Fortunately, Hertz won’t be able to sell worthless shares in exchange for real money.
The financially – and apparently morally – bankrupt company ended its bid to sell up to $500 million in new shares that it acknowledged likely didn’t amount to much.
In a regulatory filing yesterday, the company said that the stock offering “promptly” became “suspended pending further understanding of the nature and timing of the Staff’s review.”
In the filing, Hertz said that it had been in “regular contact” with the Securities and Exchange Commission all week. This came after the agency told the company on Monday that it planned to review the stock sale.
SEC Chairman Jay Clayton said Wednesday that his agency had concerns about Hertz’s plan to sell stock while the company is in the middle of bankruptcy proceedings.
“In this particular situation we have let the company know that we have comments on their disclosure. 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,” Clayton said during an appearance on CNBC.
When companies want to sell a security, in this case more shares, they submit a filing with the SEC. The agency will review the filing. It will also send comments back to the company consistently. In its feedback, it will ask the company to improve the disclosure or any irregularities in the filing. During his CNBC appearance, Clayton did not specifically mention the issues the SEC had with the Hertz filing.
“We at the SEC, were are trying to carry out our responsibility in situations like this as best we can and I expect the other professionals around the situation to carry out their responsibilities as best they can,” Clayton added.
Those disclosures filed by Hertz said “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.”
In plain talk, that means the new shares are worthless.
Hertz shares stopped trading for several hours yesterday before resuming again just before 3:30pm ET. Shares were up double-digits before closing the day with a modest 2.6% gain.
The company, which filed for bankruptcy on May 22, would traditionally get debtor-in-possession (DIP) financing. This would allow it to remain in business as the company went through bankruptcy proceedings.
However, after Hertz filed for bankruptcy, shares traded as low as $0.40 on May 26 before surging to as high as $6.25 on June 8.
Instead of taking the DIP loan that would need to be paid back, the company instead wanted to sell shares. I then planned to use the cash proceeds to pay off creditors. Hertz had hoped to sell up to $1 billion in shares, before trimming the proposed offering down to $500 million.
7 Risks For Tesla Investors As Stock Price Soars
Tesla, led by celebrity-CEO Elon Musk, has seen its share price climb from $361 on March 18 to an eye-watering high of $1,546 on July 15.
Along the way, the company has been forced to shut down its factory. Musk has threatened to move the factory out of California. The prices of some of its models have been slashed due to a lack of demand. Also, deliveries last quarter were well below projections (but above Musk’s walked-back estimate).
And yet, the share price climbed 328%., making Tesla the most valuable car maker on the planet.
That has at least one longtime observer saying the stock is in a bubble and it will burst soon.
Mark Hulbert, a regular columnist for MarketWatch and the founder of the Hulbert Digest, said in a recent article, “Tesla is a bubble that is going to pop.”
Hulbert points out a study by three Harvard researchers that the more a stock has gained over the recent past, the greater the odds of a crash. With Tesla outpacing the S&P 500 by 324 percentage points over the last two years. Based on the Harvard study (which stopped calculations at 150 basis points) there’s a greater than 80% chance that Tesla’s stock will drop by at least 40% in the next two years.
But those aren’t the only headwinds facing Tesla right now.
Michael Brush, publisher of the Brush Up On Stocks newsletter, says there are seven risks for investors in Tesla right now.
Risk #1: The stock price has gotten too far ahead of fundamentals
Tesla trades at 7.8x forward 12-month revenue, says Todd Lowenstein, an equity strategist at The Private Bank at Union Bank. Compare that to around 0.2 or less for General Motors and Ford, who produce millions of more cars than Tesla every year.
“Tesla strikes me as more speculation than investing at these prices,” says Lowenstein, “It’s pricing in not only massive market-share gains and flawless execution, but world domination.”
Robert Bacarella, who manages the Monetta Fund, added “The stock is not trading on a multiple of today’s or tomorrow’s earnings. It is trading on a multiple of Elon Musk’s dreams.”
Risk #2: Tesla raises more money
With the share price in the stratosphere, it’s widely expected that Elon will raise more capital to shore up the balance sheet. Depending on how much money he chooses to raise, and at what price, current shareholders could be heavily diluted.
Risk #3: The Electric Vehicle market is in a bubble
“We are in a hot market right now,” says Shawn Kim, a research analyst at Gabelli Funds. Kim also thinks several of these companies are just speculative bets. “There is a bit of exuberance in the sector.” If the EV bubble pops, Tesla goes right along with it.
Risk #4: Tesla needs to execute flawlessly
Tesla is forever running around putting out fires. The Chinese factory was reportedly shut down for a while because it ran out of parts to build cars. Additionally, owners have reported missing parts of mismatched parts after taking delivery. But it might be Musk’s promise of “Level 5” autonomous driving that might knock the company down.
“Autonomous driving is one of the toughest problems in artificial intelligence,” cautions Kim. “Maybe Musk is not that close, because it is such a difficult problem.”
Risk #5: S&P 500 inclusion is priced in. What if they don’t get added?
