When Commons get wiped out?
.In a Ch11, once the valuations are clear as well as the debts and liabilities are clear
.... if the assets are lower than the debts, and there are not future incomes expected to pay the long term creditors .. then it's game over .. because in the restructuring the creditors will become the new owners of the new company ( new shares created, former commons are wiped out) ... so creditors don't get the cash back but at least get the ownership of the restructured company and eventually over time this returns value to them. ...
.... this is what happens in many cases .. the KMart expample may be one.
.... if the assets are higher than debts .. then the current shareholders have net value... then the restructuring is about renegotiating the cash flows with creditors so that short term payments can be attended with expected incomes....
then, the commons do not get wiped out at all. They stay as owners and only in case part of the mentioned cash flow renegotiation involves paying partially creditors with a share of ownership, then they may get dilluted...
Why I think so?
A)
This is the case of WMI. Me and many others poster have elaborated on these values these numbers many times in case of buyout or in case of long term restructuring... I will not repeat again
The current price of commonts is so so low, that set the market cap of this company in $100M, ... it's just a small fraction of it's subsidiaries and 4.4 cash value minus it's 8B debt ( remember that not all 8B debt is short term )...
Please review the hundred WMIs subsidiaries - operating, normally, not at all in BK. ... ot read other post with valuation scenarios..
B)
The judge attitude !!
For me this is key. Why?
This judge:
1.- Knows more about BK processes that we all together by far.
2.- By today has more information about the potential value the eventual exit of the BK, the position of JPM and FDCI, the possible lawsuits to come among the parties,... etc than we all together.
3.- Her role is to protect the ability of the debtor (WMI) to pay it's debtors and if possible came up with a viable company.
So she has experience and has data:
If she would perceive this case heading to end in liquidation here decisions would have been very different... normally focused in saving expenses and pointing out to speed up possible acutions of any assets to pay short terms debts until the eventual liquidation gets negotiated ....
... instead of that...
she accepted WMI to increase very significantly its recurring expenses hiring litigation attorneys, shareholder relationship advisors, transfering money to subsidiaries ..
.... in summary to keep the WMI operations moving and to keep WMI's potential to fight for it's rights at top potential .. even increasing recurring expenses..
Summary
Both A) and B) are for me signs that this BK case will not end in liquidation and will not end in Creditors getting paid with the company' ownership taking it our of the current common shareholders.
Examples of BK processes ending in commons wiped out? ... many
Does it make sense to invest in any BK pink stock?? Not.
Examples of BK processes ending in commons not wiped out but the other way around? .. not that many but some.
Does it make sense to invest in some BK pink stocks? Surely in some cases it makes sense and I do think this one is one worth very much at current prices.
AI
