Let me help you with your next book. When this is all said and done, it will look very much like a common bankruptcy re-org. Time after time, common shareholders believe their shares hold value (and some do) only to be crushed at the very end and receive nothing. Reason being is because common shareholders have virtually no power in bankruptcies. Here, common shareholders have zero power, as those rights have been transferred to the government.
With every bankruptcy, there are always senior creditors or senior debt holders who are angling for newco debt and equity...and they get it with a conversion via the bankruptcy plan. So it benefits them to estimate the Enterprise Value of the newco at a lower value than it actually is. Since this is subjective and prone to fluctuation, judges presiding over bankruptcy plans tend to rule on the conservative side. From my experience, the true value of the average newco is usually around 20% higher than what the conversion is based upon. In other words, senior creditors/debt holders take value from those lower in priority (like common holders) and effectively eliminate the perceived (or real) equity. Of course commons may not be in the money at all but seniors will then just take value from juniors.
This is how it works in the real world. It all boils down to the estimated Enterprise Value of the newco.
So how will the government proceed?
If you are the government would you just deem your SPS paid in full, which would make JPS senior to the government's warrants(commons)? No, you wouldn't because leaving JPS in place reduces the value of the government's commons and increases the amount of new capital to be raised.
If you are the government with a liquidation preference that increases dollar for dollar with net worth, wouldn't you use that as leverage in an equity conversion? At the very least, wouldn't you use the full amount owed in a conversion to equity to maximize your profits thus squeezing legacy common holders (or JPS just as bondholders do in bankruptcy re-orgs)?
At the end of the day I expect the government to do whatever it takes to maximize their profits...through some crafty accounting, paperwork, and assignment of warrants with triggers tied to effective dates. In doing so, they will end up with around 90% of the newco value, with the other 10% going to JPS. Could be more than 90%, could be less, just depends on what Enterprise Value is concocted by Goldman Sachs/JP Morgan or whoever they use to backstop the recapitalization. I fully expect the government will craft this in such a manner that legacy shareholders remain intact, but that's not to say they won't have much value.
Just recently, Latam Airline's shares were trading around a dollar. When the bankruptcy plan was filed, shareholders were to be diluted 99.9%, yet remain intact. Same thing can happen here. Doesn't matter if it's right or wrong...it's just the way it is. Commons have no rights whatsoever.
Maybe the government is feeling generous and all-of-a-sudden found a conscience. I doubt it. But if they did...or better yet...someone on the inside stands to make a lot of money insider trading...then commons could be worth a few bucks.
But they didn't have a conscience when they implemented the NWS nor did they when they swapped the NWS for the liquidation preference 1 for 1 increase. They did that for a reason, imo. Leverage with conversion and valuation. Who's 'in the money' and who's not. This circles back to Enterprise Value, which is tied to cap buffer.
Some are optimists, some are pessimists, and some realists...I'm a realist.
Furthermore, all this talk of 'organically recapping' is a fairy tale. It would take 30 years (likely more) of retained capital since their portfolios keep growing. 5 bucks in 30 years probably won't be worth a dollar, assuming you haven't died of old age (for a lot of you).
Occam's razor = dilution ahead.
