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May 27, 2020
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While investing in distressed companies can produce enormous gains, not all distressed companies fully recover. Some slip into bankruptcy, yet this might still produce a positive return for some bondholders.   However, in some cases the company has little value at all, and is best sold piecemeal, for scrap, in essence. What happens to your investment then?     

In nearly every case, the shares of a company in bankruptcy become worthless. In very rare cases, however, they can become great investments. W.R. Grace (NYSE:GRA) shares produced a 75-fold return, as an example.  With California utility PG&E (NYSE:PCG) now in bankruptcy, the range of possible outcomes for its equity is wide.A straightforward approach would put the range at a total loss (-100%) to +400% gain.  A back-of-the-envelope estimate might put the upside at $25-40 for a 79% to 185% potential return – generous but risky given the real possibility of a 100% loss.  Buying PCG shares may make sense for sophisticated investors able to tolerate a total loss, but not for nearly anyone else. In nearly every case, the shares of a company in bankruptcy become worthless. The company’s liabilities exceed its ability to pay them, and typically its assets don’t have enough value to cover the obligations, either. Once the remaining value gets carved up among various creditors, there is usually nothing remaining for shareholders. Sears Holdings, now in bankruptcy, will likely go this route.