Profit Opportunities in Bankrupt Companiesby Tom Murcko
Bankruptcies and restructurings sometimes offer substantial investment opportunities. It's usually a mistake to buy common stock of a company that's filed for bankruptcy, since common stock holders are low on the totem pole, after employees, banks, bondholders, supplier creditors, and the IRS. But these situations often present other opportunities. One is bonds. Another is the defaulted bank loans of the bankrupt company. Another is trade claims of suppliers who haven't been paid yet. Another is to wait until the complexities have been resolved and the debt has been converted to equity, then buy the securities from sellers who don't want them. But the risks of bankruptcy and restructure investing are high and the deals are complex, so these should only be attempted by sophisticated investors willing to do substantial research.