What happens with common shares
In a chapter 11, what will happen is there will be setup a 'bankruptcy estate'. All of the assets and all of the liabilities on the day of the filing will be totaled up. The company, with court approval, will present a plan as to how they plan to either pay off the liabilities with the assets or what they will give the liabilities in the reformed company.
The liabilities will be given an order of priority, called classes. the highest classes will recover first, and go down the list.
The order of priority, with highest to lowest is something like this:
1: Debtor in Possession Financing (DIP).
2: Secured Bonds and secured lines of credit.
3: Unsecured bonds, trade credit with vendors and other unsecured creditors.
4: Preferred Shares.
5: Common Shares.
In the case with BTUUQ, while there is equity as reported by the last 10Q reports, the market value of that is probably a lot less and the money will probably run out before they get all the way down the list.
Most of the times in a situation like this, the common shares get cancelled, and the stock becomes worthless. There may be some warrants issues, but the value and strike price will be so high, since the reformed company needs to rise high enough so that all higher classes get made whole, that the warrants usually have no value.
The date of cancellation of the common shares will be about 8 to 10 days after the court enters an order confirming the plan, which sets the effective date. The 8 to 10 day delay is because there is a bankruptcy court rule where that is the time to file an appeal on the confirmation of the plan, but once the effective date happens, the common shares will instantly get canceled. In some cases, this event happens in the middle of the trading day and the common shares area 'dead'.
BTUUQ may have all kinds of up and down swings, but it is either people in the retail market who have no idea what they are doing; or it is the professional traders who know the retail market will 'show up' and are playing a dangerous game, but one if they can estimate the swings can make a large amount. The problem is that they risk the retail market panics and dumps everything, leaving them stuck with worthless shares. I usually do not 'play that game'; but if I did, I would only do it with money that if the stock disappeared in the next second, I would not be upset with the trade.
As an example of how volatile some parts are, there is no bid on the JUN $0.50 options that I have at this moment. Yesterday, it was at $0.23!
Louis J. Desy Jr.
