From: owner-canslim-digest@lists.xmission.com (canslim-digest) To: canslim-digest@lists.xmission.com Subject: canslim-digest V2 #2672 Reply-To: canslim Sender: owner-canslim-digest@lists.xmission.com Errors-To: owner-canslim-digest@lists.xmission.com Precedence: bulk Content-Transfer-Encoding: quoted-printable X-No-Archive: yes canslim-digest Sunday, July 28 2002 Volume 02 : Number 2672 In this issue: Re: [CANSLIM] Health of the small cap growth sector [CANSLIM] WON on CNBC [CANSLIM] Quote Tracker Re: [CANSLIM] WON on CNBC [CANSLIM] as if we needed more to worry about!! Re: [CANSLIM] as if we needed more to worry about!! [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? [CANSLIM] remain in cash for now (was: Health of the small cap growth sector) Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? ---------------------------------------------------------------------- Date: Sun, 28 Jul 2002 14:21:49 -0400 From: "Donald Wallker" Subject: Re: [CANSLIM] Health of the small cap growth sector I guess I misread you. I thought you believed that the market was starting to get better.and would bottom out and turn around that way. Thus the bear market would probably not come to a screeching halt.and turn around in a couple of days. -And with that thought in mind I thought you had made a projection about reaching a bottom.- Sorry to have misread you. Donald - --- Original Message ----- From: "Tom Worley" To: Sent: Sunday, July 28, 2002 1:08 PM Subject: Re: [CANSLIM] Health of the small cap growth sector > Donald, I made no projection about reaching the bottom, just expressed my > opinion that when we get there it will not be clearly marked by one or two > days of capitulation. > > ----- Original Message ----- > From: "Donald Wallker" > To: > Sent: Sunday, July 28, 2002 12:32 PM > Subject: Re: [CANSLIM] Health of the small cap growth sector > > > Tom ---I hope your projection about reching the bottom of the downturn comes > to pass in the near future. I personally believe that the market is caught > in a viscious downturn cycle. And that one of the big drivers is frightened > investors withdrawing their money from Mutual Funds. Since such > withdrawals are forcing the Mutual Funds to sell out of their positions in > order to cover their redemption payment needs, they , paint an very > untruthful picture of the health of the individual stocks. Moreover,since > the redemption needs of the Funds are massive, they tend to drive the market > to new lows that further frighten investors and cause them to withdraw more > money from the market --and so on. > ----- Original Message ----- > From: "Tom Worley" > To: "CANSLIM" > Sent: Sunday, July 28, 2002 10:15 AM > Subject: [CANSLIM] Health of the small cap growth sector > > > With some time on my hands this weekend and so few stocks worth looking > at, > > I decided to expand my normal review of stocks in my VR (Virtual Reality) > > Fund. Since we are well into the quarterly earnings reporting, I wanted to > > assess which ones had reported, and the quality and direction of the > > results, more than looking at how the chart looked. Basically, a drop back > > to more emphasis on fundamentals. I used my VR Fund rather than what I > own, > > or indexes, as it gave me a broader review of stocks with expected strong > > growth. > > > > In all, I was looking at 42 different stocks, mostly under $500 million > > market capitalization. Most I already hold in the Fund, several of which > > have not yet been purchased but are being monitored, or I missed an > initial > > entry point and am waiting to see if I can find an appropriate (tho > higher) > > entry. > > > > Of the 42, 18 have reported for the period ending 6/30/02, and of these 14 > > were up year over year, and most were also up sequentially. Three were > down > > either sequentially or year over year, or both. One was flat sequentially, > > but still up strong year over year. Of the remainder, 19 have yet to > report, > > and the remaining 5 are on a non-standard fiscal year with the quarter > > ending other than 6/30/02. > > > > Of the 19 yet to report, I sold one last week (naturally it immediately > > spiked 35%) for a loss, and dropped another from watching because of its > > fall in the past week. Very few of the 42 have good charts right now, > altho > > several were forming long consolidation patterns. I am encouraged, > however, > > with the earnings results, and continue to believe that fundamentals will > > win out in the long term. I suspect a similar review of mid cap, and > higher > > priced, stocks would show similar results. > > > > "M" is clearly still saying to remain in cash for now. CANSLIM says to > take > > this time to find the future leaders, and be ready for when they emerge > into > > a more favorable market. This review confirmed my belief that, at least in > > the small cap growth sector, earnings are improving, fundamentals are > > intact, and in time "M" will begin to reflect this. Although the market > did > > look healthier last week, there is still not conclusive evidence that a > > bottom has been reached. More and more, though, it is looking to me like > > this will be a bottom reached without screaming evidence of capitulation. > > > > Good luck to all, > > > > Tom Worley > > stkguru@bellsouth.net > > AIM: TexWorley > > > > > > > > - > > -To subscribe/unsubscribe, email "majordomo@xmission.com" > > -In the email body, write "subscribe canslim" or > > -"unsubscribe canslim". Do not use quotes in your email. > > - > -To subscribe/unsubscribe, email "majordomo@xmission.com" > -In the email body, write "subscribe canslim" or > -"unsubscribe canslim". Do not use quotes in your email. > > > > > - > -To subscribe/unsubscribe, email "majordomo@xmission.com" > -In the email body, write "subscribe canslim" or > -"unsubscribe canslim". Do not use quotes in your email. - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 16:03:26 -0400 From: "Chuck Dreier" Subject: [CANSLIM] WON on CNBC This is a multi-part message in MIME format. - ------=_NextPart_000_0005_01C23650.4E8ECC20 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable WON is supposed to be a guest on CNBC tomorrow night at 8pm, est. It'll = be interesting to get his views. - ------=_NextPart_000_0005_01C23650.4E8ECC20 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
WON is supposed to be a guest on CNBC = tomorrow=20 night at 8pm, est.  It'll be interesting to get his=20 views.
- ------=_NextPart_000_0005_01C23650.4E8ECC20-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 16:55:04 -0400 From: "Donald Wallker" Subject: [CANSLIM] Quote Tracker This is a multi-part message in MIME format. - ------=_NextPart_000_0007_01C23657.852B0940 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Katherine- - Thank you very much for your input, by following it I = managed to download the Quote Tracker Software. Unfortunately ,I didnt = get it until it was sent to me by e-mail and then updated by me from the = Web. Moreover, I was able to hook it up to Scottrade, with the result = that the whole exercise didn't cost a dime out of pocket. Imagime = streaming quotes for free. It's like sitting in a brokerage office with = the added advantage of avoiding looking at information concerning = anything outside of your own portfolio...To be honest , it is temptimg = to trade through Scotttrade to get my portfolio and the ability to trade = on a single screen or on no more than 2 screens from the same source. = again - - thank you for your help----Donald - ------=_NextPart_000_0007_01C23657.852B0940 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
Katherine- - Thank you very much for = your input, by=20 following it I managed to download the Quote Tracker Software. =20 Unfortunately ,I didnt get it until it was sent to me by e-mail and then = updated=20 by me from the Web.  Moreover, I was able to hook it up to = Scottrade, with=20 the result that the whole exercise didn't cost a dime out of = pocket. =20 Imagime streaming quotes for free.  It's like sitting in a = brokerage office=20 with the added advantage of avoiding looking at information concerning = anything=20 outside of your own portfolio...To be honest , it is temptimg to trade = through=20 Scotttrade to get my portfolio and the ability to trade on a single = screen or on=20 no more than 2 screens from the same source.   again - - thank = you for=20 your help----Donald
- ------=_NextPart_000_0007_01C23657.852B0940-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 16:39:47 -0400 From: "Donald Wallker" Subject: Re: [CANSLIM] WON on CNBC This is a multi-part message in MIME format. - ------=_NextPart_000_000F_01C23655.62612950 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Chuck - - Thanks for the heads-up. I'd forgotten, athough I'd read = iyour message a couple of days ago. - - Donald=20 ----- Original Message -----=20 From: Chuck Dreier=20 To: Canslim=20 Sent: Sunday, July 28, 2002 4:03 PM Subject: [CANSLIM] WON on CNBC WON is supposed to be a guest on CNBC tomorrow night at 8pm, est. = It'll be interesting to get his views. - ------=_NextPart_000_000F_01C23655.62612950 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
Chuck  - - Thanks for the = heads-up.  I'd=20 forgotten, athough I'd read iyour message a couple of days ago. - - = Donald=20
----- Original Message -----
From:=20 Chuck=20 Dreier
To: Canslim
Sent: Sunday, July 28, 2002 = 4:03 PM
Subject: [CANSLIM] WON on = CNBC

