KAI RYSSDAL: Delta Airlines filed for Chapter 11 bankruptcy September the 14, 2005. Nineteen months and $3 billion in restructuring costs later, the new Delta begins life as a publicly traded company tomorrow morning.
New shares are expected to start out somewhere around $20 a piece. Which is around $20 more than the old Delta shares are worth now.
We’ve asked our business correspondent, Bob Moon, to help us sort through the mechanics of a company getting out from under Chapter 11. Bob, maybe the place to start is to note that the shares Delta took into bankruptcy were still trading up until just last week.
BOB MOON: That’s right. And, you know, Delta filed for reorganization back in September 2005. And the stock kept on trading on an over-the-counter location known as the Pink Sheets. And basically, you’re really playing with fire if you continue to trade stock in that area. Delta had been warning it’s stockholders right out of the gate — no pun intended — from the time it filed for this bankruptcy protection that the stock would be worthless under the reorganization planned. But the wording was that current holders of Delta common stock would receive no distribution. That’s a fancy way of saying that secured creditors come first in a bankruptcy filing like this. And the shareholders are way at the back of the line.
RYSSDAL: Defining our terms here, secured creditors are the big banks and people who have, you know, asset-backed stuff.
MOON: That’s right. Owners of the planes, that sort of thing.
RYSSDAL: Now, when these new shares come out and start trading tomorrow, is Delta getting a huge influx of fresh cash?
MOON: No. They’re basically divvying up the assets that they have among the creditors. The creditors will get shares, the workers will get shares, executives will get shares. It’s kind of interesting. If you look at the shares that the workers are gonna receive — 14 million shares in the newly reorganized company — that amounts to about a 3.5 percent stake. The share that executives are getting is around half that size. But do the math here and you figure out that that means Delta’s stock and cash payments to the workers amounts to about maybe $12,000 each worker. The executive share here, their take is gonna be about $200,000 each.
RYSSDAL: Hmmm. So once again, management gets, and workers don’t.
MOON: That’s the way it appears.
RYSSDAL: Let me ask you about the individual shareholders, whether there’s a way for them to know that they’re gonna get nothing. You and I know it, because we follow these kinds of things. But if you’ve got a share of Delta, and you see the price going down, is there a way for you to know that it’s all gonna end so badly?
MOON: Well, you know, people kept trading in Delta, and some people apparently did make money. There were rumors that Delta might become acquisition target, that caused the stock to bump up on those pink sheets. And so people were still making money. The problem is it’s very risky, and the analysts warn you against doing that.
RYSSDAL: It’s a risky game too, because we’re not talking about $40, $50 a share. It’s stock that’s at 18, 20 cents a piece. And so you buy a bunch of ’em and it can end badly.
MOON: That’s right. It was fluctuating between a dollar down into the pennies and then back up to $1.50, so you never know. But you know, there are some investors who are just unsuspecting. They hear that a company is coming out of bankruptcy, for example, and they say “Well gee, the stock looks cheap, I’m gonna go ahead and buy it.” That’s the old stock, it’s confusing here. It’s not the new stock that’s being issued. The old stock just gets cancelled out. And the SEC actually says that that’s near the top of the list on the complaints that they receive every year. They actually even have a website to warn investors about this sort of thing. We have that on our website, Marketplace.org
RYSSDAL: DAL is the ticker symbol for Delta Airlines tomorrow morning on the New York Stock Exchange. Bob, thanks.
MOON: Thanks, Kai.
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