This is my response:
There is an ownership restriction on WMI.
Now tell us, how can you convert the preferreds into common stock without changing the ownership restrictions set by the Court and the IRS? You can't.
How can you convert preferreds into commons without reducing NOLs of the estate? You can't.
There is no conversion clause in K, HOWEVER, because WMI filed for BK protection which caused a default event of WMI which in turn triggered the P's liquidation preference i.e. C A S H (or equivalent). Therefore P's are entitled to the face value of $1,000 per share.
Now since WMI is in BK protection, P and K are in the same class, therefore they BOTH will have the same disposition as evidence in all the PORs by the debtors and the latest PR re: settlement of May/June 2011.
You need to understand, it is not what about what the prospectus says, it is about knowing the totality of the circumstances that must included knowledge of bankruptcy, not just reading the prospectus.
Bottom line: P and K = the same class = the same disposition.
BTW: P's are far superior to K's in price/risk ratio for maximum return on your money.
Note: Swapping prefereds for new common into the reorganized debtor is a diff story.
imo