WON is supposed to be a guest on CNBC = tomorrow=20 night at 8pm, est.  It'll be interesting to get his=20 views.
- ------=_NextPart_000_000F_01C23655.62612950-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 18:09:43 -0400 From: "Tom Worley" Subject: [CANSLIM] as if we needed more to worry about!! http://biz.yahoo.com/ft/020728/1027694123937_1.html Tom Worley stkguru@bellsouth.net AIM: TexWorley - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 16:58:52 -0700 (PDT) From: Kent Norman Subject: Re: [CANSLIM] as if we needed more to worry about!! Yes, the 4th and 7th paragraphs are interesting. Break ou the shor sellers again... Thenks Tom Kent Normna - --- Tom Worley wrote: > http://biz.yahoo.com/ft/020728/1027694123937_1.html > > Tom Worley > stkguru@bellsouth.net > AIM: TexWorley > > > > - > -To subscribe/unsubscribe, email "majordomo@xmission.com" > -In the email body, write "subscribe canslim" or > -"unsubscribe canslim". Do not use quotes in your email. ===== Opportunities always look bigger going than coming. __________________________________________________ Do You Yahoo!? Yahoo! Health - Feel better, live better http://health.yahoo.com - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 18:56:29 -0600 From: Warren Keuffel Subject: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? Just a question since I am curious what happens to the investors who are in companies like WCOM (not me, thankfully!) If WCOM goes into Chapter 11 and eventually turns around, the shareholders will see the price of their shares go up -- eventually. Right? If WCOM is acquired, what happens to its shareholders? I guess what I am wondering is why the bottom fishers aren't bidding up WCOM. Is there too much risk that shareholder value will totally disappear? Thanks, Warren - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 21:23:50 -0400 From: "Tom Worley" Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? The typical scenario is that a new corp is created, in which ownership is by the secured creditors of the old corp, and possibly a partial ownership by the unsecured creditors. Rarely do the common stock shareholders get any ownership in the new corp. The assets are transferred to the new corp, remaining debts are left with the old. The secured creditors swap their claim on assets of the old corp for ownership in the new corp. Net result, shareholders are left with shares in a shell corp, owning only debt and no assets. That is the worst case scenario for a shareholder. Worldcom claims its in better shape, with more assets than debt. But I hear reports that it cannot service its debt, due the slowdown in business. Thus it will have to restructure its debt somehow, even where there is a positive assets to debt condition. This would still be a possible scenario to reduce its debt, but could also be achieved by secured creditors accepting a swap into reduced debt plus shares in the existing corp. This still would dilute ownership, and potential future earnings per share (if there are any). Some unsecured debt might get settled by the bankruptcy estate court for pennies on the dollar. - ----- Original Message ----- From: "Warren Keuffel" To: Sent: Sunday, July 28, 2002 8:56 PM Subject: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? Just a question since I am curious what happens to the investors who are in companies like WCOM (not me, thankfully!) If WCOM goes into Chapter 11 and eventually turns around, the shareholders will see the price of their shares go up -- eventually. Right? If WCOM is acquired, what happens to its shareholders? I guess what I am wondering is why the bottom fishers aren't bidding up WCOM. Is there too much risk that shareholder value will totally disappear? Thanks, Warren - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 21:53:07 -0400 From: Hermann Ertl Subject: [CANSLIM] remain in cash for now (was: Health of the small cap growth sector) > From: "Tom Worley" > Date: Sun, 28 Jul 2002 10:15:47 -0400 > snip > > "M" is clearly still saying to remain in cash for now. Maybe it's time to change: > Posted by: George Cole > In reply to: None Date:7/24/2002 9:50:19 AM > > CROSSCURRENTS -- a site that has been deadly accurate on this > bear for a long time -- now says its 2002 downside targets > have been reached. > > http://www.cross-currents.net/ - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 22:18:49 EDT From: Spencer48@aol.com Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? Tom: Does this mean that any bankrupt company that forms itself into a new entity (perhaps by changing its name) can avoid its obligation to its common shareholders because now the old shareholders are owners of a bankrupt company? So the newly formed company can once again sell shares in the new company (while legally ignoring its fiduciary obligations (for instance, paying the old shareholders from any company assets left over after the secured creditors and preferred shareholders are paid) the shareholders of its old company? Isn't this (don't you think) like a legally sanctioned Ponzi scheme-ie, the corporation big-boys are legally benefitting from running the company into the ground? jans In a message dated 7/28/2002 9:24:55 PM Eastern Daylight Time, stkguru@bellsouth.net writes: << The typical scenario is that a new corp is created, in which ownership is by the secured creditors of the old corp, and possibly a partial ownership by the unsecured creditors. Rarely do the common stock shareholders get any ownership in the new corp. The assets are transferred to the new corp, remaining debts are left with the old. The secured creditors swap their claim on assets of the old corp for ownership in the new corp. Net result, shareholders are left with shares in a shell corp, owning only debt and no assets>> - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 22:44:12 -0400 From: "Tom Worley" Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? jans, first, a corp has very little obligation to its common stock shareholders. Not only