Avis Short Sellers Face Large Structural Cover Deficit as Pentwater and SRS Actions Have Reduced Stock Float

Over the past month, Avis’ stock price has surged more than 600% from under $100 per share to close at nearly $714 per share on April 21, but it has dropped 30% today to $493 per share as of 3 p.m. ET. While the stock price has benefited from the recent broader market recovery and tailwinds from rising used vehicle prices, we believe this price increase is largely driven by technical factors.

Since the pandemic, Avis’ stock has seen several significant rallies including the short squeeze that occurred in November 2021. Because of a considerable amount of share repurchases over the past 10 years, Avis’ outstanding share count has dropped over that period by 67% to end March at 35 million shares. This decline combined with the high level of SRS Investment Management’s continued equity ownership and Pentwater’s recent accumulation of shares through derivatives appears to have reduced Avis’ common stock float to 10 million shares.
 

In 2016, SRS reported acquiring 9.5 million shares, or 9.5% of Avis’ common shares at the time. SRS has nearly doubled the amount of shares it owns to more than 17 million shares through direct purchases and derivatives, while its ownership stake in Avis has increased fivefold to 49%. SRS founder Karthik Sarma sits on Avis’ board of directors, while its president, Jagdeep Pahwa, is the executive chairman of Avis’ board.

Pentwater’s involvement appears to have reduced the float, and it disclosed in late February that it had begun increasing its equity stake (after first disclosing ownership in Avis in early 2025) through common share purchases as well as the purchase of options with near-term expiration dates and total return swaps. As Pentwater has taken delivery of shares over the past six weeks, Avis’ float has dropped with short interest as a percentage of float increasing precipitously as a result.
 

Pentwater’s top holdings as of the end of 2025 included M&A plays Electronic Arts, Cyberark Software, Warner Bros. Discovery and Kenvue. It has also been involved in stressed and distressed names such as AMC Entertainment and Saks Global.

Equity Distribution Agreement

On March 27, Avis entered into an equity distribution agreement with a group of banks which would allow it to sell, from time to time, up to 5 million shares. The sensitivity table below illustrates how the company could hypothetically reduce pro forma corporate net leverage to under 4x from 7.5x as of Dec. 31, 2025, if it were to issue all 5 million shares at market prices over the last two days.
 

Hertz Comparison

Avis competitor Hertz has seen somewhat similar stock price dynamics as Avis, although as of today, the volatility has not been as extreme. Knighthead holds nearly 60% of Hertz’s common stock stemming from its involvement in the company’s 2021 bankruptcy.
 

Last April, Pershing Square Capital Management disclosed a 4% direct ownership stake in Hertz’s common stock, and founder Bill Ackman tweeted that Pershing had accumulated a 20% stake in the company through outright share ownership and total return swaps. As a result, the company’s stock price more than doubled over the course of a week. Hertz capitalized on the higher share price by closing a $250 million shelf offering in place in May and issuing exchangeable notes in September to partially pay down its 5% senior notes due in December 2026.
 

Used Car Pricing Up in March, but 2021 Increase Was Far Greater

Avis and Hertz’s security prices have climbed over the past month against a backdrop of a broader market rally and rising used vehicle prices. The Manheim Used Vehicle Value Index rose to 215.3 in March, reflecting a 6.2% year-over-year increase for wholesale used vehicle prices. The index was up 1.4% sequentially in March, 0.8% in February and 2.4% in January. Last March, Avis and Hertz’s stock prices jumped on news of the used car tariffs. The Manheim index for April 2025 also jumped 2.7% sequentially.

However, these increases in used auto prices pale in comparison to the events of late 2021 when Avis’ stock rose significantly, as the index rose 5% sequentially in September, 9% in October and 4% in November.

Legal and Regulatory Considerations

Several regulatory considerations overlay an already complicated dynamic:

Short-swing profit rule (Section 16(b)): Under the Securities Exchange Act of 1934, any beneficial owner of more than 10% of a registered equity class must disgorge profits from any purchase and sale within a six-month window. Additionally, this applies to all insiders, including officers and directors. Based on Pentwater’s mid-March purchases, this provision means a sale by September could be subject to a Section 16(b) profit recapture. This is a statutory recapture obligation, not a voluntary lockup.

Quiet period / insider selling: SRS is classified as an insider given its approximately 49% direct stake and two board seats. Under typical corporate policies, it is likely that an insider would be prevented from selling during CAR’s pre-earnings quiet period ahead of first-quarter results expected in late April or early May. We believe that, since building its position, SRS has sold Avis shares only once: 1 million shares were sold back to the company in August 2023.

Group formation risk (Section 13(d)): If regulators or litigation counterparties were to successfully argue that SRS and Pentwater are acting as a “group,” their aggregate approximate 71.5% direct ownership would be treated as a single block for beneficial ownership disclosure purposes. Pentwater’s cash-settled swap structures are also subject to ongoing SEC scrutiny following the CSX Corp. v. Children’s Investment Fund litigation and subsequent guidance that aggregated economic exposure can trigger reporting thresholds even without formal voting power. No such filing has been made.

We believe this is unlikely to be a concern here given planning and documentation can reduce this risk. SRS has been involved in Avis for many years, and Pentwater’s interests appear to be passive and unrelated thus far.

Board dynamics: SRS holds the rights to two board seats at Avis, which are currently filled by Karthik Sarma and Jagdeep Pahwa. Their board position and equity holdings could influence strategic decisions around things like equity issuance under the ATM shelf, fleet financing, M&A and other important actions.

Litigation angles: Aggressive share accumulation can open large shareholders to litigation risk under certain circumstances. For instance, the 2008 VW/Porsche squeeze was subject to claims of deliberate market manipulation by hedge funds that lost over $2 billion. In that situation, hedge funds alleged Porsch violated section 10(b) of the Exchange Act and Rule 10b-5 when it falsely denied an intent to acquire VW and pursued a series of manipulative derivatives trades to hide the volume of VW shares it controlled. Ultimately, federal and New York state courts dismissed the suits, primarily on jurisdictional grounds, holding that U.S. securities law did not apply to conduct that occurred largely outside the United States.

We believe the current situation with Avis can be distinguished from the allegations against Porsche, which centered on a secretive plan to take over VW. Pentwater and SRS have disclosed their positions transparently through sequential public filings, and U.S. courts have consistently held that aggressive but disclosed share accumulation does not constitute manipulation absent evidence of intentional deception or false public statements.