A lot of investors have piled into Tesla thinking it will get a boost if it gets added to the S&P 500 as index funds will have to add it. The idea has been discussed so much it is probably priced into the stock, says Kim.
Risk #6: The overall market feels ‘toppy’
If the tides change and suddenly the market starts dropping, “frothy” stocks like Tesla will get hit hard.
Risk #7: Musk’s hubris
Musk recently announced that Tesla would sell “red satin short-shorts with gold trim” to mock the short-sellers betting against the stock. That’s typically not a good idea and shows too much hubris.
Tesla CEO Elon Musk Says Stock Price ‘Too High’ To Cap Bizarre Week
Tesla CEO Elon Musk capped an interesting week. He did so by tweeting out “Tesla stock price is too high imo (in my opinion)” Friday morning, and shares immediately fell 10%, wiping out nearly $15 billion in market cap in just a few hours.
It was the latest bizarre antic for Musk who earlier in the week cursed and called the stay-at-home order “fascism” during the Tesla earnings call, and followed that up the next day by interrupting a NASA conference call when a reporter asked NASA’s administrator about Musk’s COVID-19 comments. Musk had previously tweeted in early March “The coronavirus panic is dumb.”
Without being introduced on the call, Musk responded to the reporter “I think this is a different subject,” he said. “Wrong press conference, move on.”
Friday’s tweet about the Tesla share price came during a string of tweets on different topics and subjects. Some of those topics including lyrics to the Star-Spangled Banner. Others say he was selling all his physical possessions. Another say that his girlfriend is mad at him.
Musk started the week by tweeting “FREE AMERICA NOW” on Tuesday evening. Also, during Tesla’s earnings call on Wednesday, he said the shelter-in-place orders in California were “fascist” and that government officials should “give people back their (expletive) freedom.”
“The expansion of shelter-in-place, or as we call it, forcibly imprisoning people in their homes, against all their constitutional rights, is, in my opinion, breaking people’s freedoms in ways that are horrible and wrong, and not why people came to America and built this country,” Musk said. “What the (expletive)!”
He continued, “If somebody wants to stay in the house that’s great. They should be allowed to stay in the house and they should not be compelled to leave. But to say that they cannot leave their house and they will be arrested if they do… this is fascist. This is not democratic. This is not freedom. Give people back their (expletive) freedom.”
Thursday’s outburst during the NASA conference call was related to Musk’s tweets that seemed to downplay the severity of the coronavirus pandemic. A reporter asked NASA administrator Jim Bridenstine his thoughts on Musk’s COVID-19 comments. However, Musk, the founder of SpaceX, quickly interrupted to tell the reporter to “move on.”
Friday’s much more devastating Tweet-storm could get Musk into even more hot water with the Securities and Exchange Commission. As part of his 2018 settlement over the “taking Tesla private at $420” tweet, Musk agreed to have all his social media posts reviewed prior to publishing them.
When a Wall Street Journal reporter asked Musk if he was joking, or if he had the “Tesla stock is too high imo” tweet approved, Musk simply responded “No.”
Investors on both sides of the Tesla debate are waiting to see what action of any the SEC could bring against Musk for the tweet. Some believe the tweet was in clear violation of the 2018 settlement. Meanwhile, others say while uncommon, it’s not illegal for a company CEO to publicly discuss their company’s share price even if investors are harmed by the comments.
One thing is for sure, Musk continues to prove he’s the greatest showman alive.
Uber and Hyundai Are Planning to Offer Flying Taxi Rides by 2023
At CES 2020, Uber and Hyundai showed off a full-size mock-up of a flying taxi that both companies hope will be ferrying you above congested city streets by 2023.
The electric plane, called Uberdai, will carry a pilot and three passengers up to 60 miles, at speeds of up to 180mph, slashing journey times and helping get cars off the road. Eventually the craft will be automated, but for now the two companies are focusing on manned craft.
The flying taxi market is starting to get pretty lively. Last year, Boeing began test flights to test the safety of Boeing. Next, an electric aircraft with passenger pods designed to travel up to 50 miles, and Bell Helicopter unveiled the Bell Nexus, which the company hopes will “redefine air travel”.
The difference with Hyundai’s plane is its partnership with Uber, which is a name synonymous with ride-sharing throughout much of the world, and already has the infrastructure in place to offer flights as an option alongside trips by car, bike, scooter, helicopter and even submarine.
Ready for lift-off?
Uber has been aiming for the skies for several years now, teaming up with various aerospace companies to build a fleet of mini aircraft. At the Uber Elevate Summit in June 2019, it revealed a concept created in collaboration with Jaunt Air Mobility – a business that’s aiming to create a fully autonomous aircraft by the end of 2029.
This design was a cross between a helicopter and a plane, with a rotor to get it off the ground, and wings for gliding once airborne to conserve power.
“It’s called the compound aircraft, and what it’s doing is really trying to get the best of both worlds of hover and high-speed efficient flight,” Uber’s head of engineering Mark Moore said at the event.
Uber intends to launch its first swarm of flying cars in the US and Australia in 2023, with schemes planned for Dallas, Las Vegas and Melbourne. We’ll keep you updated as we learn more over the coming months.
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