STOCKHOLDERS ARE NOT UNSECURED CREDITORS! Creditors are owed a debt by the company, maybe for money lent (banks and bondholders), or goods/services provided (vendors), or work performed (employees). Stockholders own a defined share in the equity of the company, either the net profits of a going concern or the surplus of assets over liabilities in a liquidation. For a BK this is THE critical distinction, since a filing immediately shifts the board of director's fiduciary duty from equity (stockholders) to debt (creditors).
Secured creditors have a claim backed by a specifically identified asset that may be seized in the event of default; for example, real estate and automobiles that generally are pledged against mortgage and auto loans.
Unsecured creditors have a claim based on performance but without automatic repo recourse; for example, credit card charges and other signature borrowings (or work/goods/services) obtained in exchange for only a promise to pay.
Stockholders hold an ownership interest (share) in whatever is left after all creditor claims are satisfied; either the net profits of a going concern or the surplus of assets over liabilities in a liquidation.
In SCHSQ, unsecured creditors are impaired in both the initial and revised PORs, so of course the Official Committee of Unsecured Creditors objects to both plans. BUT THAT COMMITTEE WILL FIGHT ONLY FOR PAYMENTS THAT MAKE UNSECURED CREDITORS WHOLE; they will NOT exceed that amount to prove that additional value exists for equity.
In order to protect stockholders' interests an Equity Committee is needed, which is exactly what the fast-tracking of this process is designed to avoid. As in every U.S. court, the BK judge is impartial and can't rule or order on any consideration or motion that isn't properly entered. Without anyone to offer the obvious objections that guard against blatant distortions (including the DIP board of directors who in a BK works for creditors not owners), all unclaimed equity value is so easily stolen away. Absent an Equity Committee, individual stockholders (even holders of just a single share) may file an objection with the court prior to the deadline to obtain an argument and ruling on a particular issue. Any communication, but especially an old-school letter, counts so long as it is received at the court before the deadline.
The secured creditors are both represented and protected by their security interests; they are getting 100% of what they are owed. The unsecured creditors are represented by a committee which continues to challenge the BK estate's contention that only a max 10% recovery is available on allowed claims, but that committee will cease its efforts at 100% recovery for unsecured, which still leaves equity (stock) worthless.
If no-one is looking out for stockholders' interests, neither logic nor math will be sufficient to legally demonstrate any equity value in the company under any circumstances, either as a going concern or a winding-up.
Today's filings indicate a setback for stockholders since the auction option represented the cleanest means to demonstrate that value exceeded debt. Even there, though, stockholders faced a high risk of being stiffed as Wall Street buyers dismantled the company by bidding up the prized subs to top dollar while arranging for all the corporate debt to be dumped disproportionately into the unwanted dregs left for (consequently negative-equity) stockholders.
HOWEVER, the market action remains stockholders' truest and only hope. While currently standing alone against all odds, it is incredibly significant that (1) unsecured bondholders very quickly ponied up $155M in DIP financing to take out Bayside's blocking position and transparent loan-to-own "rescue," and (2) the unusual trading activity coincident with recent movement in the BK case resulted in a massive intake of shares even though equity is deemed impaired and assumed to reject the POR (if buying shares isn't buying votes then shares probably have some other value higher than the purchase amount).
Follow the money but not with more than you can afford to lose because the game is so completely rigged against the little guy. That's why I like low floats; sometimes it is more efficient to just pay off retail and emerge quickly than to fight for every last dime...unless you are lucky enough to find (or intimidating enough to create) an opportunity where no-one is willing to fight for every last dime.
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