Hertz' Own Lawyer Admits Stock Price "Disconnected From Fundamentals," Will Go Ahead With Stock Offering Anyway

We live in truly fascinating times.

On Friday, June 12, a bankruptcy judge approved Hertz (HTZ)' unprecedented, stunning attempt to sell up to $1 billion in stock. The bankrupt company was taking advantage of the euphoria gripping retail speculators who have sent the worthless stock as high as $6/share, knowing full well there is virtually zero chance that the stock will have any value after the reorganization process is complete and bondholders are impaired.

Still, as a result of purely bureaucratic considerations, the judge approved the request:

"The cost [of equity financing] is significantly less than a loan...and the dollars that come in will go to the value of the enterprise as a whole,” said Judge Mary Walrath of the US bankruptcy court in Delaware.

What is remarkable is that none other than Hertz' own lawyer, Tom Lauria from White and Case, admitted that the stock is worthless - or will be worthless once the euphoria dies down.

At the court hearing, held by video, he acknowledged that, while travel had slowly picked up in recent weeks, the trading price of Hertz shares was "disconnected from fundamentals."

“New platforms for day traders may be facilitating this,” Lauria said as quoted by the FT, referring to Robinhood, the stock trading app popular with young retail investors. "There are forces at work that us non-financial people, that we can only observe."

Tom's "naive" joking aside, he is essentially admitting that Hertz, together with the creditors and the bankruptcy judge, are all complicit in taking advantage of ignorant, momentum-chasing traders who have made a market that makes no sense, and yet, just because there is clear demand for the stock at a price point of over $2/share, they will take advantage of this opportunity and sell at the money.

And sure enough, they will do so quickly, before the euphoria fades. Lauria said Hertz may try to tap the market as soon as Monday, because once the bid disappears, this historic opportunity will be gone, too.

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Disclaimer: TM Editors Note: This article discusses one or more penny stocks and/or microcaps. Such stocks are readily manipulated; do your own careful due ...

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