Cheeyeow, I have not looked at the merits of the ABWTQ case recently so I can't speak to anything beyond the available financials. I briefly glanced at its December 31, 2009 10-K. It shows a negative equity of over $1.97 Billion or negative $34.12 per share of book value equity. For the 12 months ended Dec. 31, 2009 they had losses of $26.91 per share. The way I see it, they are technically insolvent from a balance sheet perspective and one might have a strong argument for hopeless insolvency. Also, at first glance, I don’t see any significant institutional ownership. This doesn’t mean that there isn’t a catalyst for recovery; I just don’t know what it would be because I haven’t looked for it.
This is one that I cannot get behind because of the financials and I have to stay true to my methodology even if it means missing out on a nice trade. I am a fundamentalist first but I do pay homage to the technicals in the interim period between changes in the underlying fundamentals.
I know the Monthly Operating reports tell a different story for ABWTQ, but one has to be very careful when using Monthly Operating Reports. They are best used for the income statement portion on a standalone basis, if they are used at all. Use the balance sheets of an MOR only when comparing one MOR to another to track the CHANGES only, never rely on the balance sheet of an MOR by itself. In the absence of an SEC filed financial statement, the only thing you have to go on is the MOR but in ABWTQ''s case you have 10-Q's and 10-Ks, so they are the best source.
The information available on the 10-Q or 10-K is more reliable as it is consolidated and is in conformance with GAAP. When you see the "investment in sub" account on any balance sheet (like the MOR) it is one signal that the financials are not consolidated and therefore cannot be relied upon in making an investment decision because we do not know exactly what the eliminations are. In ABWTQ’s case, the Investment in Sub account on the MOR is/was 3.1 billion, I haven’t looked in a while. You can establish useful trends (like I do with CEMJQ & TRXAQ) in comparing one MOR or one unconsolidated financial report to another but to view them as a snapshot in time as a true measure of the value of the firm is futile. If you want to see what the true remaining equity is, look at the 10-K.
In summary, I don’t see any meaningful recovery for the common shares of ABWTQ based on what we know of the financials and the bond pricing. The bonds may have moved recently but the highest price for any of the senior bonds is 46 cents on the dollar and the lowest of the junior debt is 15 cents on the dollar. For the common shares to have any value upon emergence, all of the bonds would have to have a recovery in full. The bond market typically is made up of much more sophisticated investors than the equity markets and the bond market is pricing in an extremely large haircut for both the senior and junior debt. This outlook and opinion won’t be popular here on IHUB but this is how I see it.
If anyone knows of some catalyst for recovery that allows equity to overcome the near $2 Billion in negative equity, please pass it along. Before I get deeply involved in a case I have to see an SEC filed financial statement that shows equity is either “in the money” or close to the money or I have to know of some other catalyst at play (like WAMPQ/WAMKQ). I am intrigued by the recent rally in the ABWTQ stock price and would be interested to know if there is any news behind it.
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