United to cancel stock

[ivauir]

UNITED has confirmed that the company's stock likely will be canceled when it emerges from bankruptcy either late this year or early in 2004. In a Chicago Tribune story, the airline said that after paying its creditors, it will not have enough assets to allow "any meaningful distribution to shareholders," and that it is "highly likely" the shares will be canceled under a bankruptcy reorganization plan. Such a practice is common in bankruptcy cases

I guess some people are not shocked by this, but I didn't know this was possible. Could someone in the know explain this? I thought that stock represented an equity holding in a company - if the stock is cancelled - who owns the company?

 

[daddysquared]

This is how it works. An entity (person, company, whatever) files for bankruptcy when they cannot pay their debts. The debtors, or the entities that have loaned money to the company, are first in line if there is any liquidation of assets. I.E., if United were to go out of business completely and sell off all their stuff, the proceeds would first go to whoever loaned them cash. In a case like United's (and also USAriways), under the terms of the bankruptcy, it is agreed that if the debtors cannot be paid back what they lent to the company, they instead take ownership of the company as it emerges from bankruptcy. The stock is then cancelled and a new stock is created and given first to those who had loaned money, and were never paid back.

 

[Publishers]

sol

yes, they are sol

 

[Andy Neill]

The latest I have seen do this is K-Mart:

"Kmart filed for bankruptcy in January 2002 amid increased pressure from competitors Wal-Mart Stores Inc.(NYSE:WMT - News) and Target Corp.(NYSE:TGT - News), along with a weaker economy.

The company emerged from bankruptcy in May and its previous common shares were canceled as part of its Chapter 11 reorganization."

 

[daddysquared]

The determining factor in a company's stock being cancelled is whether or not their debts can be paid when emerging from bankruptcy. If the debts can't be satisfied, well then, ya'll outta luck if you own shares.

 

[mach none]

Ive been debating this issue with a friend and admittedly dont now the answer myself. Does this mean that if you own shares in a company that goes chapter 11, you lose those shares even if the company emerges from chapter 11?

Yes and no. You maybe given a warrent for some shares of the "new company." This happened to me when Morrison Knudson filed for Ch. 11.

The warrents were virtually worthless though. Pennies on the dollar.

 

[RichardFitzwell]

The latest I have seen do this is K-Mart:

I had never heard of a company doing this before KMart. I was confident KM would survive the bankruptcy and become stronger. I bought a lot of their stock.

I personally lost over $14,000 and my parents lost over $10,000. Now we are both boycotting KMart. They have enough of our money.

Had I owned UAL stock, my boycott would cover them also.

 

[trainerjet]

I personally lost over $14,000 and my parents lost over $10,000. Now we are both boycotting KMart. They have enough of our money.

Had I owned UAL stock, my boycott would cover them also.

Just like UAL is doing now, K Mart repeatecly advised it stock holders that their stock would most likely be worthless when they emerged from bankruptcy. Yet some people were surprised and then pissed that their stock actually was worthless. So, that's a great idea. Boycott K Mart because you weren't smart enough to see the writing on the wall even when they flat out and repeatedly told you what to expect.

What about this? Spill scalding hot coffee all over yourself, then are surprised when it burns. Geeezzz. It never ceases to amaze me how people absolutely refuse to take responsiblity for their own actions. Why?? 'Cause here in America, it's ALWAYS someone else's fault.

 

[RichardFitzwell]

Just like UAL is doing now, K Mart repeatecly advised it stock holders that their stock would most likely be worthless when they emerged from bankruptcy. Yet some people were surprised and then pissed that their stock actually was worthless. So, that's a great idea. Boycott K Mart because you weren't smart enough to see the writing on the wall even when they flat out and repeatedly told you what to expect.

What about this? Spill scalding hot coffee all over yourself, then are surprised when it burns. Geeezzz. It never ceases to amaze me how people absolutely refuse to take responsiblity for their own actions. Why?? 'Cause here in America, it's ALWAYS someone else's fault.

Hey trainer jet,

KMart only started issuing warnings about their stock becoming worthless as they got closer to exiting bankruptcy, just like UAL has done now. By then I already owned it. Before that, the warnings of liquidation were the reasons for worthless stock. Like I said, I felt they would survive.

Did I say anything about not taking responsibility for my actions. HMMM...NO! It's my right not to shop at KMart, like you pointed out, it is America. The whole thing with the top executives walking with millions and the employees getting shafted killed me. I realize this type of fraud was duplicated at many corporations but KM effected me directly so I won't shop there.

Of course, trainer jet, this could never happen to you. You're way too smart. (sarcasm)

 

[generaltso]

Your pissed because you bought stock on a long shot and it didn't come through, so you are going to boycott the company? That is friggin crazy.

Yes there was upside potential but investing in companies like that is a huge risk, just like buying UAL stock is a huge risk. If it pays off, there is a fortune to be made. If not, your out your investment. Stock market 101.

It's kind of amazing that someone can "boycott" a company because the long shot investment didn't pan out.

 

[Intruder One]

US Airways did this also.....wiped out everyone including the employees.

 

[slickmagneto]

Boycotting KMART!

I'll bet you were shopping at WALMART while you were watching the KMART stock go down the toilet.

 

[Flic1]

Here is a good link if you want more info on corporate bankruptcies and how it effects the stock.

http://www.sec.gov/investor/pubs/bankrupt.htm

 

[klhoard]

Boycotting K-Mart

Sheeze guys,

I've been boycotting K-Mart for years but my reason is better than anyone's.

MARTHA STEWART!!!!

 

[GuppyPuppy]

America West did this back in '91. The old stock wasn't worth the paper it was printed on.

What they did do is issue new stock to the old stockholders in the amount of 10% of the number of shares each had in the old stock. For example, if you had 1000 shares of the old stock, you were issued 100 shares of the new stock. If you bought the old stock at $8/share (I did) and the new stock is currently worth about $2/share you would have about 2.5% of the value of the original stock that was purchased.

GP

 

[resistance]

Sometimes I think pilots are the worst investors when they do it themselves.... Gentlemen (and ladies) may I make a short statement from Business 101...

Do not buy ANY shares of ANY company that is currently under Chapter 11 or Chapter 7 rules of the U.S. bankruptcy courts. These shares will continue to trade either on the open market or small fund trades but the shares will be cancelled if the company amerge from the courts. So if you by United or Kmart at 1 dollar it will be worth $0.00 when the new shares are issued.

Finally I think if you invest in any airline you are an extremely aggressive investor and have to look at the entire history of airline stock value and/or balance sheets. In general (history proves) that all airlines are not profitable due to far too many uncontrollable factors ie. fuel costs, labor cost, crashes/maintenance A.D.'s etc. It takes an investor with a strong will and a strong stomach to put their money into airline stocks. Anyway talk to an investment advisor before buying anything...