Do Shares Always Go To Zero After Chapter 11 ?

ownyourfuture

ownyourfuture

Thinks s/he gets paid by the post
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Jun 18, 2013
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After the market close yesterday, I bought a substantial number of National CineMedia, Inc. (NCMI) shares @ $.20

Later last night they filed Chapter 11.
Shares are rallying on incredible volume today ?
0.6154+0.4093 (+198.5929%)
Volume is over 270 million.

I've only held shares in companies that filed chapter 11 twice. Charter/Spectrum & Frontier Communications. I sold my shares before that point, but eventually they both ended up going to zero & issuing new shares.

If I knew for sure shares will eventually go to zero, I'd take my quick profits & run. An update from Reuters has me wondering ?

"Despite a difficult advertising environment and a still-recovering box office, NCM is well-positioned within the ad delivery ecosystem, as theatrical attendance is beginning to meaningfully rebound," said Wedbush analyst Alicia Reese.

"Ultimately shares will rise as the company refocuses post-restructuring."

https://finance.yahoo.com/news/2-theater-advertiser-national-cinemedia-160053366.html
 
No, they don't. but it is a very hard thing to handicap the value.

You probably need to know a lot about the restructuring plan to want to stay, in my view.
 
I think it depends upon the new capital structure. Usually the bondholders take it all and the previous common shares are wiped out. Sometimes the previous common shares get some crumbs, maybe warrants at some high price that may be exercisable for a few years. I know of one case where the common equity kept only the proceeds from what looked like a longshot lawsuit that eventually paid out big.
 
It is very unusual for equity holders to receive anything in a Chapter 11. But large cases take a long time and the stock can trade during that period based on news, as you saw. If it were me, I'd just take the money and run.
 
I hope you sold, they are already going down in after-hours.

Unless you know why it went up, and believe there's solid reason for it to continue to go up, cash out as soon as you're happy you've made something.
 
Normally stocks go to zero after bankruptcy. However, in this crazy stock market casino, there are many examples such as Hertz that soared after their bankruptcy filing only to eventually fall back to earth. The market does not trade on fundamentals but supply and demand.
 
As the rest said, take the money and run. It may be a while before it settles out. Chap 11 is restructuring debt, so a lot of debtors can be left hanging with nothing. It is not complete liquidation, yet.........
 
Montecfo
You probably need to know a lot about the restructuring plan to want to stay, in my view.
Click to expand...

I just finished reading the companies press release.

CENTENNIAL, Colo.--(BUSINESS WIRE)--Apr. 11, 2023-- National CineMedia, LLC (NCM LLC or the Company), the largest cinema advertising network in the U.S., today announced a series of debt restructuring transactions that are expected to meaningfully strengthen the Company’s balance sheet and position the Company for long-term growth. National CineMedia, Inc., (NASDAQ: NCMI) (NCM Inc.), a non-filing entity, will remain the manager of NCM LLC.

To facilitate its debt restructuring, the Company has filed a voluntary Chapter 11 petition in the United States Bankruptcy Court for the Southern District of Texas and has entered into a comprehensive Restructuring Support Agreement (RSA) with the support of its secured lenders, through which all of the Company’s debt will be converted into equity of the reorganized Company. Under the RSA, NCM LLC will assume all of its critical contracts upon emergence, ensuring that the Company will maintain the largest national cinema advertising network.

“Our category-defining platform will continue to empower advertisers to reach our sought-after, young moviegoing audiences with scale and measurability. Today’s transactions will position us to deliver the strong results our advertisers and cinema partners have come to expect from us today and well into the future,” said Tom Lesinski, CEO of NCM Inc. “We are entering this process with the overwhelming support of our secured lenders and key stakeholders, which we expect will enable us to swiftly and responsibly emerge as a stronger company.”

The RSA provides a clear roadmap for NCM LLC to quickly emerge without disrupting its operations or customer relationships. Upon confirmation of the restructuring outlined in the RSA, all of NCM LLC’s funded debt would be converted into equity, completely de-levering the Company’s balance sheet. Additionally, NCM Inc.’s management and NCM LLC’s other existing governance structures would be maintained to ensure continuity of ongoing operations and performance. NCM Inc. will receive an ownership interest in the restructured company of approximately 14%. Further, unless an official creditors committee is formed, all holders of General Unsecured Claims will be paid in full in the ordinary course under the RSA.

I'm not very good at interpreting GAAP speak, but to me it sounds like what many of you already mentioned. Existing shareholders will be wiped out.




dunkelblau
Usually the bondholders take it all and the previous common shares are wiped out.
Click to expand...

That's my understanding as well. I could be wrong, but I think pump & dump day traders got involved today.
ADV around 5 million shares. Today, just under 370 million.
Many ‘new’ posters on the Yahoo message board. All insanely bullish.




Gumby
If it were me, I'd just take the money and run.
Click to expand...

No one knows what the future holds, but it sure looks like that would've been the right move. Shortly after I started this thread, I realized I had to leave immediately to get my Mom to a couple doctor appointments. Market was closed by the time I was done with that.
(I don't do trading on my smart phone)




Aerides
I hope you sold, they are already going down in after-hours.
Click to expand...

I wish I would've sold as well.
Hopefully the day traders pump it up again tomorrow, & I’ll get another chance :)

If I end up with nothing, it won't be that painful. Shares held = 0.19% of the account.




Freedom56
However, in this crazy stock market casino, there are many examples such as Hertz that soared after their bankruptcy filing only to eventually fall back to earth.
Click to expand...

Hertz was mentioned several times on the Yahoo message board today.




38Chevy454
As the rest said, take the money and run.
Click to expand...

Hoping I'll get another chance tomorrow.
 
