Northwest Airlines Corp fka NWA

[JJSeabrook]

Northwest's reorganization jolts investors: Bargain shares are worthless now [Detroit Free Press]

Knight Ridder/Tribune "Business News "

May 31--Anthony Hicks thought he was getting a bargain when he saw Northwest Airlines stock trading for $1.70 per share.

Tempted by that low price, the 39-year-old Detroiter bought 2,000 shares earlier this year, knowing that the airline was restructuring in bankruptcy. It was in bankruptcy that Northwest's stock had skyrocketed from 60 cents to $7.50 in January, on speculation that the company would merge with another airline.

Hicks saw that surge and hoped to catch it on a second wave.

There was no second wave. What Hicks didn't know was that those Northwest shares would be worthless the day the company emerged from bankruptcy.

That day is today. After 20 months of shedding billions of dollars in debt and costs, Northwest is set to leave bankruptcy protection.

The airline had warned since it filed for bankruptcy in September 2005 that its stock could be cancelled.

Today the airline's new stock hits the New York Stock Exchange, where Northwest CEO Doug Steenland is expected to ring the opening bell.

With that ring, a lesson sinks in for Hicks and others who bought Northwest at rock-bottom prices: "Don't mess with any stocks when a company is going through bankruptcy," Hicks said.

Portfolio manager David Sowerby of Loomis Sayles & Co. has a message when it comes to investing in companies reorganizing in Chapter 11: buyer beware. Companies going through bankruptcy often sell for less than $1 share but trade in lightly regulated over-the-counter markets.

"Let's put it in airline terms. If you're handling your own investments and you're flying without a pilot, it's probably not wise to be buying bankrupt companies," Sowerby said.

After Chapter 11, companies pay all creditors who are in line ahead of shareholders, and there's usually nothing left for those who own stock, said George Putnam, editor of the Turnaround Letter. But, Putnam said, in restructuring industries with big names like Northwest, speculators can move these cheap stocks up.

"Because the bankruptcy stocks can be very volatile, if you're a short-term trader and willing to take on a fairly high level of risk you can make money at it," he said. "There is a lot of luck involved, too."

Luck may have played a part in Terri Trogen's gains on Northwest shares.

The 47-year-old dentist, who lives near Minneapolis, put down $4,700 last fall to buy 10,000 shares at 47 cents a share.

After that, speculation that Northwest might merge with another airline -- after US Airways made a bid to buy Delta, also in bankruptcy -- sent Northwest's shares from 60 cents in October 2005 to an intra-day high of $7.50 in January of this year.

By the time the stock hit $6, Trogen sold. She made $55,300.

A couple of months later, she tried again, spending $1,000 to buy 10,000 shares, this time at 10 cents a share.

"I just thought I'd take another shot at it and see what happens," she said.

Last week, those shares were worth $100. Today, they're worth nothing.
Did Trogen learn anything?
"Yeah," She laughed. "Don't double dip."
Contact JEWEL GOPWANI at 313-223-4550 or [e-mail].

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