Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Bankruptcy Predictor Model -- Ignore unavailable to you. Want to Upgrade?

To: Q. who wrote (143)	3/23/1999 8:04:00 PM
From: Razorbak	Respond to of 477

LWN - Comments <<They are in the process of trying to sell assets. If they are successful in doing that, then the numerators will go up and the denominator will go down, so that the Z score will go way up. Isn't that what would normally happen in a turnaround?>> Absolutely. The Total Assets (TA) figure is the denominator in 4 out of the 5 financial ratios, so anything that can be done to shrink total assets will directly increase the Z-score and, likewise, the financial health of the company. <<The shareholders equity, which is computed using the book value of the assets, is a very substantial number, suggesting that shareholders would fetch $17 a share in a liquidation. Unless of course the assets aren't worth what the co. says they are worth.>> When I perform a liquidation analysis, I usually create four columns on a spreadsheet in the following order, read from left to right: (1) book value, (2) going concern value, (3) orderly liquidation value, and (4) forced liquidation value. Often the numbers for each column deteriorate across the board as you move to the right on the spreadsheet. What I don't know is exactly how distressed the company is, and how much time they have to shed the assets. If they can do it in an orderly fashion, they may get twice the value they would if done in a forced liquidation, but they will almost always get less than they would as a going concern. Book value is not really relevant other than as a benchmark representing the original cost of acquiring the assets. <<Anyway, the co. might go bankrupt if they can't sell assets fast enough, but even if they do go BK, the assets are there.>> Agreed. The real question is whether or not there will be anything left over for the shareholders, who are at the bottom of the food chain in a bankruptcy. Usually proceeds are distributed in the following (albeit rather simplistic) order: professionals fees and administrative claims, secured creditors, unsecured creditors, and equity holders. Limited financial recovery (or total non-recovery) are the primary risks that equity investors face when investing in distressed companies that eventually end up in bankruptcy. JMHO, of course. Razor

To: Q. who wrote (143)	3/24/1999 8:43:00 AM
From: Bob Rudd	Respond to of 477

LWN: John as you're probably aware, some factors affecting the LWN situation: Canadian bankruptcy proceedings differ in kinder gentler ways according to informed Canadians posting on the subject. CIBC, the main bank in the game, is also a very large stockholder..thus a PARTNER on multiple levels. Current management blessed by CIBC and has turnaround experience Assets are somewhat overpriced...they paid high for more recently acquired properties..though this is somewhat offset by depreciation Increased competition and pricing information has made funeral biz a bit less of a can't fail proposition than it once was. I saw a recent bond quote of 57 ...not indicative of default [But bond quotes may reflect wishful thinking on bond inventory rather than actual market..just checked one source] It might be useful to view shares in LWN as warrants or options and value accordingly Regards, Bob