Avis Budget's (CAR.US) second-largest shareholder, Pentwater Capital Management LP, increased its stake in the car rental company just before its stock price collapsed by nearly 70%. According to a regulatory filing released Thursday evening, Pentwater exercised approximately 7,400 call options, granting it the right to purchase 741,100 shares of Avis Budget. This transaction raised its ownership stake in the company to 22.2%. The majority of these shares were acquired at $85 per share, with the remainder at $80 per share, both prices representing a significant discount to Thursday's closing price of $229.
This trade, executed on April 21, occurred one day before Avis Budget's stock experienced a single-day drop of 38%, marking the beginning of a $17 billion evaporation in market capitalization that erased most of the 600% gains achieved the previous month. Following the news of this filing, Avis Budget's stock surged by up to 8.7% in pre-market trading on Friday, though those gains significantly narrowed later. Latest trading data shows that, at the time of writing, the stock was down 2.33% in early trading, priced at $224.81.
Pentwater, led by Matthew Halbower, disclosed last month via regulatory filings that it had purchased millions of Avis Budget shares and sold a substantial number of put options on the stock. Halbower, a former portfolio manager at Deephaven Capital Management and Citadel, founded the Florida-based firm in 2007. Regulatory filings indicate the firm specializes in event-driven investments and manages over $19 billion in regulatory assets, including leverage.
The short squeeze was reportedly not driven by retail investor enthusiasm on social media but by an extremely rare structural scarcity of available shares. For a long time, Avis Budget's two major shareholders, SRS Investment Management and Pentwater Capital, collectively controlled over 71% of the company's shares. When including various derivative swaps held by the funds, their actual economic exposure to the company even exceeded 100% of the total shares outstanding. This highly concentrated ownership structure resulted in very few shares being available for trading on the open market.
According to statistics from mid-April, short interest had reached over 86% of Avis Budget's free float. This meant that short sellers, facing a rising stock price, could hardly find enough shares in the market to cover their positions, which forced them to drive the stock price up to a historical high of $847.70 in April, a surge of over 500% in a short period.
However, the rally, dominated by major shareholders, collapsed rapidly. The turning point came when Avis Budget's management decided to capitalize on the irrationally high stock price by announcing plans to raise funds. The company intended to sell up to 5 million new shares through an "at-the-market" offering, aiming to raise capital via equity dilution to address its substantial debt burden of approximately $25 billion. This announcement immediately broke the trading impasse caused by the share scarcity, injecting liquidity into the parched market and triggering a sell-off that caused the stock price to plummet over just two days.
Between April 22 and 23, Avis Budget's stock experienced a single-day drop of nearly 40%, nearly wiping out all gains from the short squeeze. Short sellers are estimated to have recouped approximately $2.8 billion in losses during this crash.
From a fundamental perspective, Wall Street investment banks had issued stern warnings about the situation. Analysts from Barclays and J.P. Morgan noted in research reports that Avis Budget's financial health was severely misaligned with its multi-billion dollar market capitalization. With the company reporting a net loss close to $900 million for 2025 and shareholders' equity remaining negative for an extended period, the stock's surge was entirely built on technical default risks and speculative trading dynamics.
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