are they unsecured, but they come in virtually last in the line of "creditors", certainly behind any unsecured creditors that loaned money to the corp. In theory, if there are enough real assets to liquidate and pay off both the secured and unsecured creditors, they there might be some cash to pay to common stock shareholders, just doesn't work out that way usually. Asset sale when you are in bankruptcy is a "fire sale", usually doesn't get full value. - ----- Original Message ----- From: To: Sent: Sunday, July 28, 2002 10:18 PM Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? Tom: Does this mean that any bankrupt company that forms itself into a new entity (perhaps by changing its name) can avoid its obligation to its common shareholders because now the old shareholders are owners of a bankrupt company? So the newly formed company can once again sell shares in the new company (while legally ignoring its fiduciary obligations (for instance, paying the old shareholders from any company assets left over after the secured creditors and preferred shareholders are paid) the shareholders of its old company? Isn't this (don't you think) like a legally sanctioned Ponzi scheme-ie, the corporation big-boys are legally benefitting from running the company into the ground? jans In a message dated 7/28/2002 9:24:55 PM Eastern Daylight Time, stkguru@bellsouth.net writes: << The typical scenario is that a new corp is created, in which ownership is by the secured creditors of the old corp, and possibly a partial ownership by the unsecured creditors. Rarely do the common stock shareholders get any ownership in the new corp. The assets are transferred to the new corp, remaining debts are left with the old. The secured creditors swap their claim on assets of the old corp for ownership in the new corp. Net result, shareholders are left with shares in a shell corp, owning only debt and no assets>> - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Sun, 28 Jul 2002 23:37:25 -0500 From: "Katherine Malm" Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? This is a multi-part message in MIME format. - ------=_NextPart_000_0062_01C2368F.BAB14C40 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable jans, You've hit on a subject that is extraordinarily important to the = investor in individual equities. The key point to remember about a = common stock is that the shareholders have what is referred to as = "residual ownership." That is, if and only if there is anything left = over when everybody else has been paid off will they get a piece of the = pie. That's why you can own shares that have $0 value. On another = investing board, a member was telling everybody how he'd made the = "perfect low risk investment" in...tadah...WCOM. Said his downside risk = was only the $125 he had in the stock, as he'd picked it up at a bargain = price of $.11. Said his upside potential was a return of $18,000. He = added that "WCOM wasn't going away" and went on for 3 paragraphs about = all their assets. I mentioned the issue of residual ownership and tried = to explain what that meant to a bankrupt company and to the existing = common shareholders, and he *still* didn't get that the likelihood of = losing 100% of his $125 was nearly 100%. Unbelievable. Anyway, as = always, Briefing.com has written some excellent articles on the subject = and this one gives a great overview of the pecking order of payoff under = bankruptcy. As you can see, common stockholders fall to the bottom of = the heap. - -Katherine =3D=3D=3D=3D=3D=3D (apologies to those who don't have HTML capable email programs, but this = is just much easier to cut & paste from the site) Bankruptcy and The Risk of Common Stock=20 27-Nov-01 09:37 ET=20 =20 [BRIEFING.COM - Robert V. Green] For those investors holding = stocks of companies headed into or already in bankruptcy, an = understanding of how bankruptcy works is essential. For all holders of = common stock, it is important to know that you are the "last in line" = when it comes to bankruptcy proceedings. Here's how it works.=20 Declaring Bankruptcy Bankruptcy becomes an option when a company realizes that it = cannot pay all of its obligations from a combination of cash flow and = cash reserves. The bankruptcy option allows a company to suspend and = restructure existing obligations to allow the company to either continue = operations or dissolve.=20 Bankruptcy proceedings are defined by federal law for publicly = traded companies. Management of the company declares bankruptcy by = filing a petition in Federal court.=20 Generally, the time sequence to enter bankruptcy follows these = basic steps: a.. Company realizes it has financial problems that cannot be = addressed through normal business operations.=20 b.. Company files Chapter 11 or Chapter 7 bankruptcy petition=20 c.. Chapter 7 is giving up: The company ceases operations, = sometimes immediately, liquidates (sells) everything and distribute = proceeds to the claimants.=20 d.. Chapter 11 is reorganization: The company continues = operations, but stops paying all debt interest and dividends, and = restructures the debt and equity of the company to an "equitable" new = level.=20 e.. The court approves the bankruptcy petition and the company = officially is in bankruptcy.=20 During the entire time of bankruptcy, between the approval of the = filing of the initial petition and the approval of reorganization or = liquidation plan, every step of operation of the company, and payment of = company funds, must be approved by the court. In essence, the court has = complete control of the company during the bankruptcy period, although = plans for management and operational decision making are submitted to = the court, and generally do not originate there.=20 Purpose of Bankruptcy Chapter 11 bankruptcy exists to allow a company to reorganize = claims against it, in order to allow the company to continue operations. = Bankruptcy is not designed to fully relieve a company from its = obligations, but instead allows restructuring in order to permit the = company to make good on its obligations under new payment schedules.