what the heck does it mean when a corp. declares bankruptcy?!!!!

[joecool]

ok, i'm not a dumb guy, but this whole corporate bankruptcy deal has me confused. when a corp. goes bankrupt they don't go out of business, their stock actually maintains some value (albeit low!), and they can actually "emerge" (whatever the hell that means) from bankruptcy in much better shape than when they entered it - less a lot of debt and bad business, a potential lean-mean corporate machine. it seems to me the only losers are the debt holders, who seem to get royally screwed (do they get anything?)!

surely these corporate dead-beats must pay some penalty for their misdeeds? someone, please explain this miracle of accounting mumbo-jumbo to me!

thanks,

joe

 

[Pliablemoose]

Try here: SEC

 

[PsychoAndy]

bankruptcy is a vague term. chapter 11 is seeking bankruptcy protection. they cant pay their debts, and the court protects them and their assets from their creditors. they can establish a program and a schedule to pay down the debt. chapter 7 IIRC is complete and utter liquidation of all assets to satisfy creditors.

worldcom still has assets. their books are just murky. i dont know if they have the ability to still pay back the several billion in junk they floated, but obviously, they dont. so they file ch 11, restructure and come out clean several years later.

i'm thinking of buying a thousand shares in the morning.

 

[Skawttey]

There are different types of bankruptcy, chapter 11 and chapter 7. Under chapter 7, the company just ends and goes out of business. This is not the more popular choice. Most companies use chapter 11 which gives them a chance to get out of trouble. Under chapter 11 the bankruptcy department of the department of justice will appoint committees to represent the stock holders and creditors. With these committees, the company will try to work out a plan to get themselves out of debt. After the company and the committees come to an agreement on a plan to reorganize, the plan is submitted to the SEC for approval.

As far as the stocks go, it depends on what the committees agree on. sometimes the stockholders get shares of the reorganized company's stock and sometimes they get nothing.

 

[danzig]

It means a lot of people get sh!t upon . Especially the little people (non secured creditors) . My small company has been on the end of several bankruptcies and have never received more than 22% of what was owed to us . It's a convienient way for people to dodge their responsibilities to the people they owe . D@mn liberal bankruptcy lawyers !

 

[XZeroII]

Basically, a corporation is an Individual under law. When you declare bankruptsy, you are still around and such and so is a corporation. Just follow the same rules and principles and 90% of your questions will be answered. The other 10%, I have no clue about.

 

[GasX]

simple explanation:

A legal mechanism to allow your business to exist when your debts become overwhelming essentially by getting rid of them. The flipside is that your credit is torpedoed and moving forward you have little or no access to credit.

keep in mind that simple things like ordering from suppliers would then mean paying in advance...

 

[joecool]

ok, this has answered SOME of my questions, but i'm still not getting one thing - what happens to the creditors? do they get anything? if so, how much? and why would they buy into this? shouldn't they OWN the company when all is said and done? and how can the stock still exist? again, seems like the creditors should get the company to compensate them for their losses, so the stock should be shut down to issue new shares to the creditors.

anybody?

 

[BD2003]

So technically, if I decided to drop about $50 into worldcom shares right now and come out with about 500 shares, in a few years they might be worth something? What are the chances that a company comes out of chapter 11 alright?

 

[geekender]

So technically, if I decided to drop about $50 into worldcom shares right now and come out with about 500 shares, in a few years they might be worth something? What are the chances that a company comes out of chapter 11 alright?

Doesn't the bankruptcy absolve them of that debt?

 

[Skawttey]

Originally posted by: BD2003
So technically, if I decided to drop about $50 into worldcom shares right now and come out with about 500 shares, in a few years they might be worth something? What are the chances that a company comes out of chapter 11 alright?

I bought 200 shares of enron when it was about $.69. It is now sitting at about $.09. If they ever recover though, i will have a lot of money. If not, i am out about $140.

 

[BD2003]

.69 is one thing, but at .09, its an almost negligible investment with some hardcore potential. Whats the easiest way to just snap up a few shares? I know practically nothing about buying and selling stock.

 

[geekender]

If the company is reorganized and the repay all debts, then your stock will go up. If they liquidate, you lose all your money. It will depend on how the company does the bankruptcy.

 

[Miramonti]

Originally posted by: BD2003
.69 is one thing, but at .09, its an almost negligible investment with some hardcore potential. Whats the easiest way to just snap up a few shares? I know practically nothing about buying and selling stock.

Worlcom will be languishing for quite a while because bankruptcy is no quick fix, so you will probably even get it cheaper if you wait. I thought the same thing when Sunbeam filed for bankruptcy.

