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Shares of bankrupt Revlon climb 17% as investors cheer news that Morgan Stanley bought the stock in the last quarter

Shares of bankrupt cosmetics company Revlon Inc. soared 17% on Tuesday, swept away by a fresh wave of “meme” stock buying by retail investors, who were delighted to learn that Morgan Stanley had increased its stake in the company during the last quarter.

Morgan Stanley purchased 400,650 shares of Revlon REV,
-0.36%
according to the company’s 13-f filing with the Securities and Exchange Commission on Monday.

The news bolstered hopes that investors could benefit from buying the bankrupt company’s stock in the same way as investors in Hertz Inc. HTZ,
+0.53%
succeeded in doing so when the car rental company filed for Chapter 11 in May 2020.

Typically, in a bankruptcy, a company’s shares become nearly worthless because creditors who are above shareholders in the capital structure have the first claim on the assets.

But Hertz, which had been hit hard by the travel shutdown during the pandemic, was eventually rescued by a group of investors led by Knighthead Capital Management and Certares Management, who put up $5.9 billion in capital. betting that the rebound in travel would ultimately benefit the company.

See now: Hertz raises $1.3 billion in a “re-listing”. The new stock will soon start trading.

This has allowed Hertz to significantly reduce its massive debt load and line up other financing, just as the rental car market has warmed.

Revlon had filed for bankruptcy in June after posting a loss of $63.1 million in the first quarter, which made it impossible to service long-term debt that stood at $3.31 billion at the time. dollars.

The action quickly became part of the meme trade driven by individuals congregating on the Reddit forum WallStreetBets, who were discussing its recent performance on Tuesday.

Short interest, or bearish bets on Revlon shares, made up 35.6% of the public float, or shares available for public trading, according to the latest stock market data. This compares to 47.2% of the shares of another stock from the same Bed Bath & Beyond Inc. BBBY,
+20.88%
which are short, and AMC’s 18.4% of AMC Entertainment Holdings Inc.,
+1.24%
public floats that are shorted.

However, there is no guarantee that Revlon will benefit from Hertz’s success.

“Investors should understand that buying common stock of Chapter 11 bankrupt companies is extremely risky and could result in financial loss,” according to the Financial Industry Regulatory Authority, or FINRA.

Also, when a public company emerges from bankruptcy, the old shares are often canceled, and only the new shares of the reorganized company end up having value.

Revlon shares have gained 109% over the past three months.

Other meme stocks were also higher on Tuesday. AMC rose 6%, GameStop Corp. EMG,
+5.49%
increased by 11% and Bed Bath & Beyond increased by 65%.

For more on meme stocks: AMC and GameStop ‘zombie’ stocks could smell like cash burn, says New Constructs

Bed Bath & Beyond’s meme stock soars on record volume, yet another analyst’s ‘sell’ call defies