Bonds profitability?

Question

Is it profitable to buy bond of a company near bankruptcy and sieze the companys' assets when it gets bankrupt.

Answer 1

The company may not have any assets for you.

The judge may reorganize the company into a new company and give all the assets to the new company and give you a few shares in the new company as payment for your bonds.

It's really complicated and no two bankruptcies are the same.

Answer 2

It is not a right or wrong question.  You really need to understand the value of the assets.  Most bankruptcies in the corporate world are Chapter 11 reorganizations.  That is why you cannot kill off an airline.  They always come out and come back to Chapter 11.  It is like the U.S. based airlines have a regular route to bankruptcy court.  Why in the name of sanity does the court not demand that the creditors take the airline to liquidation?  I think the best bankrupt plays are companies that have a good balance sheet and enter Chapter 11 to get out from under an unconscionable supply contract.  Natural gas companies were caught in contracts would assure their demise but for Chapter 11 relief.

Answer 3

http://www.sec.gov/investor/pubs/bankrup...

Answer 4

it can be.  but there are substantial costs involved that you need to consider.  the lawsuit will cost millions and last for a decade, for instance.

now, there are distressed debt specialists who will buy debt for pennies on the dollar and make a killing, because they have a billion dollar checkbook to draw on.  but for the average retail investor, it usually won't be worth the time and effort involved.

Answer 5

I don't think it is a very good Idea unless you have a lot of money to make a significant move. Also it makes no sense to do it unless you have a definite plan to use the assets of the company.

Answer 6

no.  If bankruptcy occurs you could be in an un-secured position.  That means you get wiped out.  Bonds are going to be behind creditors.