Probably not, but just for the mental exercise, let's try to think it through.
First, WCOM's competitors are fighting to prevent the bankruptcy court from approving a reorg that wipes out all (or presumably, most) of the debt because, they argue, it would give WCOM an unfair advantage, rewarding them for their bad acts, and would significantly increase the probability of other telecoms being forced to declare bankruptcy.
Second, WCOM is currently generating some $4.8 billion of annualized EBITDA and is spending next to nothing on CAPEX. Even a billion a year in CAPEX and no future improvement in sales or margins leaves a huge sum to service debt - maybe not $37-40 billion or whatever is outstanding, but quite a bit of it.
For these two reasons, one should not expect a reorg that wipes out all debt (in exchange for equity). Debt holders would rather remain debt holders if they can, rather than taking equity that has no maturity or interest coupon. The important thing for the court is that the company emerge able to service what debts it has left to pay.
Third, valuing the company as a going concern, which is how it should be valued in a reorg as opposed to a liquidation, you are not comparing the debts owed to the price at which you could sell off the pieces at fire-sale auction (the valuation that leads all commentators to conclude that the assets won't cover the debts and, therefore, the equity is worthless).
Apply a reasonable going concern valuation to the business of WCOM, which, again, is generating $4.8 billion per annum in EBITDA, and then compare that to the debts. Then tell us whether there's anything left for 1) the little bit of preferred and 2) the common.
Unless you've worked it through, you don't know the answer. You can only guess or just accept the conventional wisdom of all the talking heads (LOL).
Bob
PS: This analysis does assume that the BK courts work in a fair and just manner, which may not be the case in such a politically charged atmosphere. We'll see. |
