The other general unsecured creditors primarily are employees and landlords who might have a paycheck or rent due from one of the SCHSQ companies. Creditors are owed money by the company, stockholders are owners to whom everything left over belongs after all debts are discharged. Remember how you are supposed to pay all your debts before you start spending on yourself? Equity interests are not, and never will be, in any way, shape, or form, creditor claims, so there is no value for equity unless and until all creditor claims are satisfied in full.
When SCHSQ abandoned the auction option in favor of reorganization as a going concern, the Ad Hoc DIP Lenders publicly acknowledged (probably very reluctantly, which is why so last minute) that SCHSQ has a much higher value intact and ongoing as opposed to broken apart or totally liquidated. This is true because significant value exists in SCHSQ's long-established relationships with both customers and vendors which allow SCHSQ to completely dominate the school supply business with a 70 percent market share and zero real competition. What??!!! It also is true because the debt becomes more manageable when it is not accelerated (all due immediately) and instead might be so very easily refinanced at current all-time-low rates.
However, it is hugely difficult for equity to win BK court acceptance of the true present value of the going concern. In a sale the cash proceeds would be applied against the documented debt without much -- some, such as the make whole, but not much -- room for shenanigans. In a restructuring, where the debtor has possession of the company and controls the BK process, assets will be minimized and debts will be inflated in order to demonstrate to the court the worst possible case (from the current stockholders' equity position).
Imagine that you are 10 years into a 30 year mortgage when suddenly the bank sends you a bill stating that the remaining balance is due immediately. Then imagine that the amount calculated by the bank is massively inflated to include 20 years of interest that would have been owed if payments had continued monthly but that shouldn't be included if the loan is retired early. Then imagine that the bank justifies the call by stating the value of your house is a fraction of true value, and that is what violated the terms of your leverage and allowed the call in the first place. Then imagine that it wasn't real property like a house whose value could be appraised, but a collection of intangibles such as a network of suppliers, or a hard-won customer list, or years of dependable performance, or a sterling reputation, or a nationwide business model that is difficult to replicate (hence the virtuous cycle of economies of scale methodically eliminating what little competition remains), that constituted your largest asset. Finally, imagine that you are up against a billion-dollar money-center bank that does this by computer every day to successfully dispute all of these allegations in court within a short period of time.
The analogy isn't exact but it is close, and if I'm a hedge fund sitting on a huge pile of cash and I see such a predictable and reliable business with such a deep moat, insane cash flow, apple-pie management, and ridiculously-dependable margins of 35-40 percent(!!) even in the depths of 1930's-type economic conditions (pent-up demand now anyone? Hurricane Sandy rebuilding?), I'm going to Wall Street them so fast and furious that the old-school 1980's LBOs and S&L/MBS crisis look like amateur hour in comparison. In fact, it would be unAmerican NOT to professionally optimize and preserve such a perfectly installed base that works so well and is effectively impossible to replicate.
Still, you think you will be allowed to participate? You think over $1.5 million to double -- then halve -- the public share price couldn't be a chump-change head-fake for reasons you can't figure? You think there is ANY desire to retain expensive, transparent, and hugely annoying public reporting requirements as opposed to a standard take-private strip-and-IPO?
Trinity Church already was 100 years old when the Buttonwood Agreement was signed, but Wall Street never has been associated with altruistic treatment of any kind. Charity begins and ends at the old church at the top of Wall Street; it is non-existent as you proceed down the hill.
The risk/reward IS large here, and that is retail's greatest danger and hope. Like a flea on an elephant or a mangy dog under the master's banquet table, public payoff on BK plays is completely dependent upon luck and annoyance since scraps generally are provided to current stockholders only if the amount is relatively insignificant and/or the effort to exclude retail is not worth pursuing. By their very nature, the vultures retail is up against in any BK must win every last scrap in order for their fight to be worthwhile; the easy value already was gone long before the BK filing. For recent proof and instruction look no further than RDDY and LNET; for full-on understanding Google Washington Mutual.
Don't misunderstand, I'm in at 17¢/share but at least I know this is a long-shot gamble where logic and fairness don't count at all.
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