Unfortunately, common shares often do get the shaft in the majority of chapter 11 cases. BK chapter 11 rules often adhere to what is known as "absolute priority". In a BK, all secured creditors get paid first....followed by senior and junior unsecured debt, then what is left over goes to equity classes. If applicable, Trust preferred shares are first in line followed by preferred stockholders. Common shareholders are dead last in the bankruptcy waterfall and are often wiped out. NOLs are often a chapter 11 company's greatest asset. Max NOLs can be reserved by the reorganized company by using EITHER old cold debt OR old cold equity. That old/cold debt/equity must represent 51 percent of the newly issued shares. In many reorganizations they will use a debt for equity swap with old/cold creditors and those creditors will represent 51 percent of the new company. That is how most reorganized companies out of chapter 11 maximize NOLs but are able to cancel all former common shares. In the Lehman case, we allready know secured creditors are being paid IN FULL 100 percent on the dollar. Senior and junior unsecured classes are being paid some .20 on the dollar, however that should make many of those creditors whole because much of that debt was purchased for pennies on the dollar AFTER the BK. It was estimated some $38 billion in Lehman unsecured debt traded hands JUST LAST YEAR. This means that much of the senior/junior unsecured debt will NOT qualify for old/cold status in the reorganized company. This puts Lehman capital trust preferred shares in line for a VERY LUCRATIVE OPPORTUNITY. We just may possibly be one of the few (if only) lehman entities that the new reorganized company can use to qualify for old/cold status. This would mean trust preferred shareholders could very well make for [up to] 51 percent of a reorganized Lehman. We would receive a debt for equity swap (a ratio the powers to be will determine that would make trust preferreds whole) then it is a possibility that preferred shareholders may see a miniscule cut of shares. I don't expect commons to see a cut but it could happen. Mirant commons received a cut but it was next to nothing really. I'm not saying this to offend any common shareholders here, it's just how bankruptcy works. GLTA
