Hertz Stock Up 40%: Why the Madness Continues

Shares of Hertz Global Holdings (NYSE: HTZ), a vehicle rental company that recently filed for bankruptcy protection as COVID-19 rocked the transportation industry, continues to baffle rational investors. The stock has more than quadrupled since opening at $0.80 per share on June 4, 2020 -- but let's take a look at why this is wildly risky and why Hertz shares are likely going to end up worthless.

It's worth repeating as many times as necessary: Hertz shares are likely going to zero. It seems as if traders are simply riding the volatility as a gambler would at a casino -- or perhaps investors truly believe that in such an unusual time, with COVID-19 and the staggering impacts it has had on the economy and businesses, Hertz might be able to negotiate an unusual deal and come back from the dead. Again, let's be clear: A scenario that doesn't end with current Hertz shares at zero value is highly unlikely. Simply put, Hertz has a monumental debt problem to the tune of $19 billion, and a $15 billion chunk of that debt is tied to its vehicle fleet in the form of asset-backed securities. Essentially, that means the first entities at the negotiating table will be the lenders of that secured debt. Hertz could have enough assets and value to satisfy those lenders in one way or another, and the next to the negotiating table will be other lenders with unsecured loans. If Hertz can satisfy the second wave of lenders in the bankruptcy process, whatever value is left will be distributed to common shareholders. It is highly unlikely there will be any such value, as Hertz simply has too much debt.

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Source Fool.com