Investors looking for stock buying opportunities likely haven’t seen some of this year’s notable success stories. That’s because they’re lurking in an illiquid, old-fashioned market – and are traded through fixed income securities bureaus.
Why is this important: After Chapter 11, many companies are left for dead by the wider investment community – keeping their returns under the radar due to the private market in which they trade. PSPCs (Special Purpose Acquisition Vehicles) are increasingly becoming interested in finding targets to buy.
Concrete example : J Crew.
- As the United States emerges from the pandemic, J.Crew’s shares have nearly doubled in value in the past three months, Axios has learned.
- J.Crew is now part of an obscure group of retailers – including Neiman Marcus, JCPenney and Belk – that have gone bankrupt and are now in some sort of property purgatory, with their equity held by a disparate group of alumni. creditors.
In numbers : J.Crew’s shares were trading at $ 9 around March and rose to $ 17 as company earnings rebounded.
- With around 100 million shares outstanding, equity is now worth around $ 1.7 billion.
How it works: When companies file for bankruptcy, their creditors usually end up becoming owners. It’s the same idea as a bank taking over a house after the owner stops paying the mortgage.
- In the case of companies, creditors waive all or part of their claims and in return receive new private shares, or “reorganized equity”.
The players: Reorg shares are traded by appointment only. Buyers are often existing investors or distressed funds already operating in the network.
Reality check: Some of the shareholders of the reorganization never wanted to own it. Their ultimate goal is to sell the business or go public.
The big picture: Plumbing remains archaic in this corner of the world.
- “It’s a very small market. The stocks aren’t listed anywhere, and you can’t trade them electronically. It’s ripe for disintermediation, like through the use of blockchain,” he told Axios Sanjeev Khemlani, Head of Senior Lender Advisory Practice at FTI Consulting. .
The bottom line: J.Crew and others aren’t memes or PSPC stocks (yet), but they are real companies with real market caps. They left the public market arena but could very well come back soon.