chapter 11 & Stocks

[Sasha Jones]

Forgive me if this sounds like a stupid question to some but I was curious.

Is it possible to buy stocks for a company that has filed for chapter 11 protection from bankruptcy? Or does the trading get halted once it is filed?

 

[Teddybear]

it's a good question...

generally speaking, the trading of stocks for company's in big (read "public") financial trouble is halted long before they file for bankruptcy...

 

[Hepcat]

World.com was trading today. It actually rose in price from 9 cents to 14 cents U.S. per share! (Don't ask me why!)

 

[Teddybear]

the exceptions...

when a company files for bankruptcy protection, it also has to file a detailed action plan for dealing with it's debt issues (restructuring, new rounds of financing, etc.) If regulators for a stock exchange believe the plan is solid, and has the backing of the major investors (banks, etc) they may let trading continue. Others will kick a stock off the board if it falls below $1 per share.

 

[johnny]

the term stock people use for the explanation as to why world com would rise in price today is "a dead cat bounce". i guess it means the company is pretty much dead but it gets a bit of a bump up in price, which is usually short term, then dies.
it is very doubtful that a company recovers from chapter 11 but in worldcoms case it has a chance, government intervention may help.
i

 

[Sasha Jones]

That is what I figured johnny that is why I asked.
I have never really thought of buying stock before but at 9 cents a share you could pick up quite a few for a couple hundred bucks. If it goes back up, or they bailed out somehow I make a good chunk. If they sink, I only lose a couple hundred.

 

[sorely]

Until a plan of arrangement has been filed with the court, the shares can generally be traded. They are usually traded in a range of $.01-$.50 per share and will be extremely volatile reacting to any odd bits of news.

When a plan is filed the old equity is usually wiped out with the major creditors ( banks and bond holders) taking 90%-100% of the new equity.

If you are going to play in a Chapter 11 or CCAA(in Canada) market , use discretionary cash and get out before the plan is filed.

Big players often buy the debt of an insolvent company as it is more likely to survive the plan of arrangement. You can probably purchase WorldCom debt at a significant discount ( say $0.50-$0.60 on the dollar). Hopefully the ultimate plan will give you a gain in new debt and equity. Unfortunately this is a game for parties willing to invest 10's of millions of dollars as a minimum, unless you invest through some junk bond funds.

 

[prodigal]

sigh...

My financial advisor took 10K of his own money and bought worldcom at 9 cents after the scandal, and sold at 20 cents about 10 days ago.

then he took his now 20 k, but 10K away, and put the first 10 back in at 9 cents monday open.

fuck.

 

[johnny]

sasha the reason worldcom and other bankrupt stocks get a bounce upwards is exactly because of the way you are thinking now. The stock used to be $100 plus, it is only .10 now if it ever went up to that level again i would be rich, if it doesnt i only lose a couple hundred. My advice, dont live in the past look to the future. do not buy a company whos fortunes are going down look for one that is on the way up.
my thinking on worldcom is, i would have a better time at the casino, and have the same chance striking it rich.

 

[Master Muse]

chapter 11 and stocks

Does that financial advisor pay taxes on his gains or is it Ken Lay? Seems to me there were commissions to pay too. Just wondering ....


Muse