Hi, So today LATAM airlines declared that it will enter chapter 11 bankruptcy. Just out of curiosity, I checked the stock a few times today to see what happens. It turns out that most of the day the stock was not traded at all, and then suddenly, when I checked after the market closed, it dropped 34%. Why did it drop only 34%? isn't the stock worthless right now? Can it theoretically go up in the next few days, even though the company is bankrupt? Also, I know that Delta airlines held 20% of LATAM's stocks (which cost them 1.9 billion USD). Does that mean that Delta lost all the money it invested in LATAM? I also read that LATAM claims it will continue flying throughout the bankruptcy process. So are they keeping the same stock as before? or will they have a different stock? and what does that mean for an owner like Delta? will it continue to own 20% of LATAM? Thanks
Chapter 11 isn't bankruptcy. It's bankruptcy protection. This will buy them some time to restructure and request indemnification from liabilities, without creditors foreclosing on them. Companies don't usually return from bankruptcy protection but it happens. I don't recall the statistic but it's something like 30~40% survive Chapter 11 proceedings.
So basically it means that at the moment it's business as usual for them? It's just a protection they get for a certain period of time?
Pretty much. Suppliers and creditors are legally obligated to deal with them. I don't know how long the protection lasts. It's usually some months, at a minimum. The company will be audited, a team will be brought in, and a plan will be created. That plan will be presented to a judge who will approve a plan to save the company, if it is proven to be a viable return to profitability. The judge has somewhat broad sweeping powers to force a breakup, sell off, or whatever, as I understand.
Grizly, TomB16 is spot on when referring to Chapter 11 as "protection". It essentially protects the entity that filed for C11 from its creditors (who are now likely not very happy). In my line of work (commercial property management) when we start to hear rumblings of a possible tenant bankruptcy, we immediately look to see how much of a security deposit we collected and hold for them. We then consult with our legal team to see if we can apply it to any open balance on their ledger before they file. This is because once they do (file), we cannot touch the security deposit. Totally sucks because now they occupy a suite/store/space (whatever) and you can't do anything until the bankruptcy court where they filed settles which could sometimes take months. This is why negotiating debt repayment with a struggling company (like LATAM) is beneficial, even at say $.30 on the dollar. I'm in Texas and my last bankruptcy filed in North Dakota! You run the numbers, hire an attorney in ND to represent us, the landlord, in bankruptcy court in hopes the judge will allow us some favor? Yeah, fat chance.