When the novel coronavirus began to spread beyond China in February, it quickly became apparent that the coming economic crisis would claim many companies—large and small—as victims.
Fast forward four months and the number of bankruptcies continues to grow. On Wall Street, the crisis has claimed a number of high profile names across the economic landscape, including legacy retailer JC Penney Company Inc (OTC:JCPNQ), car rental giant Hertz Global Holdings (NYSE:HTZ), oil driller Whiting Petroleum (NYSE:WLL), and high-speed internet company Frontier Communications Inc (OTC:FTRCQ).
Some of these bankruptcies were hardly surprises, as the economic freeze brought upon by the pandemic simply put undue stress on businesses in long-term decline. What has caught many by surprise however is the rally that some of these stocks had in early June. Though this “bankruptcy trade” has largely been attributed to inexperienced retail traders and algorithms piggybacking on that volume, it underscores the point that for investors in public companies, bankruptcy does not always mark the end for a company.
What Happens To Shares?
Unlike on most international exchanges where companies going through bankruptcy proceedings will stop trading on the secondary market, a company with shares listed on a U.S. exchange can still trade while in bankruptcy. Shares of these companies will typically be delisted from the exchange and trade on the Pink Market, part of OTC Markets, where a ‘Q’ can be added to the end of the security symbol to indicate the company is in bankruptcy.
According to OTC Markets Group, the Pink market is the ideal market for distressed companies to trade while they go through the Chapter 11 bankruptcy process.
“The Pink Market becomes the default market for companies in bankruptcy and in severe economic distress,” said Jason Paltrowitz, executive vice president, corporate services at OTC Markets. “It provides a place for these companies to maintain a public quotation and work through their restructure plans while also giving investors a market where they can price their exposure and trade their positions”
As of June 12, 47 companies had followed this process in 2020 according to OTC Markets Group, including JC Penney, Diamond Offshore Drilling, Inc. (OTC:DOFSQ), and Pier 1 Imports, Inc. (OTC:PIRRQ). If a widely followed company enters bankruptcy, chances are its shares will still remain relatively liquid while it goes through the process. This has been the case with the companies mentioned above, as well as others like Intelsat SA (OTC:INTEQ), and McDermott International, Inc. (OTC:MDRIQ).
It’s also worth noting that not all bankrupt companies are delisted immediately. There can often be a delay between when a company declares bankruptcy and when its stock gets delisted.
Hertz, for example, filed for bankruptcy on May 24 and is still trading on the NYSE pending an appeal by the company after it received a delisting notice from the exchange. In these cases, it’s prudent that any investor understands that the company is in bankruptcy proceedings (and the corresponding risks) even though its stock is still listed on an exchange.
Bankruptcy May Not Be The End Of The Company
Short-term rally in bankrupt or near-bankrupt stocks notwithstanding, bankruptcy proceedings exist for a reason. These businesses are in financial trouble, and any shareholder who has bought into a bankrupt company in recent weeks expecting the stock to keep going up will very likely lose their principle.
That being said, bankruptcy isn’t necessarily the end of the road for a company. In the U.S., companies use the Chapter 11 bankruptcy process to pay creditors and reorganize into a new financial entity.
On some occasions, a company will use the bankruptcy process to restructure and come out even stronger. This has happened with General Motors (NYSE:GM), which filed for bankruptcy in 2009, Six Flags Entertainment Corp (NYSE:SIX), which filed in 2009 and emerged in 2010, and most major airline companies, including United Airlines Holdings Inc (NYSE:UAL), American Airlines Group Inc (NASDAQ:AAL), and Delta Air Lines, Inc. (NYSE:DAL). Shares of GM and American Airlines eventually resumed trading on the New York Stock Exchange after trading on the Pink Market in 2009 and 2011 respectively.
Though these companies were able to restructure and survive, equity shareholders may still get wiped out. This happens because holders of common shares are the last to get paid in the bankruptcy process. In some situations, common stock shareholders will get to participate in a company’s bankruptcy, though this participation is usually accompanied by some kind of dilution if the company issues new shares.
Below is a list of the 47 securities that have de-listed from an exchange in 2020 due to bankruptcy, as of June 4.
|Company||Old Symbol||New Symbol||Date|
|Ferrellgas Partners, L.P.||FGP||FGPR||1/10/2020|
|Melinta Therapeutics, Inc.||MLNT||MLNT||1/13/2020|
|Jason Industries, Inc.||JASN||JASN||1/14/2020|
|CPI Card Group Inc.||PMTS||PMTS||1/17/2020|
|McDermott International, Inc.||MDR||MDRIQ||1/23/2020|
|Estre Ambiental, Inc.||ESTRW||ESTWF||2/3/2020|
|Estre Ambiental, Inc.||ESTR||ESTRF||2/3/2020|
|Parker Drilling Co.||PKD||PKDC||2/10/2020|
|Mountain Province Diamonds Inc.||MPVD||MPVDF||2/11/2020|
|McClatchy Co. (THE)||MNI||MNIQQ||2/14/2020|
|Pier 1 Imports, Inc.||PIR||PIRRQ||2/19/2020|
|Valeritas Holdings, Inc.||VLRX||VLRXQ||2/20/2020|
|Chesapeake Granite Wash Trust||CHKR||CHKR||3/2/2020|
|Ladenburg Thalmann Financial Services, Inc.||LTSF||LTSF||3/10/2020|
|Ladenburg Thalmann Financial Services, Inc.||LTS.PRA||LTSA||3/10/2020|
|Ladenburg Thalmann Financial Services, Inc.||LTSL||LTSL||3/10/2020|
|Ladenburg Thalmann Financial Services, Inc.||LTSK||LTSK||3/10/2020|
|SITO Mobile, Ltd.||SITO||SITO||3/10/2020|
|Ladenburg Thalmann Financial Services, Inc.||LTSH||LTSH||3/10/2020|
|Sophiris Bio, Inc.||SPHS||SPHS||3/12/2020|
|Blue Capital Reinsurance Holdings Ltd.||BCRH||BCRHF||3/31/2020|
|Obsidian Energy Ltd.||OBE||OBELF||4/2/2020|
|Micron Solutions, Inc.||MICR||MICR||4/6/2020|
|Quorum Health Corporation||QHC||QHCCQ||4/8/2020|
|Canntrust Holdings Inc.||CTST||CNTTQ||4/14/2020|
|Roadrunner Transportation Systems, Inc.||RRTS||RRTS||4/17/2020|
|Yuma Energy, Inc.||YUMA||YUMAQ||4/17/2020|
|Frontier Communications Corp.||FTR||FTRCQ||4/24/2020|
|Diamond Offshore Drilling, Inc.||DO||DOFSQ||4/28/2020|
|Reebonz Holding Limited||RBZ||RBZHF||4/30/2020|
|Taronis Technologies, Inc.||TRNX||TRNX||5/4/2020|
|Stage Stores, Inc.||SSI||SSINQ||5/12/2020|
|Emmis Communications Corp.||EMMS||EMMS||5/14/2020|
|Synthesis Energy Systems, Inc.||SES||SYNE||5/18/2020|
|Penney (J.C.) Co., Inc. (Holding Co.)||JCP||JCPNQ||5/19/2020|
|Centric Brands Inc.||CTRC||CTRCQ||5/28/2020|
|Scienjoy Holding Corporation||SJOYW||SJOYW||6/2/2020|
Image: Wikimedia Commons