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Stocks D / Delta Air Lines, Inc.

URL:  http://boards.fool.com/wde-would-this-mean-that-once-they-come-out-of-23050193.aspx

Subject:  Re: Buying Delta? Date:  9/19/2005  12:30 PM
Author:  rev2217 Number:  670 of 685

WDE,

Would this mean that once they come out of Chapter 11 proceedings then buying stock again would be an option? If so, how prudent would that be?

Yes, buying the company's stock after it emerges from Chapter 11 is certainly an option -- but one that warrants caution and due dilligence.

Let me amplify on that. When companies reorganize via a Chapter 11 bankruptcy proceeding, they attempt to shed the parts of their business that are liabilities (that is, the source of red ink) so that what remains is a profitable business. The bankruptcy code allows a company in Chapter 11 to terminate leases and other contracts that it would not be able to terminate otherwise. By way of example, a company that operates department stores may close stores that are not netting enough profit to cover their rent. The bankruptcy code allows the company to terminate the leases on such stores as soon as it vacates the building, with the court's approval, so the rent and other fixed costs associated with that location cease to be red ink on the balance sheet. The owner gets the building back and may rent it to another tenant to make up the lost rent from the termiated lease.

Now, bankruptcy reorganization is a very tricky process. Continuing the previous example, a retailer who closes a several stores in a geographical area may discover that the warehouse or distribution center serving that geographical area is too big for the remaining stores in that area, and thus has to realign its distribution network (and there are several options for doing so -- leasing or subleasing part of the building, moving the facility to a smaller building and terminating the lease or selling the vacated building, or closing the facility completely and rea