how common is it that unsecured bondholders get equity in the new company? Is it highly probably from past occurences? also, is it usually a 1:1 where each dollar owed is equal to dollar in equity of the new company?
That decision is handled through creditor committee. Most vulture investors build significant stake to be on creditor committee influence the allocation decision. At what price is the new equity issued matters and what happens after it comes out of bankruptcy decides return.
Unless you want to burn money, you should not try this as small investor. Smaller players are at a disadvantage here: The value of the bonds depends not only on their seniority but also on which creditors end up controlling the reorganization. Better invest in a mutual fund that practices vulture investing. Even better invest in stocks of companies which come out of bankruptcy.
Quote from mahram: Ok delphi debt was trading at the high 70 and 80's on wednesday, thursday, and even low 70's on friday close. I know alot of hedgefunds were betting that delphi would get a deal. They were spouting GM cant afford a 6 billion dollar hit and so on. The government wont allow it. It would hurt the entire industry. And from the bond prices, which is almost unprecedented were predicting a deal,before the bankruptcy filing. By next week, delph debt will be trading pennies on the dollar. So heres my question, are bond traders dump or just stupid. You have SAC capital buying up debt in Northwest airlines and Delta, saying they wouldnt go bankrupt. You had George Soros buying up United debt before they went bankrupt, thinking they wouldnt. And now you have all of these suppovily ivy league ,high tech, top notch funds all going delphi wouldnt declare bankruptcy by buying up its debt. And no BS, why dont you have their type of money, delphi debt was trading at 70-85 cents on the dollar. And alot of funds and traders are obviously going to get hit big time. So why are bondholders consider so smart, when they were the ones who got the most blindsided Dude, stop embarrassing yourself. You know shit about hedge funds. "pound the round" - instead of insulting the person, dissect his statement and give out some useful information
As someone pointed out the bonds are off 10% for the near term and only 2.5% for the long term bonds -- IB quotes. My answer to the initial question is that the BK has been priced in already. What is up in the air is what the value of the bonds will be when DPH emerges. Having dealt with the GM finance folks -- through the DTV unit -- before, I wouldn't be looking for any favors...
Ugh, I hate to do this, but maybe this will circumvent the same idiots who think that all hedge funds take the same trade. "Say Wilbur, didja hear 'bout doze hedge funds who bought dat Delphi debt?" "Really? All 6,378 of them? Well, howzabout dat! Dayum, are dey all'za gonna blow up?" Hedge funds trade. A trader takes the other side of the other trader's trade. You can figure it out from there, moron.
Exactly. Bond holders want to be the first in line to get the assets. They can short common outright or use a different type of strategy and buy bonds with entitlements.