=20 The common perception that debts are simply "forgiven" in = bankruptcy stems from personal bankruptcy concepts, not corporate = bankruptcy proceedings.=20 What are the company's obligations? Claimants file petitions to = the court to make their claims. Generally, all claimants in a single = class are organized together.=20 The Priority of Claims Federal law establishes the hierarchy of claims against the = company. Claims of a higher priority must be paid or settled before = claims of the lower priority.=20 The basic principle behind all bankruptcy claim payments is = simple: The higher the level of risk assumed in a transaction with the = company, the lower the level of claim in bankruptcy This principle makes the assumption that the claimant, when he/she = first made their deal with the company, negotiated a price which = accounted for the level of risk they were assuming in the transaction.=20 The following table lists the priority of claims, by class of = claimant.=20 Claim Priority Level Group Claim Comment=20 1. IRS 100% of unpaid taxes of all kinds. No surprise; the = government wrote the laws. =20 2. Employees Any outstanding claims related to payroll, = accrued vacation, pension contributions. 100% is generally paid. Affects = only payments for existing work already performed. In Chapter 11, = payroll and benefits continue to be paid unaffected. Jobs are not = guaranteed, however. Employees are rarely paid less than 100% of = outstanding balance. Also, while the cash value of contributions to a = 401(k) plan are secured, the value of the investment after purchase, for = example, in company stock, is not. Management bonuses are frequently = excluded. Option value is not included nor considered. Options are on = common stock, (see which). =20 3. Debtors-in-Possession Creditors 100% regardless of = whether secured or not. Includes persons lending money to a company = during bankruptcy. They get first priority over all other claimants = other than employees, since risk is highest. =20 4. Secured lenders Full outstanding balance, up to day of = filing. Leases for real estate and equipment. Often current amounts = continue to be paid through bankruptcy, and full amount owed is carried = over, with security, into post-chapter 11 operation. (This means secured = lenders effectively lose nothing if company exits Chapter 11 = successfully.)=20 5. Vendors Outstanding balance up to day of filing. = Frequently settled for less than the full amount, in exchange for a cash = payment at time of approval, any excess amount owed is wiped off the = books of the company. =20 6. Bondholders and Unsecured Lendors Principal, plus unpaid = interest Frequently bondholders will accept partial cash payment with = equity in the company issued in exchange for the unpaid principal = amount. =20 7. Preferred Stock Liquidation preference, as stated in = stock agreement, plus accrued dividends, if any. In many cases where = debt payment is the cause of bankruptcy, there is little left after the = above claimants have been settled, so the preferred stock has little = bargaining position. Often restructured into common stock, with = dividends wiped out upon exit on bankruptcy. For these reasons, = preferred stockholder in public companies often have veto rights over = debt issuance. =20 8. Common Stock Level of claim is on whatever is left over, = after all of the above classes of claims have been settled. Rarely is = anything left. In Chapter 11, if bondholders accept equity in exchange = for debt, any amount left over can be assigned to common stock. Often, = there is no value remaining. =20 Priority of Claim In the table above, it is important to realize, each level of = claimant is entitled by law to 100% of their claim, before anyone below = them gets anything. It may be in their interest to accept less than 100% = of their outstanding claim, but the starting point for all claims is = 100% of any outstanding balance.=20 It is also important to note:=20 Common stock is at the very bottom of the list.=20 Most claimants settle for less than the full amount of their = claim, at the time of bankruptcy. The reason is that few companies can = pay off 100% of any claim below the vendor level. Any claimant who = insists on 100% of their claim risks throwing the company into = liquidation.=20 Therefore most bondholders and claimants subordinate to = bondholders settle for something less than the full amount owed to them, = with some mechanism designed for them to possibly recover the unpaid = balance over time, either through equity, or restructured debt or = dividends.=20 The Process - Chapter 11 When a company enters bankruptcy, the future ownership structure = is eventually determined by a court.=20 A "Plan of Reorganization" is submitted by management of the = company to the court. Management generally tries to come up with a plan = which will be acceptable to vendors and bondholders, prior to = submission. A plan which is submitted to the court with the support of = the major claim holders will generally be accepted by the judge.=20 The timeline for the court's process follows this basic outline:=20 a.. Plan of reorganization submitted=20 b.. Claimant parties either file statements of agreement to the = plan or objections, and submit an alternate plan.=20 c.. Judge reviews and either accepts, requests new plan, or = writes own plan (rare).=20 d.. The judge's decision is generally final, although an appeals = process exists.=20 e.. The approved reorganization plan is put in place, the = company is recapitalized, new securities are issued, old securities are = cancelled.=20 f.. Company emerges from bankruptcy and continues operations.=20 Chapter 7, the alternative, is simply to sell everything and = divide up the proceeds according to claimant's claim levels. In some = cases, if the parties cannot agree on a Chapter 11 plan of = reorganization, the bankruptcy court will order a Chapter 7 liquidation = and the company is dissolved.