On May 22, 2020, amidst the deepest possible gloom about COVID-19’s impact on travel, the car rental giant, Hertz Global, filed for Chapter 11. According to reporting by Barrons,[1] during the reorganization, Hertz drastically cut the size of its fleet and closed locations. Like most shareholders of bankrupt companies, Hertz owners were likely to be wiped out. But the economy is improving: travel has returned, Hertz’s creditors are being paid in full, and according to reporting by Barrons, its shareholders are getting a package of stock, cash, and warrants. According to reporting by Barons, the 30-year warrants have an unusually long exercise period – and therefore particularly valuable.

Because of the improving economy, investors that bought Hertz shares in the first quarter of 2021 will see gross returns of 300-400% with greater potential upside on the warrants. According to reporting by Barrons, even with the run-up since April, there is still potential for investors buying the reorganized company’s shares. It’s rare for public stockholders to do so well after a bankruptcy, but it’s not unknown. Hertz looks similar to the General Growth Properties case arising out of the 2008 financial crisis. There, as in Hertz, the economy rebounded, General Growth’s business improved, and equity recovered in full.

For most public companies in Chapter 11, equity ends up with nothing. But in rare cases a debtor’s business can soar back, leading to spectacular returns for investors with an eye for value and the stomach to endure the bankruptcy process.

[1] Andrew Barry, Hertz Is About to Exit Bankruptcy. Why Its Stock is a Buy (Barrons) (https://www.barrons.com/articles/buy-hertz-stock-51624661301?tesla=y)