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The Post-Bankruptcy Stock Index Introduction and Overview
The Turnaround Letter’s Post-Bankruptcy Stock IndexTM (PBSI) provides a benchmark to help investors in tracking the sector performance of publicly traded companies that have recently reorganized and come out of bankruptcy. It tracks the 20 largest (by market capitalization) stocks currently trading of companies that have emerged out of bankruptcy during the preceding five years.
The Post-Bankruptcy Stock IndexTM is a "capitalization-weighted index," meaning that it weighs each of its components based on its total market cap each day (number of shares outstanding multiplied by the price per share).
Total market value of a company is determined by multiplying the price of the stock by the number of common shares outstanding. An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time. The daily calculation of the PBSI is computed by dividing the total market value of the 20 companies in the Index by a number called the Index Divisor, which links to the original base period value of the Index. The Divisor keeps the Index comparable over time and allows for Index maintenance adjustments (such as may be required to account for dividends or other corporate actions.)
The Post-Bankruptcy Stock IndexTM does not factor in dividends.
Component Eligibility Requirements
All of the following requirements must be met in order for a company to be eligible for inclusion.
- The company must be a publicly traded company that has reorganized and has come out of bankruptcy with an "Effective Date" recognized by the applicable U.S. Bankruptcy Court within the preceding five years.
- The company must be trading on the NYSE or the NASDAQ.
- The Index only tracks the performance of common stocks issued following the emergence from bankruptcy. No warrants or preferred stock will be included.
- A component stock will be removed from the index five years after the company's emergence from bankruptcy, as measured by its "Effective Date." On February 4, 2015 the “mortality date” of the Post-Bankruptcy Stock Index was changed from four years to five years to more accurately reflect the current conditions in the post-bankruptcy investing sector.
- Each component of the index must be one of the twenty (20) largest companies (measured by market capitalization) that meet all of the other Component Eligibility Requirements.
- If a company files for bankruptcy again while it is a component of the Index, it will be removed from the Index and will be replaced by the next largest eligible component not then in the Index.
- If assets were at some time spun out during the bankruptcy and a stock was issued thereto prior to the parent assets emerging, the spun out assets or stock would be considered an eligible component.