Bankrupt and Distressed (BAD) Research and Due Diligence

[Madclown]

FGOCQ: Picked up some shares this week in anticipation of the court decision on whether to convert the Chapter 11 reorganization to a Chapter 7 liquidation. Court hearing was this past week but no related docs have been released to the docket on PACER. The threat of a Chapter 7 conversion has created some selling pressure. If Firstgold is allowed to continue to reorganize as a stanadalone company there may be a nice pop in the price. If it goes Chapter 7, the equity will be zeroed out and most creditors will be receiving a huge haircut.

Not sure if i'd go long for any other purpose than for the momentum. This company has some headwinds with departing executives and its inability to resume production for many months at its main mining operation. Also, the small DIP loan it received was ridiculously lucrative for the insiders who extended it to the company (400% annualized return). Many of the debtholders and unsecured claimants are stockholders because they were equitized in lieu of receiving payment for services rendered. I generally do not like this because if the company executives were really bullish on the stock then they would be incentivized to do anything within their power to avoid dilution due to simple operating expenses. They were giving the stock out like candy in the months leading up to bankruptcy, so you make your own judgment as to its value in the eyes of management...

This one ain't for "momma" but might yield a nice return in a short timeframe. This is an event-driven situation, not a buy and hold proposition.

I wrote a short case summary a few months ago if anyone is interested in looking at it, see the link below.

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=46526855