 

[BD2003]

Well, I dont expect to have it go up anytime soon, if I invested $10, that would get me 100 shares. If it goes up to $5 in 3 years, thats a 500% return. If it never goes up, ah, its only $10. Whats the quickest and easiest way to snatch up a few shares? Or do I have to set up an account with thousands of dollars minumum before I can buy anything?

 

[Viper GTS]

Originally posted by: BD2003
Well, I dont expect to have it go up anytime soon, if I invested $10, that would get me 100 shares. If it goes up to $5 in 3 years, thats a 500% return. If it never goes up, ah, its only $10. Whats the quickest and easiest way to snatch up a few shares? Or do I have to set up an account with thousands of dollars minumum before I can buy anything?

I just opened a Datek account, I'll send them a money order for $200 in the next couple weeks. I'm thinking 1,000+ shares, every penny it goes up I'll have made $10+.

Viper GTS

 

[Miramonti]

Originally posted by: Viper GTS

Originally posted by: BD2003 Well, I dont expect to have it go up anytime soon, if I invested $10, that would get me 100 shares. If it goes up to $5 in 3 years, thats a 500% return. If it never goes up, ah, its only $10. Whats the quickest and easiest way to snatch up a few shares? Or do I have to set up an account with thousands of dollars minumum before I can buy anything?

I just opened a Datek account, I'll send them a money order for $200 in the next couple weeks. I'm thinking 1,000+ shares, every penny it goes up I'll have made $10+. Viper GTS

Datek is excellent. Its not a bad crapshoot too because they have so much in assets and current business revenue, so they will probably fair much better than all of the other recent communications bankruptcies.

 

[BD2003]

Originally posted by: jjsole

Originally posted by: Viper GTS

Originally posted by: BD2003 Well, I dont expect to have it go up anytime soon, if I invested $10, that would get me 100 shares. If it goes up to $5 in 3 years, thats a 500% return. If it never goes up, ah, its only $10. Whats the quickest and easiest way to snatch up a few shares? Or do I have to set up an account with thousands of dollars minumum before I can buy anything?

I just opened a Datek account, I'll send them a money order for $200 in the next couple weeks. I'm thinking 1,000+ shares, every penny it goes up I'll have made $10+. Viper GTS

Datek is excellent. Its not a bad crapshoot too because they have so much in assets and current business revenue, so they will probably fair much better than all of the other recent communications bankruptcies.

Exactly what I was thinking.

 

[rahvin]

Originally posted by: joecool
ok, this has answered SOME of my questions, but i'm still not getting one thing - what happens to the creditors? do they get anything? if so, how much? and why would they buy into this? shouldn't they OWN the company when all is said and done? and how can the stock still exist? again, seems like the creditors should get the company to compensate them for their losses, so the stock should be shut down to issue new shares to the creditors.

anybody?

There are three types of credit. Secured credit, where the person loaning the money actually lays claim to specific assets as part of the agreement to loan the money. There is DIP (Debtor in possession) in which the lender actually takes ownership of the asset and the company continues to manage it while it pays the lender back. And finally there is unsecured credit, where the lender has no guarantee of being paid back. Most debt is unsecured.

Let me give you an example, Company A has 1 billion dollars in unsecured debt with various lenders. Company A declares bankuptcy and asks for protection of the court. The court grants protection from creditors and then holds negotiations on the best method to resolve that debt. For example, company A could offer to pay .10cents on the dollar for the debt + shares in the new company. If accepted by the creditors they would immediately get 100 million in cash for the 1 billion they loaned + some stock in the newly reorganized company.

Now you will ask why would a creditor ever agree to that? Because in most cases if the debtors don't take what they can get upfront they may get nothing. The scenario I listed is esentially what Covad did. Because other DSL providers Rythms, etc had gone out of business and their assets had sold for less than 1/10 the value of the debt the lenders ended up with far less than the what the offer from Covad got them. With Covad still around the lenders have the opportunity as stock holders to try to recover some of their losses on the lending.

It sucks, the unsecured creditors get screwed but it's their job to make sure the company managers aren't smoking something just as it's the stockholders job and they usually end up getting the shaft as well (in Covad's case there was a 30% stock dillution as a result of the bankruptcy).

 

[smp]

So how do you buy shares? Do you need a broker or something? An account? What's a portfolio? Where do I send my paypal?

 

[joecool]

thanks for the explanation, rahvin. seems it's only fair the the shareholders get hit like the lenders do, otherwise, any company can just go chapter 11 and then emerge with no debt, the same business model, & their stock will soon return to its original levels.

 

[dawks]

One of Worldcoms advantages is the massive value of the huge fiber network they own.. UUnet is no small chunk of change.. Could they sell it off to make back some of their debt? Would they want to?