and sketchy offering entirely than to implement some kind of control to limit the impact of what people can lose on a particular investment.
2. It's marginally simpler but enormously restrictive. If I want to invest $100 for a potential thousand-fold payout, why can't I? I can legally spend more for worse odds (and a worse payout) on any number of institutions (casinos, lottery, etc). When you say "sketchy and weird" you just mean "a different risk profile".
Why stop there? Why not let Ponzi schemes operate unimpeded? After all, if you pull your money out of the scheme early enough, you could profit handsomely. Why not let people take that risk?
>> when it's perfectly feasible to prohibit only high risk investments (i.e., those risks that would be financially ruinous i.e. put the investor on social support)?
> It's marginally simpler but enormously restrictive.
All right: please submit a notarized accounting of your income and assets, so that the bureaucracy can evaluate it and decide if it's acceptable for you make this investment. We'll get back to you in 6-8 weeks with the decision.
To be clear, you think Ponzi schemes are illegal because they are too risky?
> All right: please submit a notarized accounting of your income and assets, so that the bureaucracy can evaluate it and decide if it's acceptable for you make this investment. We'll get back to you in 6-8 weeks with the decision.
I don’t understand the snark. That’s less involved than getting a permit to remodel your kitchen and the government already has information about your wealth anyway.
Anyway, I don’t understand your argument: “it’s too easy to make risky investments and if you make it harder it would be too hard so we should prohibit it altogether”
Requiring a pilot license level of education for margin trading & gambling past a certain point (like $1k) is making more and more sense as time goes on.
He was in his 60's, been a rock in the community and nth generation in the family business.
I'm not in favor of loosening the rules on who can trade risky investment.
But the problem with this logic is that if you fuck up hard enough you effectively become a liability for society. You'll hit the safety net and tax dollar will be spent helping you recover. And that's a good thing in my opinion, but because of this we can't just watch people going "YOLO" and putting themselves in extremely precarious situations and say nothing.
If the guy ends up on food stamps, society will pay for those. It's therefore in society's best interest to prevent this insane risk taking.
It’s a money grab. The second the stock is issued it’s basically worthless and Hertz knows it. But when these investors are inevitably screwed over they’ll basically have no recourse against Hertz so why not?
Disclaimer: I'm basing this comment on rough memories of undetailed news coverage.
That said, the impression I got was that Hertz asked the bankruptcy court for permission to issue $1 billion of stock while needing ~$3 billion to pay off its creditors. This makes no sense to me. The right thing to do would be to try to sell $3 billion of stock. In that case, the path to non-failure is obvious. Here, failure isn't just the most likely option; it's also the plan.
(Would issuing so much new stock wipe out pre-bankruptcy stockholders? It might, but so does the bankruptcy.)
It's pretty obvious -- it's bullshit.
The only reason it's happening is that the regulators have been gelded and there is no reason not to. Adam Smith's invisible hand has been replaced by a dirty glove giving the public the finger.
Pull what off? The company is bankrupt, the equity will be wiped out, they literally say that in the filing:
"Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions"
No one is "putting their nose to the grindstone" to save the company. The money is going to the creditors.
It will not go to $0. It will simply stop existing. You are free to trade it until then.
There is no indication I see that this title is correct and that Hertz has sold all $500 million of the ATM stock offering.
That said, I have witnessed several corporate miracles within the last decade, and I am hesitant to dismiss these sorts of herculean efforts. Perhaps they are grasping at straws, but maybe someone knows something I don't. I usually default to the latter assumption when dealing with matters this complex. Keep in mind that when people are up against the ropes and running out of options, the amount of innovation that occurs can start to skyrocket. Nothing is out of bounds anymore. Everything becomes an option.
As a result, I have bought an incredibly small # of shares in the extremely unlikely event that Hertz does emerge from this a viable company. If those shares evaporate into nothing tomorrow, I won't lose any sleep over it.
You might like checking out Aswath Damadoran's videos on valuation https://www.youtube.com/watch?v=znmQ7oMiQrM#t=9m23s.
I'm not suggesting that buying into this offering is a good idea or that bailouts are a good idea. However, given recent experience, assigning a > 0 price to Hertz equity is not irrational.
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. It's a "no lose" scenario for them.
As an investor, nope. If it drops down to penny stocks, I'll go "all in" with the $6 I can't transfer out of my Etrade account but not willing to consider anything real.
...that is nice.
With this methodology you get the upside of likely decline in price without having to pay the massive premiums for puts.
If the ruling principle of our financial markets is going to be "caveat emptor" why don't we just disband those portions of the SEC which are supposed to vet securities offerings?
If you're intent on losing money, there are many worse ways to do it, and nobody can claim this registration is deceitful.
So if I want to sell stock with a registration statement which says, "this is a Ponzi scheme and investors who buy in too late will lose all their money," that should be permissible?
See https://www.investor.gov/introduction-investing/investing-ba... for example.
If you make sure that investors are actually aware (e.g., you don't try to bury it in fine print), then I don't see why not, as long it complies with the gambling laws of the relevant jurisdiction.
Theoretically, Ponzi schemes are only illegal because you generally have to commit fraud on financial statements.