Rental car company Hertz announced a proposed offering of $100 million of common stock and $300 million of exchangeable senior first-lien secured payment-in-kind (PIK) notes Wednesday (June 24), while also disclosing that it realized losses on the sale of vehicles in May due to “unexpected softness in the used car market.”
In a press release announcing the proposed sale of the notes, Hertz said it “intends to use the net proceeds received from the offering of the Notes for general corporate purposes, which may include the repayment of outstanding indebtedness.”
In a press release about the shares, the company said it plans to loan shares to J.P. Morgan Securities and that it “has been informed by the Share Borrower that it or one of its affiliates intends to sell the Borrowed Shares and use the resulting short position to facilitate transactions by which investors in the Notes (…) may hedge their investments through short sales or privately negotiated derivatives transactions.”
Bloomberg reported Wednesday that with these offerings, Hertz has taken an “unusual approach to issuing debt” by offering both convertible PIK notes and shares that are designed to be shorted and hedge the investment of the buyers of the notes.
The report said that before issuing the statements about these offerings, Hertz issued the regulatory filing that warns that the company’s profit for the current quarter is trending toward the low end of its expectations.
Bloomberg said that following these announcements, Hertz’s shares saw a decline of 33%, which is the steepest intraday decline since the company went public in 2021.
In a regulatory filing in which Hertz disclosed that it saw unexpected softness in the used car market, the company said it realized losses on the sale of vehicles in May after securing gains in April. The company said that based on current used car sales trends, it now expects the second quarter net depreciation per unit (DPU) per month to be about $300.
The Wall Street Journal reported Wednesday that Hertz executives said in early May that they expected to make gains on the sale of vehicles in the second quarter and that they expected the depreciation per unit to be well below $300 per month.
