Why do common stock shares of a company end up worthless before emerging from bankruptcy?
I bought some shares of delta airlines Airlines about a year ago, and have watched the price rise about 80%. I was planning on holding onto the shares until before delta airlines emerges from bankruptcy sometime next year. However, I read an article today stating that common shares of a banrupt company typically end up being worthless before coming out of bankruptcy. Now I am thinking that I should sell. What should I do?
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March 7th, 2010 at 7:03 pm
When a company becomes insolvent, the liabilities exceed the assets. A trustee oversees the bankruptcy, and this is what follows:
Senior bondholders get paid first, then subordinate bondholders, then preferred shareholders and then the last class of investors are the common stock share holders.
Usually, by the time all the remaining assets are liquidated, there is nothing left to pay the common share holder.
March 7th, 2010 at 7:03 pm
that’s right, after bankruptcy you might make money if you sold them as toilet paper…
why? b/c during bankruptcy the company’s debt holders are going to want their money – after the company files it gets protection – so now noone wants to invest in such a risky company, which means that their stock will be worthless – and remember that the stockholders are the LAST people in line to get their money if the company liquidates
March 7th, 2010 at 7:03 pm
I held a few companies into bankruptcy. One company I held and sold at .36cents was mirant. I continued to follow the stock and sometime later the stock price started to rise. When they came out of bankruptcy they did some kind of reverse split with the shares out. Some of the shareholders made out who bought low before BK.
Everything else I followed or sold dispeared into nothing.