What % of companies in bankruptcy (like nwacq) emerge with stock intact?

Question

In other words if NWACQ emerges what are the chances the company will cancel all the stock and reissue new stock, versus keeping the old stock benefiting current longs?

Answer 1

Only a small percentage of companies emerge from Chapter 11 with stock intact.

A slighter larger percentage of companies that cancel stock allow pre-existing shareholders to retain some equity in the new shares (see, for example, Mirant this year).

But it is not question of probability (i.e., "what are the chances", as you ask) but circumstances.

And, in the case of NWACQ - like all of the other airlines that have gone into bankruptcy in the past 5 years and emerged - there is no chance that existing shareholders will retain any equity in the reorganized company, based on circumstances.

Note that the reorganization plan for Northwest isn't out yet.
http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-06-20T154204Z_01_N20433282_RTRIDST_0_AIRLINES-NORTHWEST.XML&rpc=66&type=qcna

Answer 2

Most firms that go into Chapter 11 bankruptcy do so in order to reorganize. These reorganizations usually involve giving a small equity stake to current equity holders, a large equity stake and smaller amount of debt to current debt holders.

Firms that intend to liquidate do not file under chapter 11 -- but under Chapter 7 This means that Chapter 11 firms intend to emerge from bankruptcy.

In the PhD level Corporate Finance class that I took, I remember learning that the typical firm emerges after 19 months and that most retain some type of equity position for former equity holders.

The link below is to a paper on equity performance after emerging. It may have some information that you want, and will probably refer to papers that have the information that you want.

Answer 3

a lot