(Bloomberg) – Here we go again. A day after filing for bankruptcy protection, GNC Holdings Inc.’s shares had their biggest gain in weeks.
GNC rose as much as 71% in New York on Thursday. That’s the biggest gain since June 8, with the besieged stock briefly trading at over $ 1 a share, the highest in more than a week. It is happening despite the company’s recovery plan warning shareholders that they will be eliminated.
The move is likely to remind investors of the bizarre deal this month at Hertz Global Holdings Inc. Its shares rose nearly tenfold after the car renter filed for court protection, despite little or no hope that the Shareholders get something when the case is over.
Like Hertz, GNC is a popular stock among retail investors using commission-free brokerage. Ownership of GNC shares in Robinhood users’ accounts has steadily increased since mid-March, according to data collected by Robintrack.net.
Analysts have speculated that novice traders who don’t understand how bankruptcy works are driving the recent rallies at Hertz and other bankrupt companies.
Shareholders are usually the last to get a payment in a Chapter 11 bankruptcy, and that means parties like lenders, attorneys, and homeowners get a full refund.
In the case of CNG, the company has already lined up a proposed buyer with an initial bid of $ 760 million. GNC’s largest shareholder, China-based Harbin Pharmaceutical Group Holding Co. and other potential co-investors made this “initial offer” that puts a price on the floor for a court-supervised sale process.
Is not sufficient
At that price, there won’t be enough for everyone. Some junior creditors and equity holders will not receive “any recovery due to such existing capital interests and subordinate claims,” GNC said in court documents.
Instead, the proceeds from a sale would go to GNC guaranteed lenders and pay expenses such as back rent and bills from law firms and restructuring consultants.
Surely a higher offer could come and go to court. If money is left, excess cash could flow to unsecured creditors, and then perhaps to shareholders.
But such results are rare, and GNC’s efforts to find other buyers make the prospect seem unlikely. The company met with 50 potential investors, according to court documents, but the United States’ rescue efforts were derailed by the CNG debt burden and the high cost of capital offered by lenders.
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