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This means that unless the Fed somehow manages to divest of Hertz bonds that comprise its HYG and JNK holdings, the US central bank is as of this moment a stakeholder in the Hertz bankruptcy process, and assuming there is no liquidation, will end up owning a pro-rata stake of the post-petition equity once the company emerges from bankruptcy in the not too distant future.
Given that the Federal Reserve has sort of quasi-merged with the US Treasury during the COVID-19 pandemic...
Is this basically a stealthy move towards government nationalization of not only companies but increasingly entire industries???
Given that the Federal Reserve has sort of quasi-merged with the US Treasury during the COVID-19 pandemic...
Is this basically a stealthy move towards government nationalization of not only companies but increasingly entire industries???
No. Quite the contrary. Hertz will likely eventually emerge from bankruptcy due to the Fed's actions. Without the Fed's help, they would have likely been filing for a chapter 7 bankruptcy instead of chapter 11.
Lots of articles written about over-leveraged companies. One of the reasons the stock market dived so quickly in March, was that high yield debt in a lot of companies was on the verge of becoming illiquid (like Hertz). Rather than risk the simultaneous collapse of a lot of over-leveraged companies, the Fed stepped in to prop up the market. The stock market responded with a big bounce of approval. What's interesting is that Blackrock is part of this effort to buy distressed debt, some of it owned by their own subsidiaries. I doubt Blackrock would be involved unless the US government or Fed is somehow backstopping any losses they may incur.
Once again, the investor class was rescued because the regulatory system facilitated a situation where the debt was just too consequential to allow it to fail. When will we learn?
Like the airlines, rental car companies have screwed a lot of people.
It's a necessary service, but better practices need to be mandated.
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