=20 Common Stock Comes Last As a common stock holder, you must realize that Chapter 11 = bankruptcy law places your claim on the company assets after all other = claims.=20 This is a fundamental principle of bankruptcy law. Your ownership = of the company can be drastically reduced and even removed entirely.=20 In many cases, existing common stock holders do not lose their = entire value, but are simply diluted to such an extent as to render the = shares worthless. For example, common stock holders may hold 100% of = equity in a company prior to bankruptcy, but only 1% afterwards, as = equity is transferred to bondholders. The smallest shareholders don't = even show up in the eighth decimal point of percentage ownerships. Those = shares can be unilaterally cancelled by the bankruptcy court in exchange = for a modest payment or even nothing at all. If this happens, you have = no recourse as a common shareholder.=20 However, in some cases, common stock ownership is wiped out = entirely. If the total valuation of the company is far less than the = total debt owed, the equity value of the company may be transferred to = the bondholders. With no existing value left for common holders, their = ownership can be cancelled entirely.=20 Exodus Communications As Example Exodus Communications filed bankruptcy on September 26, 2001. At = that point, all bond payments and bill payments stopped, and the company = filed a bankruptcy petition with the court. The company will now submit = requests to make payments on bills and other expenses while in = bankruptcy, and every payment must be approved by the court. Eventually = a plan of reorganization will be submitted to the court.=20 The total debt owed by Exodus exceeds $3 billion. The total value = of the company is probably in the $1 to $1.5 billion range, given a = price/sales ratio of about 1.0. If the company were liquidated, = bondholders would receive, at best, one-third of the amount owed to = them. It is likely that bondholders, as a class, will approve a plan = that gives them continuing debt of approximately $1 to $1.5 billion = outstanding. This leaves them with another $1 to $1.5 billion still owed = to them. In exchange for that amount, the bondholders may accept equity = in the company instead.=20 Since the entire company is only worth about $1 to $1.5 billion, = the bondholders will likely wind up owning the entire company. Common = stockholders will be able to make a claim on whatever is left over, = which is likely to be nothing. The company issued a statement to this = effect on November 12, possibly concerned that the stock was still = trading at a price that assumes there will be at least $100 million in = value left over for existing common stockholders. The only possible = explanation for this statement is that the company is perplexed that the = stock still trades at $0.10 per share, and wants to avoid future = liability by making it clear to holders of EXDSQ that their equity is = almost certain to be wiped out, as bondholders claims are settled.=20 Is It Fair? The investing world is a risk/reward proposition.=20 Common stock always gets the reward of all the upside. When a = company grows in value, the newly created wealth is reflected only in = the value of the common stock (and in preferred stock). None of the new = value is reflected in the bonds. Although the credit rating may go up, = the interest payments do not.=20 The flip side of this is that the common stock has no downside = protection. When the company fails, common stock has no risk protection. = From the email we have received it is clear that many common = shareholders holding stock in bankrupt companies do not feel it is fair = to pay bondholders in equity and recapitalizing a company.=20 Is it fair? Definitely. When you capture all of the upside, it is = only fair that you also capture all of the downside.=20 Investors often ask, "How low can the price go?" The answer, for = common stock holders of bankrupt companies, is "Zero."=20 Comments may be emailed to the author, Robert V. Green, at = rvgreen@briefing.com=20 =20 ----- Original Message -----=20 From: Spencer48@aol.com=20 To: canslim@lists.xmission.com=20 Sent: Sunday, July 28, 2002 9:18 PM Subject: Re: [CANSLIM] Off-CANSLIM: Common stock post-Chapter 11? Tom: Does this mean that any bankrupt company that forms itself into a = new=20 entity (perhaps by changing its name) can avoid its obligation to its = common=20 shareholders because now the old shareholders are owners of a bankrupt = company? =20 So the newly formed company can once again sell shares in the new = company (while legally ignoring its fiduciary obligations (for = instance,=20 paying the old shareholders from any company assets left over after = the=20 secured creditors and preferred shareholders are paid) the = shareholders of=20 its old company? Isn't this (don't you think) like a legally sanctioned Ponzi = scheme-ie,=20 the corporation big-boys are legally benefitting from running the = company=20 into the ground? jans In a message dated 7/28/2002 9:24:55 PM Eastern Daylight Time,=20 stkguru@bellsouth.net writes: << The typical scenario is that a new corp is created, in which = ownership is=20 by the secured creditors of the old corp, and possibly a partial = ownership by=20 the unsecured creditors. Rarely do the common stock shareholders get = any=20 ownership in the new corp. The assets are transferred to the new corp, = remaining debts are left with the old. The secured creditors swap = their claim=20 on assets of the old corp for ownership in the new corp. Net result,=20 shareholders are left with shares in a shell corp, owning only debt = and no=20 assets>> - -To subscribe/unsubscribe, email "majordomo@xmission.com" -In the email body, write "subscribe canslim" or -"unsubscribe canslim". Do not use quotes in your email. - ------=_NextPart_000_0062_01C2368F.BAB14C40 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
jans,
 
