As noted in my 2010 Q1 portfolio update, I purchased common shares of RGCIQ.
Regent Communications Inc is currently under Chapter 11 bankruptcy and is working to reorganize the company under a prepackaged plan.
RGCIQ is an interesting situation because under the proposed plan, common shareholders will be “gifted” 12.8c for every common share they hold.
The market offered multiple days of mispriced action when RGCIQ was being sold for 10c which would have been a guaranteed return of 28%. Not bad odds at all.
I was going to write up a whole summary of the situation, the players and the odds, but just the other day, a case summary of RGCIQ popped up. The information contained within is very well documented and the author is obviously well experienced in the world of investing in distressed companies.
Analyzing bankrupt companies will be new to many of you, myself included, but don’t be turned off. Take your time to read over it. It can only help you get better and increase your circle of competence.
For distressed opportunities, my opinion is that you perform less number crunching than you would normally do when finding a company to go long on. However, the difference is that you have to simulate multiple scenarios and play your hand to the best odds.
Much like merger arbitrage, you have to keep up with the situation and how the bankruptcy is progressing.
From what I can see, there is a considerable amount of work involved in reading the lengthy documents, which can easily exceed 100 pages, keeping up with news and analyzing the situation.
Cases where equity holders receive something is rare, but it does exist and the upside is enormous. You can expect returns over 100% easily if things work out well. On the other hand, the risk is that you could lose it all as well.
A home run example is Visteon Corporation (VSTNQ). With management incentivized and pieces of the puzzle falling into place, common shareholders were able to capture over 2000% gains within one month! (Although it does looks like irrational exuberance is setting in)
No doubt a rare case, but a fine example of what could happen.
With that said, enjoy the document below. If you are reading from email, follow the link to the document.
Regent Communications Inc Case Summary
I hold RGCIQ at the time of writing