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Hertz Draws SEC Scrutiny Over Its Plans to Sell Risky Shares

(Bloomberg) — Hertz Global Holdings Inc. is facing questions from the U.S. Securities and Exchange Commission over its plans to sell as much as $500 million worth of stock that may be worthless in the midst of the car-rental company’s bankruptcy. The shares were halted Wednesday.

“We have let the company know that we have comments on their disclosure,” SEC Chairman Jay Clayton said in a CNBC interview Wednesday. “In most cases when you let a company know that the SEC has comments on their disclosure, they do not go forward until those comments are resolved.”

In its Monday disclosure announcing the proposed stock sale, Hertz said equity holders will not see a recovery from any bankruptcy plan unless those with more senior claims, including bondholders, are paid in full. The company said that would require a rapid and unanticipated improvement in its business outlook. The startling plan has captured the attention of Wall Street and now, securities regulators.

Hertz’s shares soared ad much as 21% following Clayton’s comments before retreating to $1.94, in line with Tuesday’s close. Trading was then halted at 11:44 a.m. in New York.

Hertz has previously said in a court filing that a share sale could raise as much as $1 billion in cash. The company has bonds that are about $2.3 billion underwater, not including what it owes to banks and any lease payments, as well as other expenses.

Clayton said Hertz was aware of the SEC’s concerns, but he declined to speculate whether the company would move forward without addressing them. “We will see,” he said.

Back-and-forth with SEC attorneys who review corporate filings isn’t uncommon when a company seeks to sell shares, and doesn’t necessarily mean the regulator will reject a proposal. Still, Hertz’s plan is unusual because of its ongoing bankruptcy and stark warning to prospective investors.

Hertz didn’t respond to a request for comment.

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