As a young and speculative investor, I bought more shares in U.S. Concrete (RMIX) following their announcement to seek bankruptcy protection (...Are the Warrants Worth It?). That is not the end of the story...
I wonder if hedge funds buy what will be "old" or "potentially cancelled" equity to obtain warrants (when possible) to buy x% of new equity at a set price when such a company emerges from bankruptcy. Under U.S. Concrete's plan, existing shareholders are to receive warrants to acquire 15% of the new equity resulting from its restructuring (fully story here). My logic brings me to initial public offerings. It is likely to assume that hedge funds/other investors might want the opportunity to get in on the offered price of the new equity via warrants again given to the "old" or "potentially cancelled" equity holders if the new equity is assumed to be undervalued or if those hedge funds/other investors see significant upside in the company/industry. The following posts here and here suggest potential upside in U.S. Concrete and the construction/cement industry.
The concern now becomes how to value what will be new equity of a company while it is in bankruptcy? I came across an article here that could suggest how new equity is not valued by a bankruptcy court, but instead by the market - supply and demand. Nonetheless, I look forward to reading comments regarding the matter.
Now if hedge funds/other investors do buy "old" or "potentially cancelled" equity for warrants, does that indicate the new equity will rise in value once the shares become publicly traded? With that said, I presume there will be a bid on April 30 for RMIX stock. That would imply that investors see potential in the company, would it not? If there is no bid, I will follow-up to this article accordingly. On a final note, RMIX will continue operating as it normally would and they do plan to emerge from bankruptcy within 75-90 days. The market saw similar cases with CIT Group as well as other companies.
I leave this post open for discussion.
Full disclosure: Long RMIX at time of writing.