You've hit on a subject that is extraordinarily important to the = investor=20 in individual equities. The key point to remember about a common stock = is that=20 the shareholders have what is referred to as "residual ownership." That = is, if=20 and only if there is anything left over when everybody else has been = paid off=20 will they get a piece of the pie. That's why you can own shares that = have $0=20 value. On another investing board, a member was telling everybody how = he'd made=20 the "perfect low risk investment" in...tadah...WCOM. Said his downside = risk was=20 only the $125 he had in the stock, as he'd picked it up at a bargain = price of=20 $.11. Said his upside potential was a return of $18,000. He added that = "WCOM=20 wasn't going away" and went on for 3 paragraphs about all their assets. = I=20 mentioned the issue of residual ownership and tried to explain what that = meant=20 to a bankrupt company and to the existing common shareholders, and he = *still*=20 didn't get that the likelihood of losing 100% of his $125 was nearly = 100%.=20 Unbelievable. Anyway, as always, Briefing.com has written some excellent = articles on the subject and this one gives a great overview of the = pecking order=20 of payoff under bankruptcy. As you can see, common stockholders fall to = the=20 bottom of the heap.
 
-Katherine
 
=3D=3D=3D=3D=3D=3D
(apologies to those who don't have HTML capable email programs, but = this is=20 just much easier to cut & paste from the site)
 
Bankruptcy and The Risk of = Common=20 Stock
27-Nov-01 09:37=20 ET

[BRIEFING.COM - Robert V. Green] For those investors holding = stocks of=20 companies headed into or already in bankruptcy, an understanding = of how=20 bankruptcy works is essential. For all holders of common stock, it = is=20 important to know that you are the "last in line" when it comes to = bankruptcy proceedings. Here's how it works.

Declaring Bankruptcy

Bankruptcy becomes an option when a company realizes that it = cannot pay=20 all of its obligations from a combination of cash flow and cash = reserves.=20 The bankruptcy option allows a company to suspend and restructure = existing=20 obligations to allow the company to either continue operations or=20 dissolve.

Bankruptcy proceedings are defined by federal law for publicly = traded=20 companies. Management of the company declares bankruptcy by filing = a=20 petition in Federal court.

Generally, the time sequence to enter bankruptcy follows these = basic=20 steps:

  • Company realizes it has financial problems that cannot be = addressed=20 through normal business operations.=20
  • Company files Chapter 11 or Chapter 7 bankruptcy petition=20
  • Chapter 7 is giving up: The company ceases operations, = sometimes=20 immediately, liquidates (sells) everything and distribute = proceeds to=20 the claimants.=20
  • Chapter 11 is reorganization: The company continues = operations, but=20 stops paying all debt interest and dividends, and restructures = the debt=20 and equity of the company to an "equitable" new level.=20
  • The court approves the bankruptcy petition and the company=20 officially is in bankruptcy.

During the entire time of bankruptcy, between the approval of = the=20 filing of the initial petition and the approval of reorganization = or=20 liquidation plan, every step of operation of the company, and = payment of=20 company funds, must be approved by the court. In essence, the = court has=20 complete control of the company during the bankruptcy period, = although=20 plans for management and operational decision making are submitted = to the=20 court, and generally do not originate there.

Purpose of Bankruptcy

Chapter 11 bankruptcy exists to allow a company to reorganize = claims=20 against it, in order to allow the company to continue operations.=20 Bankruptcy is not designed to fully relieve a company from its=20 obligations, but instead allows restructuring in order to permit = the=20 company to make good on its obligations under new payment = schedules.

The common perception that debts are simply "forgiven" in = bankruptcy=20 stems from personal bankruptcy concepts, not corporate bankruptcy=20 proceedings.

