Avis Wins $650 Million From Hedge Fund That Bet Big on Its Stock -- WSJ

Dow Jones
Jun 23

By Caitlin McCabe

Avis Budget's wild ride this year just took another unusual turn.

The car rental company said late Monday it would collect $650 million from one of its major shareholders, Pentwater Capital Management, to resolve an unusual spat in which it accused the hedge fund of fueling excess volatility in its stock.

The settlement comes after Avis' stock surged earlier this year -- at one point gaining some 560% year-to-date -- before reversing course in a matter of days in a topsy-turvy short squeeze.

Avis said the payment settles its pending lawsuit against Pentwater and is subject to court approval. Pentwater's founder, Matthew Halbower, didn't immediately respond to a request for comment.

The cash payment looks set to cap an extraordinary Wall Street tussle that saw a company single out one of its own shareholders over its trading activity. In an earnings call this spring, Avis Chief Executive Brian Choi said Pentwater was seemingly the only major investor active in buying and selling shares at the time the stock was swinging wildly. He vowed to "go after every last dollar that our shareholders are owed."

The central issue at stake was a niche U.S. trading regulation known as the short-swing profit rule, which prevents company insiders and major shareholders from buying and selling shares within a six-month period. The provision can require so-called insiders to hand over any resulting profits to the company -- though the rule is rarely invoked, especially by the company itself.

The rule is likely to cover only a portion of Pentwater's Avis trades -- and likely only part of its profit. It isn't clear how much the hedge fund made betting on Avis overall. Choi said in April that gross proceeds from Pentwater's sales over two days in April totaled $1.75 billion.

Pentwater first bought shares in Avis a few years ago, regulatory filings show. It started to build its stake in earnest last year, disclosing a 7% stake in the car rental company in May. By April this year, the hedge fund held a 22% holding -- alongside cash-settled total return swaps that pushed its economic exposure even higher.

For much of last year, the trade looked like a largely uneventful one. Avis moved around but largely stayed under $200 a share. All that changed in April, around the time Pentwater disclosed its larger stake. Shares rocketed as high as $847.70 intraday, nearly seven times higher than the roughly $128 price at which they started the year.

Adding fuel to Avis' rise was the heavy short interest in its stock, which is a measure of how many investors were betting the shares would fall. Short sellers typically borrow shares and sell them, hoping they can buy them back later for less and pocket the difference.

More than half of the company's float was sold short at the start of April, according to data analytics firm S3 Partners. As the stock climbed, short sellers' positions were suddenly unprofitable, forcing them to buy back shares to limit their losses -- adding even more upward pressure on the stock.

Shares in Avis then plummeted just as quickly as they surged, with the stock losing 68% in just two trading days this spring. Regulatory filings show that Pentwater was selling down its stake along the way.

The hedge-fund firm still owned more than 7% of the company as of early May, a regulatory filing shows.

The short-swing profit rule is infrequently used but there is historical precedent. More than a decade ago, a shareholder in the railroad operator CSX brought a case to recover short-swing profits earned by hedge-fund manager Chris Hohn's TCI Fund Management and 3G Capital Partners.

Shares in Avis are still trading higher than when the short squeeze began, with the stock inching higher in premarket trading Tuesday.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

 

(END) Dow Jones Newswires

June 23, 2026 08:37 ET (12:37 GMT)

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