Any examples of a public company bouncing back from Chapter 11?
I invested in a public company that is now being traded on the pink sheets. This company is still in operation. Is there any chance that in a few years the stock price can come back off the pink sheets? Are there any examples of companies who have recovered from a chapter 11? If so, what happened to their stock price?
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Many companies have successfully emerged from bankruptcy protection (think the entire US airline industry, Delta, United, others). The problem is that debtors are first in line for assets in any type of bankruptcy reorganization. After the debtors have recovered their assets (often for pennies on the dollar), there is usually nothing left for the equity holders. Chances are, if the company who’s stock you own is able to emerge from bankruptcy, your stock will be voided out, and will be reissued to the bond holders and other debtors. In effect, the bond holders will become the new stock holders.
Worldcom/MCI in 2002
Southland/7-11 in 1990
Marvel in 1997
Toys R Us in 1974
Greyhound in 1990
Days Inn in 1991
Federated Dept. Stores/Macy’s in 1990
Marvel is a great example. Stock price hit a then-all-time low of $5.50/share in 1997, came out of the BK via a merger and continued to drop until 2001 ($1.50/share). Since then, it’s increased to a high of $35. Now trading at $28 and some change.
Yes, it’s happened in the past but it isn’t always the case. I hope you bought the stock when it was on the pink sheets so you haven’t suffered a big loss already. If you bought it cheap, you may just have found a gem.
I’m not aware that they actually filed for bankruptcy, but there is no doubt that Harley Davidson is the type of turn-around story that GM and Chrysler hope to imitate. In the 1980s they were on the verge of being forced out of business by superior quality and lower price Japanese imports. They were awarded government assistance in the form of temporary higher tariffs on imported motorcycles and staged an amazing turn-around that has made them the premier company in their industry. The government assistance would have failed if the company hadn’t changed, but it gave them the breathing room to survive while they restructured. As the following chart indicates, long term stock holders were handsomely rewarded. HOG went from a split-adjusted price of 33 cents per share at the end of 1987 to a peak of $75/share in 2006. It is currently trading around $19.
always cut your losses at 15%