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When a firm files for bankruptcy protection (which Enron has) the old equity - which is that currently listed - usually becomes worthless as the equity-holders take the biggest haircut since their claims are unsecured and residual to those of all of the debt-holders. In this situation, it's likely that the total debt exceeds total assets so there will literally be nothing to distribute to the stockholders. Practically though, what usually happens is that the stock will either get reissued or go through a reverse split (like 100:1 or 1000:1) so for every thousand shares of the old stock you will get one new share. Let's say you buy 30,000 shares of the current stock, you could end up with 30 shares of newly issued enron stock. Also, keep in mind that liquidity will be a problem as most bankrupt companies don't have active trading in their stock. To add to the heartache, I believe Enron stock was already delisted so expect to pay not only larger trading costs but the hidden transaction costs (vis-a-vis the bid-ask spread) will be much larger than for a listed stock. If you're serious about taking a position, do the valuation and see if they have any convertibles outstanding because then you at least have the cushion of a more senior position and you can convert the debt to equity if the stock goes up.
 sorry. I'm not a smurf pimp any more. (n/m) - sbsTT(MD) 00:00:18 02/07/02
preluber. or postluber. - ni[X]it 22:03:35 01/03/02 |
