GM Gets Concessions From CAW Before Probable Filing

Posted by BobL on 5/26/09 • Categorized as Market News

I have been a little perplexed at how stocks in companies who have essentially said that bankruptcy is imminent continue to trade at levels above a few pennies.

Is there hope that the common shareholders in GM will receive something in a bankruptcy or restructuring? If so, what will a common shareholder receive? Senior debt holders are getting well below face falue, subordinated debt…less. Preferred shareholders? Common? Typically, common shareholders will be wiped out. It is the first class that is wiped out when a company restructures. Is this administration going to force something other than that? If so, why?

I have seen common shares continue to trade leading up to a bankruptcy. I would venture a guess that there is some financial reason for some to trade in those shares. However, I often hear from inexperienced investors about how they are buying this because “it will come back” or “they heard a rumor”. Not happening! There was a case in my own back yard. When Adelphia was heading toward bankruptcy court, the shares would continue to trade from $1 – $4. There was much talk about why since it was local and I heard many more stories about how they were buying because “… the stock was at… a year ago”.

DO YOUR HOMEWORK BEFORE BUYING A STOCK. Your friend who works on the line, or in the customer service unit, or at a supplier, is not ‘in the know’.