Aryamehr

Capitally Challenged Stocks That Could Be Diluted or Extinguished

Well written article. What I liked most of all is your section on the covenants,

"There are potential scenarios lurking that can heighten the risk to equity holders. Take the scenario where the bonds or bank-debt trade very cheaply and end up in the hands of vultures. They may very well WANT the company to go bankrupt, using their senior position to take control of the entire company. I have written about the potential for asset impairments to degrade balance sheets further and trigger covenant violations (Goodwill Hunting). As time passes, I learn more each day about how poor the position of equity holders in leveraged companies can be. If there was ever a time to exercise caution or at least be as informed as possible, it is now!

This is something a lot of equity holders should heed to in this deleveraging environment. Fortunately, most vultures are also financially strapped, nevertheless one should never underestimate the possibilities.