Bankrupt and Distressed (BAD) Research and Due Diligence

[Madclown]

I know the numbers are looking appreciably better but the plans of reorg that are on the table call for bondholders to supply $1 billion to $1.25 million in fresh capital. I doubt very seriously that equity holders as a group would be able to backstop that type of offering. If equity were to have any recovery, they would have to make all creditors whole which is something that neither proposed plan currently provides, despite the large required cash infusion.

It looks like the recent spike in price of the equity is nothing more than rank speculation mixed with a healthy dose of irrational exuberance. The problem with an equity recovery in a company with a lot of debt and no equity (-$400 million for Visteon) is that it takes a mountain of cash to make everyone above you whole. The notion that equityholders could walk in and pay pennies on the dollar for their claims, make no capital contributions to the reorg effort and receive any recovery when creditors are not being paid in-full defies all logic. Whomever is bidding the equity up like that is not paying attention to recent court decisions of similarly situated (and more favorably situated) companies and is ignoring the shifting market conditions. VSTNQ holders are too far out of the money for the stock to trade where it does.

Here is a link to a very recent article that touches on VSTNQ:

http://www.businessweek.com/news/2010-05-07/visteon-general-growth-abitibi-lehman-bankruptcy-update1-.html