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Should NEW Corporate Bankruptcy Law Be Changed?
Q. Specifically, should shareholders be left holding the bag in a corporate bankruptcy filing, as it appears Worldcom's current shareholders will be. That company's current bondholders want to take "possession" of what the current shareholder's have now. Any long-term observer of the market, in this newsgroup, cannot deny what will occur shortly - a pre-packaged bankruptcy filing, a "Thanks for the Memories" ballad, sung in unison by the current bondholding group to the current shareholders, around a bonfire of "old" equity paper and a reissuance of new stock in exchange for current debt. Does the law need changing, to accord with current notions of equity - in the moral sense? Bankrolling a corporation requires large amounts of capital. The bond investor can't do it alone. When the going gets tough, why should the equity investor get "rolled" like a drunk lying in the gutter?
A. Yes. I like how this game is played. Some distressed bond vultures come swooping in and purchasing up bonds for pennies on the dollar and immediately turn around and ask the company for a debt-for-equity swap, and then end up with a great company that has no debt while the shareholders get the shaft. Regardless, this stock will climb back to at least .75 - $1.00 before all of that takes place. Furthermore, if they do the debt-for-equity swap, current shareholders may still retain 10-20% of their shares after dilution. That being the case, I'm sure WCOM could once again rise to $10.00 from being debt free. As a matter of fact, the shareholders (if I remember this correctly) have to give a 2/3'rds approval for prepackage BK. If they're willing to guarantee me at least 10-20% of the equity, I would vote yes. I hate to do that with the realization that a lot of people lost their life savings. Sometimes we must reflect where we get the money when we cash out on profits. Our profits are generally someone elses losses. It touches me deeply as a human to realize that there are people who gave decades of their lives to a company and got a few hundred or thousand dollars leftover in their 401-k because of pandemonium. Furthermore, after they enact new laws for accounting and bankruptcy, they're going to have to start looking into the media. The media has too much leverage as it is, and they are only making things worse. I don't like the fact that everyone in the big chairs are tripping over each other trying to rape the common man's last dollar so they can fill the coffers. Capitalism is starting to suck in this country.
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