What are the company's obligations? Claimants file petitions to = the=20 court to make their claims. Generally, all claimants in a single = class are=20 organized together.

The Priority of Claims

Federal law establishes the hierarchy of claims against the = company.=20 Claims of a higher priority must be paid or settled before claims = of the=20 lower priority.

The basic principle behind all bankruptcy claim payments is = simple:

The higher the level of risk assumed in a transaction with = the=20 company, the lower the level of claim in = bankruptcy

This principle makes the assumption that the claimant, when = he/she=20 first made their deal with the company, negotiated a price which = accounted=20 for the level of risk they were assuming in the transaction.

The following table lists the priority of claims, by class of = claimant.=20

Claim Priority Level Group Claim Comment
1. IRS 100% of unpaid taxes of all kinds. No surprise; the government wrote the laws.
2. Employees Any outstanding claims related to payroll, accrued = vacation,=20 pension contributions. 100% is generally paid. Affects only = payments=20 for existing work already performed. In Chapter 11, payroll = and=20 benefits continue to be paid unaffected. Jobs are not = guaranteed,=20 however. Employees are rarely paid less than 100% of outstanding = balance.=20 Also, while the cash value of contributions to a 401(k) plan = are=20 secured, the value of the investment after purchase, for = example, in=20 company stock, is not. Management bonuses are frequently = excluded.=20 Option value is not included nor considered. Options are on = common=20 stock, (see which).
3. Debtors-in-Possession Creditors 100% regardless of whether secured or not. Includes persons lending money to a company during = bankruptcy.=20 They get first priority over all other claimants other than=20 employees, since risk is highest.
4. Secured lenders Full outstanding balance, up to day of filing. Leases for real estate and equipment. Often current = amounts=20 continue to be paid through bankruptcy, and full amount owed = is=20 carried over, with security, into post-chapter 11 operation. = (This=20 means secured lenders effectively lose nothing if company = exits=20 Chapter 11 successfully.)
5. Vendors Outstanding balance up to day of filing. Frequently settled for less than the full amount, in = exchange=20 for a cash payment at time of approval, any excess amount = owed is=20 wiped off the books of the company.
6. Bondholders and Unsecured Lendors Principal, plus unpaid interest Frequently bondholders will accept partial cash payment = with=20 equity in the company issued in exchange for the unpaid = principal=20 amount.
7. Preferred Stock Liquidation preference, as stated in stock agreement, plus = accrued dividends, if any. In many cases where debt payment is the cause of = bankruptcy,=20 there is little left after the above claimants have been = settled, so=20 the preferred stock has little bargaining position. Often=20 restructured into common stock, with dividends wiped out = upon exit=20 on bankruptcy. For these reasons, preferred stockholder in = public=20 companies often have veto rights over debt issuance. =
8. Common Stock Level of claim is on whatever is left over, after all of = the=20 above classes of claims have been settled. Rarely is anything left. In Chapter 11, if bondholders = accept=20 equity in exchange for debt, any amount left over can be = assigned to=20 common stock. Often, there is no value remaining.=20

Priority of Claim

In the table above, it is important to realize, each level of = claimant=20 is entitled by law to 100% of their claim, before anyone below = them gets=20 anything. It may be in their interest to accept less than 100% of = their=20 outstanding claim, but the starting point for all claims is 100% = of any=20 outstanding balance.

It is also important to note:

Common stock is at the very bottom of the list.=20

Most claimants settle for less than the full amount of their = claim, at=20 the time of bankruptcy. The reason is that few companies can pay = off 100%=20 of any claim below the vendor level. Any claimant who insists on = 100% of=20 their claim risks throwing the company into liquidation.

Therefore most bondholders and claimants subordinate to = bondholders=20 settle for something less than the full amount owed to them, with = some=20 mechanism designed for them to possibly recover the unpaid balance = over=20 time, either through equity, or restructured debt or dividends. =

The Process - Chapter 11

When a company enters bankruptcy, the future ownership = structure is=20 eventually determined by a court.

A "Plan of Reorganization" is submitted by management of the = company to=20 the court. Management generally tries to come up with a plan which = will be=20 acceptable to vendors and bondholders, prior to submission. A plan = which=20 is submitted to the court with the support of the major claim = holders will=20 generally be accepted by the judge.

The timeline for the court's process follows this basic = outline:

  • Plan of reorganization submitted=20
  • Claimant parties either file statements of agreement to the = plan or=20 objections, and submit an alternate plan.=20
  • Judge reviews and either accepts, requests new plan, or = writes own=20 plan (rare).=20
  • The judge's decision is generally final, although an appeals = process=20 exists.=20
  • The approved reorganization plan is put in place, the = company is=20 recapitalized, new securities are issued, old securities are = cancelled.=20
  • Company emerges from bankruptcy and continues operations. =

Chapter 7, the alternative, is simply to sell everything and = divide up=20 the proceeds according to claimant's claim levels. In some cases, = if the=20 parties cannot agree on a Chapter 11 plan of reorganization, the=20 bankruptcy court will order a Chapter 7 liquidation and the = company is=20 dissolved.

Common Stock Comes Last

As a common stock holder, you must realize that Chapter 11 = bankruptcy=20 law places your claim on the company assets after all other = claims.

