Yes, you are right about preferreds and commons being cancelled...it is their interests that are now preserved in the trust, which is why Lehman can still claim to have their old cold shareholders (only through the liquidation phase) in order to maximize a return to creditors through sale of assets. There is a 2 year window in which a company is allowed to have an ownership change. When the new company is ready to emerge, they will not need these (OBS) shareholders to adhere to the old cold rule. They can still however, use old cold debt (debt does not have the same ownership rules under IRS). CT's are a hybrid of old cold debt/equity. Plus...CT's have a non discharge/successor obligor clause. The OBS can be dissolved/discharged...CT's can not (unless Lehman does not emerge with a going concern successor. The new company will preserve as much NOL as possible while issuing new shares along debt, combatting COD with whatever market value the company may have. Here is an example....when Lehman was going to IPO Archstone, they were going to issue shares of Archstone to who? A: Debt or B: Equity (the answer is A). This is where common sense prevails....if most bankruptcies operate under the way you are describing, more cases would be seeing equity shareholders walk out as the big winners. It is obvious that most of the time creditors do and that is not the case....thus why I bought CT's.
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