"Tad Borek" <borekfm[at]pacbell.net> wrote
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It is a completely different stock, period.

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ISTM that's more like what being a "common stock
shareholder" means. Said shareholder has agreed, via the
purchase of the stock, to assume a risk of being last in
line (or nearso) if and when a bankruptcy occurs.

the_sarp[at]yahoo.com wrote:
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I almost never make such specific comments here but for god's sake DON'T
DO IT! Not unless you're following the bankruptcy proceeding very
closely and see some signs that the original shareholders are going to
get something.

I guess I need to clarify my statement, which was "Most of the time the
original stock is cancelled as part of the bankruptcy reorganization
plan." Cancelled means "take your stock certificate, hold Bic lighter to
corner, watch it turn to ashes."

Here's an excerpt from the Delta filing with the SEC, which they filed
when the common stock was de-listed (no longer traded) from the New York
Stock Exchange:

"...in most Chapter 11 cases, owners of equity securities receive little
or no recovery of value from their investment. As a result, Delta urges
that appropriate caution be exercised with respect to existing and
future investments in Delta's securities."
Full filing:
http://yahoo.brand.edgar-online.com/...1405&Type=HTML

The translation is "this stock is probably worthless but hey, if you
want to buy it, that's your business."

It's very important to distinguish between the common stock that exists
now and the common stock that will exist after the company exits Chapter
11. In most bankruptcies the original stock is cancelled. The NEW stock
will trade as "Delta Air Lines" and it may look like you missed an
opportunity. But that is completely different stock, really. It was
created and handed out to all the people and companies that Delta owes
money to - the "creditors" whose $600/hour lawyers are now pleading
their cases in bankruptcy court. The original shareholders might be
represented there but typically they don't get anything. Because that's
what "bankrupt" means....it's like owing $300k on a mortgage on a $250k
home, and not being able to make the payments. If the bank forecloses,
you don't get the home right? No, the bank gets the home. You get
nothing unless you steal the refrigerator or something. =)

Now I should mention that in any bankrutpcy re-org it is POSSIBLE that
the stock won't be cancelled, and that shareholders will receive
something in the recapitalization. And even if not, it's also POSSIBLE
that there will be say a class-action lawsuit that results in some
compensation paid to shareholders (this is a remote possibility, just
throwing it out there). So "theoretically" a stock of a company in
Chapter 11 "could" have value.

But in the vast majority of cases, the stock in a company in Chapter 11
is cancelled, which means that it has no value. Let me quantify
that...I've been following the stock market for nearly 20 years. I can
think of perhaps five bankruptcies where the original stock wasn't
cancelled. I'm sure there are more, but I couldn't tell you what they
were. Most Chapter 11s result in $0 to the original stockholders.

I will say also that this is a very common misunderstanding. I think the
SEC has a warning about it on their web site but it should be publicized
a lot more. I answer questions on a web site for investors and it's one
of the most common questions I get. "I'm about to buy stock in (insert
name of bankrupt company), I think they're a good company and they still
seem to be in business, is this a good idea?" Most of the time NO it's
not a good idea.

-Tad

the_sarp[at]yahoo.com writes:

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Maybe, maybe not.

- quote -

Maybe, maybe not.

- quote -

Maybe, maybe not. :-)

But seriously, there are no set rules.

- quote -

Very unlikely, and in fact it's not uncommon for shareholders to get
absolutely nothing.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Tad:

What if we apply what you are saying to the current Delta and Northwest
situations...

They are both in Chapter 11.

This means the current stock of both companies (now at about 0.50 for
each company) is still worth buying because
1. these shares will still be shares in the reorganized company

or 2. holders of these shares will get new shares.

Does this sound correct?

Another question: Do shareholders in the previous companies get shares
on a one-to-one basis?

I may wish to invest in one of these companies, so your comments would
be appreciated.

the sarp

the_sarp[at]yahoo.com wrote:
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Most of the time the original stock is cancelled as part of the
bankruptcy reorganization plan, and new stock is issued and distributed
to the former creditors of the company. Sometimes the original
shareholders get a small allocation of shares as well, other times
(rarely) the old shares don't get cancelled in the reorg - Will
mentioned a couple examples.

This is in a Chapter 11 bankruptcy (reorganization)...in a Chapter 7
(liquidation) the shareholders won't get anything, and the company
ceases to exist.

-Tad

the_sarp[at]yahoo.com wrote:

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Sometimes those shares continue to exist (like PG&E or USG), and
sometimes they cease to exist and the shareholder gets nothing (like
Just For Feet). Depends on the individual situation. I think United
stock went the way of the dinosaur, if you were holding through the
bankruptcy, now you have squat.

-Will

United Air Lines old stock (formerly traded under the ticker symbol UAL) has
no value, and does not convert to anything. Following re-organization,
United's new stock began trading on NASDAQ as UAUA a few weeks ago. See the
following two sites for further explanation:

http://phx.corporate-ir.net/phoenix....680&p=irol-faq

http://ir.united.com/phoenix.zhtml?c...&p=irol-irhome (click on links to
the last dozen or so news reports here)

United Airlines stock is listed as being only about 3 months old.

I am assuming this company recently went through a re-organization.

What happened to the old stock of the company? It would have been
millions or billions of dollars of shareholders' money?

Were the old shares converted into stock of the new re-organized
company?

The larger question here is: what happens to the stock of a company
that tanks but gets re-organized and still survives?

At some point if the stock gets too low in value, the NYSE will halt
trading on it. But if it is possible to buy shares and the company
re-organizes, what happens to the shares of the former incarnation of
the company?

sarp