Hertz Global Holdings Inc (HTZ) declared bankruptcy on May 22nd and its stock price fell to $0.555/share, down -82%, in just two days. The stock has since rebounded to close at $1.88/share today, up +239%. HTZ has been an active short since mid-February and after a recent surge in short covering at the end of May, we have seen short sellers once again build up their exposure.
HTZ short interest is $148 million, 36.91% of its float. Over the last month we have seen $46 million worth of short covering, but recently short sellers shorted over 5.7 million shares worth nearly $9 million.
HTZ short activity was very active as its price fell and stock borrow fees were inexpensive. From February 21st to April 22nd when HTZ stock borrow fees were at or just above General Collateral levels (the cheapest rates for the easiest to borrow securities) shares shorted increased by 26.4 million shares, +161%, as HTZ’s stock price slide -$16.21/share, -80%. HTZ short selling slowed considerably as its stock borrow rates became more expensive. Shares shorted increased “only” 9.5 million shares, +22%, even though its stock price slid -30%. The cost to borrow shares had increased to over 112% fee and shorts are now paying over $461 thousand in daily stock borrow financing costs and rising.
Overall, shorting HTZ stock has been a profitable trade for short sellers. They are up $378 million in year-to-date mark-to-market profits for the year, including +$34.4 million in mark-to-market profits on today’s -25.40% price move.
HTZ’s recent surge in its stock price is mainly due to retail investor trading looking for small price moves in a low priced stock that would result in large percentage gains. HTZ’s stock price had risen $2.28/share, +410%, since its May 26th low prior to today’s drop. This recent upswing in stock price cost shorts -$115 million in mark-to-market losses.
In a surprising move, even as the NYSE is in the process of delisting the stock and HTZ has initiated bankruptcy proceedings, HTZ has won court approval to issue $500 million in new common stock. The company is warning new and existing long shareholders that its stock will probably end up being worthless after senior claims (bond holders, etc.) are paid out.
Short sellers have been trying to get back in the name after this news emerged, but that is easier said than done. Spot stock borrow fees surged to over 300% fee today and recalls hit the street in size with over 5 million shares worth of stock borrows terminated. Brokers are scurrying to cover recalls with whatever scraps of HTZ stock borrow they can find and are not approving new short sales.
HTZ has now become a short squeeze poster child with stock borrow rates sky rocketing, large amounts of stock borrow recalls hitting the street, retail investors driving the stock price up (except for today) and short sale locates as rare as vacationer car rentals. If retail long buying re-emerges, there will be no institutional short selling to offset the buy-side price pressure and HTZ’s stock price is bound to go up in the short term. In actuality, the buy side pressure will be two pronged with short sellers that are forced to close out their positions due to recalls joining long shareholders in the buying frenzy.
Of course, as HTZ’s bankruptcy continues and the realization of a $zero stock price becomes more widespread there will be a rush for the very narrow bid-ask exit and long shareholders looking to close out their positions will drive the HTZ’s share price down over a cliff that would make Thelma & Louise cringe. Unfortunately, new short sellers will not be able to profit in the drop, only the existing shorts that are left after the crush of recalls are cleared up and have the stomach to endure stock borrow rates a great deal over 100% fee will see their P\L maxed out.
In conclusion, expect a roller coaster ride for HTZ’s stock price in the near term. Retail long buying (if you liked HTZ at $2.83 you must love it at $1.88) and institutional short covering (5 million shares recalled and counting) should bump up HTZ’s stock price in the short term. Followed by retail and institutional long selling in the medium term as HTZ’s bankruptcy situation comes into focus and the probability of a $zero stock price becomes more certain. Who needs Space Mountain at Disney when you can trade HTZ stock instead.
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