This is a fundamental principle of bankruptcy law. Your = ownership of=20 the company can be drastically reduced and even removed entirely. =

In many cases, existing common stock holders do not lose their = entire=20 value, but are simply diluted to such an extent as to render the = shares=20 worthless. For example, common stock holders may hold 100% of = equity in a=20 company prior to bankruptcy, but only 1% afterwards, as equity is=20 transferred to bondholders. The smallest shareholders don't even = show up=20 in the eighth decimal point of percentage ownerships. Those shares = can be=20 unilaterally cancelled by the bankruptcy court in exchange for a = modest=20 payment or even nothing at all. If this happens, you have no = recourse as a=20 common shareholder.

However, in some cases, common stock ownership is wiped out = entirely.=20 If the total valuation of the company is far less than the total = debt=20 owed, the equity value of the company may be transferred to the=20 bondholders. With no existing value left for common holders, their = ownership can be cancelled entirely.

Exodus Communications As Example

Exodus Communications filed bankruptcy on September 26, 2001. = At that=20 point, all bond payments and bill payments stopped, and the = company filed=20 a bankruptcy petition with the court. The company will now submit = requests=20 to make payments on bills and other expenses while in bankruptcy, = and=20 every payment must be approved by the court. Eventually a plan of=20 reorganization will be submitted to the court.

The total debt owed by Exodus exceeds $3 billion. The total = value of=20 the company is probably in the $1 to $1.5 billion range, given a=20 price/sales ratio of about 1.0. If the company were liquidated,=20 bondholders would receive, at best, one-third of the amount owed = to them.=20 It is likely that bondholders, as a class, will approve a plan = that gives=20 them continuing debt of approximately $1 to $1.5 billion = outstanding. This=20 leaves them with another $1 to $1.5 billion still owed to them. In = exchange for that amount, the bondholders may accept equity in the = company=20 instead.

Since the entire company is only worth about $1 to $1.5 = billion,=20 the bondholders will likely wind up owning the entire = company.=20 Common stockholders will be able to make a claim on whatever is = left over,=20 which is likely to be nothing. The company issued a statement to = this=20 effect on November 12, possibly concerned that the stock was still = trading=20 at a price that assumes there will be at least $100 million in = value left=20 over for existing common stockholders. The only possible = explanation for=20 this statement is that the company is perplexed that the stock = still=20 trades at $0.10 per share, and wants to avoid future liability by = making=20 it clear to holders of EXDSQ that their equity is almost certain = to be=20 wiped out, as bondholders claims are settled.

Is It Fair?

The investing world is a risk/reward proposition.

Common stock always gets the reward of all the upside. = When a=20 company grows in value, the newly created wealth is reflected only = in the=20 value of the common stock (and in preferred stock). None of the = new value=20 is reflected in the bonds. Although the credit rating may go up, = the=20 interest payments do not.

The flip side of this is that the common stock has no downside=20 protection. When the company fails, common stock has no risk = protection.=20

From the email we have received it is clear that many common=20 shareholders holding stock in bankrupt companies do not feel it is = fair to=20 pay bondholders in equity and recapitalizing a company.

Is it fair? Definitely. When you capture all of the upside, it = is only=20 fair that you also capture all of the downside.

Investors often ask, "How low can the price go?" The answer, = for common=20 stock holders of bankrupt companies, is "Zero."

Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com =

----- Original Message -----
From:=20 Spencer48@aol.com
Sent: Sunday, July 28, 2002 = 9:18 PM
Subject: Re: [CANSLIM] = Off-CANSLIM:=20 Common stock post-Chapter 11?

Tom:

     Does this mean = that any=20 bankrupt company that forms itself into a new
entity (perhaps by = changing=20 its name) can avoid its obligation to its common
shareholders = because now=20 the old shareholders are owners of a bankrupt
company? =20

     So the newly formed company can once = again=20 sell shares in the new
company (while legally ignoring its = fiduciary=20 obligations (for instance,
paying the old shareholders from any = company=20 assets left over after the
secured creditors and preferred = shareholders=20 are paid) the shareholders of
its old=20 company?

     Isn't this (don't you think) = like a=20 legally sanctioned Ponzi scheme-ie,
the corporation big-boys are = legally=20 benefitting from running the company
into the=20 ground?

jans


In a message dated 7/28/2002 9:24:55 PM = Eastern=20 Daylight Time,
stkguru@bellsouth.net=20 writes:

<< The typical scenario is that a new corp is = created, in=20 which ownership is
by the secured creditors of the old corp, and = possibly=20 a partial ownership by
the unsecured  creditors. Rarely do = the common=20 stock shareholders get any
ownership in the new corp. The assets = are=20 transferred to the new corp,
remaining debts are left with the = old. The=20 secured creditors swap their claim
on assets of the old corp for = ownership=20 in the new corp. Net result,
shareholders are left with shares in = a shell=20 corp, owning only debt and no
assets>>

-
-To=20 subscribe/unsubscribe, email "majordomo@xmission.com"
-In= the=20 email body, write "subscribe canslim" or
-"unsubscribe = canslim".  Do=20 not use quotes in your email. - ------=_NextPart_000_0062_01C2368F.BAB14C40-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ End of canslim-digest V2 #2672 ****************************** To unsubscribe to canslim-digest, send an email to "majordomo@xmission.com" with "unsubscribe canslim-digest" in the body of the message. For information on digests or retrieving files and old messages send "help" to the same address. Do not use quotes in your message.