What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing. You may have heard about the rental car company hertz and its tough journey throughout the coronavirus pandemic. The 100 year old company was hit especially hard by lockdowns, in addition to having its entire business dry up as people stopped traveling certain terms in their billions of dollars of debt, made it even more dire. A lot of their debt was collateralized by their used car fleets and when the value of used cars plummeted in the first part of the pandemic, creditors came in to seize the collateral.

Most people thought that the company had finally met its demise. One of those people was a legendary investor and billionaire hedge fund manager. Carl icahn icon had a multi-billion dollar position in hertz for a long time he had touted hertz as a great company and a strong brand, but when hertz finally announced that they were filing for bankruptcy in june of 2020, carl icahn threw in the towel and sold 55 million shares at just 72 cents, each counter-intuitively. If he just held on to those shares, he would be in a much better position today.

Hertz has since seen wall street bets, essentially save the company. New investors come in and inject capital and has been able to pay off the majority of its debt. It is now out of bankruptcy, and its brand new stock is worth a healthy 7.5 billion dollars. So what happened with hertz? Why did carl icahn dump his shares and, most importantly, how much money did he lose spoiler alert? It has 10 digits in april 2020, as coronavirus was first ravaging nations across the world and travel ground to a halt.

Hertz saw its business decline by 80. It announced that it could no longer make all of its lease payments on its fleet of rental cars. It was already in a stressed financial position with more than 17 billion dollars of long-term debt going into 2020., combined with an unprofitable income statement and fragile cash flows. Hertz could not afford to lose any business.

In 2020, their total revenue was cut in half with their losses widening to almost 2 billion. With this development, hertz was forced to seek bankruptcy protection, their stock tanked from as high as twenty dollars a share in the beginning of 2020 to less than one dollar in may of 2020 hertz formally filed for chapter 11 reorganization, it was one of the largest companies To go bankrupt during the coronavirus pandemic at the time under chapter 11, bankruptcy hertz was to negotiate with its creditors to restructure its debt. Usually chapter 11 means that stockholders end up getting wiped out, because unless creditors are paid back, the full amount owed to them. There is usually nothing left for shareholders in the case of hurts.

That looked to be especially the case since the company had so much debt around this time. Billionaire investor carl icon, owned 55.3 million shares of hurt's stock carl icon is one of the most successful activist investors alive today and is worth billions of dollars. He had been a long time, supporter of hurts and a shareholder since it went public in 2014 that year he disclosed in sec filings that he owned more than 38 million shares of herds, but with the pandemic taking hertz into bankruptcy, he declined to save the company With his own capital and sold his shares on may 26th, he sold his entire position for 72 cents per share in a statement to his own shareholders at icon enterprises. He said that he had sold his stake at quote significant losses unquote, but he also said that he continues to have faith, that the company would be able to gain new capital and become a great company.

Once again, he just did not think that the current shares would be able to survive through bankruptcy. On june 11th, hertz announced i had gained approval from a judge to raise a billion dollars of new capital by issuing new stock. There were concerns about selling stock when the company was going bankrupt. Around the same time, many people on wall street bets were talking about hurts as a potential deep value investment with shares at such depressed levels, the downside seemed quite limited compared to the upside to them.

Retail traders started buying up shares of the bankrupt company leading to a bump in the share price. Hertz wanted to take advantage of this investors sentiment by issuing more of its bankrupt stock issuing a billion dollars of stock when the stock was likely worth. Nothing was seen as potentially unethical on the part of business and management. Nevertheless, hertz disclosed explicitly that there was a chance that the stock was worthless and was given the go-ahead by a judge.

They were able to raise 29 million dollars from the public markets before getting stopped by the sec that small 29 million dollar windfall was not enough to save hertz for the rest of 2020 hertz continued to hemorrhage cash. The future did not look bright for the company, but that all changed in may of 2021, with lockdowns lifting and travel coming back with a vengeance. All sorts of travel stocks started to rebound. Even the commercial airlines started, reporting quarterly profits.

Hurt stock was given new hope when the company announced that several investment managers had agreed to make a massive investment in the company. These included nighthead capital management, certari's opportunities and apollo with the new capital hertz would be able to emerge from bankruptcy even better. The infusion of billions of new capital also meant that existing shareholders were afforded a chance at redemption. The new bankruptcy exit plan included provisions to pay a total of 239 million dollars in cash to the existing shareholders.

It also provided for existing shareholders to receive a stake in the new company after bankruptcy on the news. The old shares of herds skyrocketed eventually reaching a height of nearly 10. A share hertz also started trading new shares under the ticker symbol. Htcz.

The stock price currently implies a market value of the company of seven and a half billion dollars. Although the new delta variant of coronavirus has dampened demand for all travel stocks, leading to herz's share price to decline significantly once again, it's nowhere near the level of decimation from early 2020. So how much money did carl icon lose with his hertz investment, and how much did he miss out on by selling his position when he sold his position? He had about 55.3 million shares he built up and trimmed the state over the course of many years. So it's hard to know exactly what his average buy price was as well as a time value of the position, but before 2020 hertz's shares were trading at close to thirty dollars per share.

That means that his position was worth something like two billion dollars when he dumped all 55 million shares. The average price he got for them was just 72 cents. The proceeds from that sale would only have been 40 million dollars. That's a 99 loss, or at least 1.8 billion dollars, 1.8 billion dollars is a huge loss even by wall street's standards.

It ranks among the biggest trading losses in history in comparison, michael bury's, famous short position during the 2008 financial crisis dramatized in the film, the big short was on a significantly smaller scale. He profited about 700 million dollars, which is still a lot, but less than half of the amount that carl icahn lost on hers. The only hedge fund losses that eclipse this loss are the major disasters that ended up bankrupting the funds such as archaicos and long-term capital. It's a major blemish on the track record of carl icahn, especially since, if he had just held on to those shares, he would have made back hundreds of millions of dollars on the losses.

The story of hertz is also a major win for retail traders. Epitomized by wall street bets when hertz was in the depths of its bankruptcy wall, street ridiculed retail investors for piling into what they thought was a worthless stock. They laughed at wall street bets saying that hertz was just trolling them by issuing bankrupt stock fast forward a year, and it turns out that wall street bets was right. The same stock that amateur investors bought at the lows of one dollar or even less, is now worth close to 10 times that amount, and even one of wall, street's greatest flag bearers, missed out on hundreds of millions of dollars.

As a result, maybe wall street bets got lucky and maybe carl icahn just got unlucky, but no one can deny that in the stock market. Where anything can happen, hertz was a classic case of david beating goliath. Alright, guys that wraps it up for this video. If you enjoyed this content, make sure to hit the like button and subscribe for future uploads.

Also, let us know what you think about carl icahn's loss and the retail investor windfall that resulted from purchase bankruptcy and re-emergence in the meantime. Thank you so much for watching and we'll see in the next video wall street millennial signing out.