Hertz’s Mom-and-Pop Investors Face a Bankruptcy Process Not Designed for Them

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Individual stock traders looking to cash in winning bets on Hertz Global Holdings Inc. are in unfamiliar territory as the company exits chapter 11, finding themselves navigating a bankruptcy process that favors the interests of bigger, wealthier investors.

All Hertz shareholders will get paid on the company’s way out of chapter 11, receiving a mix of cash, securities in the reorganized business and the right to buy stock in the future. By Friday, they must pick among several choices involving the rights to buy additional stock, with their options determined by eligibility standards tied to personal wealth.

Shareholders weighing the various decisions include the day traders who bought Hertz stock when it was cheap last year, at the height of the coronavirus pandemic. Some are mom-and-pop investors who don’t meet criteria to take part directly in one of the stock-buying programs, though they could sell their rights to participate to qualified investors.

Other investors have trouble understanding their options and said they can’t get straight answers from the company or from their own advisers. Some said they felt left behind in a bankruptcy-exit process that wasn’t developed with amateur investors in mind.

Hertz’s situation is unusual due to the dramatic revival in its prospects in recent months. Shareholders rarely matter when a company goes bankrupt, because there is typically not enough value to repay creditors, which must be satisfied in full ahead of equity. Hertz, though, has estimated shareholders will get a payout of $7 to $8 a share, according to court papers.