This stock will end up at zero, that's for sure, but not before it bounces around a lot. You see, this is no ordinary bankruptcy. It's supposed to be a prepack, but not all the creditors are on board. Blackstone and the junior unsecureds signed the RSA and left Claren Road out in the cold. As you can imagine, that didn't go down well with Claren Road and they've already started accusing Blackstone's GSO capital of wanting to rush this case through BK court before gas prices get a chance to recover. It didn't make any sense to me that Claren Road would get the same share of equity as the unsecureds, even though they are senior to the unsecureds. Further more, the fact that the valuation at which GSO is getting converted is almost a third of that at which the other creditors are getting converted is totally nuts.
Is it possible that the creditors all hug it out and come to an agreement before trying to get the court to approve the RSA? Absolutely. But if they couldn't agree prior to BK filing, my sense is they won't agree without the intervention of the BK court judge -- that's probably the reason they haven't put forward a motion to approve the RSA at this point. So we're probably going to be hearing arguments about valuation and what not.
Needless to say, this is shaping up to be one of those contentious BKs and as the drama plays out in court, the share price will bounce around accordingly and buyers at these levels will make some money if they exit at the right time.
In addition to all of that, over 95% of the float traded in the 4 trading days just after the BK announcement. I initially thought that was due to short covering but the short interest prior to BK was low. So my sense is that some hedge fund(s) has accumulated and will be moving this up as we move along.
Watch this space, this stock isn't done just yet.
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