I think the phrase you highlighted above implies that the reorganized company won't carry any debt because all of its predecessor's debt was converted into equity, but I believe this doesn't necessarily mean that it's 100% of the new equity. The second to last line of your clip "NCM Inc. will receive an ownership interest in the restructured company of approximately 14%." suggests to me that the current NCMI shareholders may get 14%? If this is true, then maybe the crumbs here are similar to what the old Credit Suisse shareholders got.

ownyourfuture said:
I just finished reading the companies press release.

CENTENNIAL, Colo.--(BUSINESS WIRE)--Apr. 11, 2023-- National CineMedia, LLC (NCM LLC or the Company),
...

Hoping I'll get another chance tomorrow.
Click to expand...
 
dunkelblau said:
The second to last line of your clip "NCM Inc. will receive an ownership interest in the restructured company of approximately 14%." suggests to me that the current NCMI shareholders may get 14%? If this is true, then maybe the crumbs here are similar to what the old Credit Suisse shareholders got.
Click to expand...

Thanks for pointing this out. Someone on the message board mentioned 14% earlier today, but I managed to miss that part of the clip & didn't understand what he meant.

Credit Suisse: Existing shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held. Unusually, the merger will not be subject to shareholder approval and is expected to complete by the end of 2023.
 
It is sad to see "apes" on Reddit buying BBBY and GME thinking these are wonder stocks. BBBY is fast on the way to BK and nothingness, they don't understand basic market fundamentals and reorgs. The meltdowns are very entertaining. :popcorn:
 
Aerides said:
I hope you sold, they are already going down in after-hours.
Click to expand...
Arrived too late to recommend this - and from experience.

In 2020 I bought beaten up stocks, 3 of which were tiny oil stocks. The lone survivor made up for the 2 bankruptcies, but my focus is on one of the bankruptcies. A day or two after the bankruptcy ... the stock started moving up. That had me really confused, since there's usually nothing left to pay shareholders after all the bondholders get paid.

The stock hit a plateau, and I sold. I had expected to lose 100% of my investment, but the buying helped me lose closer to 60%. I think naive, newer investors expected a possible recovery - unaware of how bankruptcy works.

It happened again in 2020, this time to a stock I didn't own: Hertz. After they declared bankruptcy, the stock rose. This time, I shorted the stock: I borrowed at a crazy interest rate (over 100%/year in borrowing costs) and sold a week later for a profit as the stock dropped. Same scenario - new investors gambling on a recovery that was never going to happen.

Rarely, bankruptcies pay pennies on the dollar to shareholders. But I think this "buying the bankruptcy" involves a belief in a full recovery, which simply doesn't happen. If you see a bump in stock price during bankruptcy, I'd sell then before the drop resumes.
 
I figured the thread was dead, but since there's been some new posts, I'll update everyone. I'm still holding the shares +74%
I'm just going to let it ride and see what happens as it's only 0.15% of portfolio value.
 
ownyourfuture said:
I figured the thread was dead, but since there's been some new posts, I'll update everyone. I'm still holding the shares +74%
I'm just going to let it ride and see what happens as it's only 0.15% of portfolio value.
Click to expand...

Never go to Vegas ;)

Since you bought on a whim, go back in time and ask yourself if making a few grand and being up 74% would be a good outcome? (my past self would say heck yeah). I'd still cash out and enjoy the small bounty. I do like to dabble in a few stocks in a very small number that's less than meaningful in my portfolio, but I don't let anything ride unless I think it's fundamentally a good business.

I've dipped in and out of a few things like your example, but I got out as soon as I was able to say "that's a nice little windfall" and walk away with it.
 
I bought some VORB, Richard Branson's space launch company a year or so ago. When they had the failed launch early this year the stock tanked and I bought a huge amount more. I did not invest more than I can afford to lose and in the scheme of things it was not my most expensive investment lesson.

They are now in bankruptcy. But I know that their approach and technology is of great interest to the US military based on my previous work in the area. So even though the stock is near zero now, I don't expect to be zero-ed out. If I am, no big deal but there are reasons to keep this technology out of bad hands and that has value. It's trading just under $0.08 a share. It's actually pretty tempting to buy 100,000 shares or so for a few thousand $ just on educated speculation that western governments will get someone to buy them just to keep the technology in hand. But I would really have to dig deep into their capital structure at this point before investing more.
 
It may be that a government sponsored buyer will emerge, but the usual course of events in that case is that the white knight pays off the creditors and takes all the new equity, cancelling the old equity.
 
SecondAttempt said:
I bought some VORB, Richard Branson's space launch company a year or so ago. When they had the failed launch early this year the stock tanked and I bought a huge amount more. I did not invest more than I can afford to lose and in the scheme of things it was not my most expensive investment lesson.

They are now in bankruptcy. But I know that their approach and technology is of great interest to the US military based on my previous work in the area. So even though the stock is near zero now, I don't expect to be zero-ed out. If I am, no big deal but there are reasons to keep this technology out of bad hands and that has value. It's trading just under $0.08 a share. It's actually pretty tempting to buy 100,000 shares or so for a few thousand $ just on educated speculation that western governments will get someone to buy them just to keep the technology in hand. But I would really have to dig deep into their capital structure at this point before investing more.
Click to expand...

Virgin Galactic Holdings, Inc. (SPCE) appears to be heading that way as well.
$3.58
Was as high as $46 back in June 2001.
 
My experience has been that eventually the "old" shares are eventually delisted from the exchanges and thus no longer publicly trade. I would have to dig into and research into when this typically happens to comment further.

-gauss
 
BBBY made it into the Pink Sheets. Apes are starting to realize the truth.
 
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