Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11?

From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11?
Date: Sun, 28 Jul 2002 21:23:50 -0400

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The typical scenario is that a new corp is created, in which ownership is by
the secured creditors of the old corp, and possibly a partial ownership by
the unsecured creditors. Rarely do the common stock shareholders get any
ownership in the new corp. The assets are transferred to the new corp,
remaining debts are left with the old. The secured creditors swap their
claim on assets of the old corp for ownership in the new corp.

Net result, shareholders are left with shares in a shell corp, owning only
debt and no assets.

That is the worst case scenario for a shareholder. Worldcom claims its in
better shape, with more assets than debt. But I hear reports that it cannot
service its debt, due the slowdown in business. Thus it will have to
restructure its debt somehow, even where there is a positive assets to debt
condition. This would still be a possible scenario to reduce its debt, but
could also be achieved by secured creditors accepting a swap into reduced
debt plus shares in the existing corp. This still would dilute ownership,
and potential future earnings per share (if there are any). Some unsecured
debt might get settled by the bankruptcy estate court for pennies on the
dollar.

- ----- Original Message -----
From: "Warren Keuffel" <wkeuffel@xmission.com>
To: <canslim@lists.xmission.com>
Sent: Sunday, July 28, 2002 8:56 PM
Subject: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11?


Just a question since I am curious what happens to the investors who are
in companies like WCOM (not me, thankfully!)

If WCOM goes into Chapter 11 and eventually turns around, the
shareholders will see the price of their shares go up -- eventually. Right?

If WCOM is acquired, what happens to its shareholders?

I guess what I am wondering is why the bottom fishers aren't bidding up
WCOM. Is there too much risk that shareholder value will totally disappear?

Thanks,
Warren


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