With Hertz emerging from a bankruptcy with a positive result for shareholders, we are reminded of the interplay between the equity markets and the bankruptcy alternative.

Some firms facing financial challenges during the pandemic were able to avoid a bankruptcy filing altogether because of their ability to raise the necessary funds through an equity offering. Hertz provides an example of a situation where the bankruptcy filing instead of wiping out the equity enhanced value.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contains two sets of provisions for managing the insolvency of financial institutions. First, the legislation creates an Orderly Liquidation Authority (OLA), a comprehensive regime for resolving a financial institution whose failure is determined to potentially endanger the U.S. financial system.