A bankrupt company could always offer new equity to its existing creditors as part of a Chapter 11 reorganization plan, but that's not exactly a sale. If you're describing a transfer to outside investors, then the sale of new equity could violate fraudulent transfer law and the bankruptcy trustee could try to claw it back to preserve the value of the estate. (See Bankruptcy Code § 548).
It's worth mentioning that creditors can throw an insolvent company involuntarily into bankruptcy by petitioning the court. Since creditors don't share in the upside of a company (like equity holders do), there's no reason for the creditors to let the company linger in bankruptcy so that it can gamble for its resurrection. It's in their best interest for the company to enter bankruptcy as soon as possible so they can preserve its value and maximize their payouts.
There might be edge cases (e.g. if there's a single creditor who happens to have a significant equity stake, it could play out differently) but I don't think it's the norm.
In this case Hertz bonds trade around 40 cents on the dollar [0], so there's a significant incentive for the creditors to let the company gamble for some upside.
[0] https://markets.businessinsider.com/bonds/hertz_corp-_thedl-...
I get your point, but it's really not correct. Shares do not have delta, gamma, vega, strike price, implied volatility or any of the other factors that go into pricing options. They are not derivatives and there is no premium. Yes, a penny stock (which is what HTZ is at this point) has extreme volatility, but comparing them to options is way off. A share represents actual ownership in the company while an option does not until it is exercised (and is then no longer an option). By your example, any stock holding would be an option on the price of the stock going up, but it's not - you already own it.
Not entirely. Equity can be modelled as an option on a company’s assets, struck against its debt. This is fine for equity (and the equity component of fulcrum securities) in a bankruptcy.
profound
https://www.youtube.com/watch?v=fwJHNw9jU_U
edit: and here's the full scene, greatest chase scene in cinematic history https://www.youtube.com/watch?v=jrmZIgVoQw4
Look at the facts. Nobody has done this before:
> Jared Ellias, a law professor at the University of California Hastings College of Law, said he has studied hundreds of bankruptcies and never seen a company try to fund a case with an equity offering at the start of chapter 11.
> “Hertz looks at the market and sees there is a group of irrational traders who are buying the stock, and the response to that is to seek to sell stock to these people in hopes of raising some amounts of money to fund their restructuring,” Mr. Elias said.
> “It is incredibly creative and they get props for that, but I wouldn’t buy those shares,” said Nancy Rapoport, a professor at UNLV’s William S. Boyd School of Law, who said she has never seen a bankruptcy funded this way. “I guess they’re trying to catch whatever the opposite of a falling knife is.”