Finance

The SEC told bankrupt Hertz it has issues with its plan to sell stock, Chairman Jay Clayton says

Jay Clayton, chairman of U.S. Securities and Exchange Commission

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Chairman of the Securities and Exchange Commission Jay Clayton said the SEC told Hertz, which filed for bankruptcy during the pandemic, the agency has issues with its plan to sell stock. 

“In this particular situation we have let the company know that we have comments on their disclosure,” Clayton said on CNBC’s “Squawk on the Street” on 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 an effort to get a piece of the market’s rebound from the coronavirus downturn, retail investors are piling into bankrupt companies like Hertz. With the economic conditions improving suddenly, investors are betting these bankrupt companies are now in better shape than when they limped into Chapter 11. Trading activity on names like Hertz, spiked on millennial favored stock trading app Robinhood in the days following the bankruptcy filings, according to Robintrack, which tracks Robinhood account activity but is not affiliated with the company.

Clayton said the company is aware the SEC has issues, but the regulator has not heard back yet from Hertz.

When a company submits a filing to sell a security, the SEC will often submit comments back to the company asking it to improve the disclosure or any irregularities in the filing.

The chairman pointed out that in most cases when the SEC has comments, the company does not go through with the offering until those issues are resolved. Clayton did not elaborate specifically on what the issues were with the Hertz filing.

Hertz said it would  seek to sell $500 million in stock in a securities filing with the SEC on Monday. In quite an unusual disclosure in that filing, Hertz told potential investors that they would likely lose their money.

“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 to pre-COVID-19 or close to pre-COVID-19 levels,” the filing said.

Shares of Hertz rallied nearly 12% on Wednesday. 

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