An interesting liquidation experience I have experienced

Less than 2 years ago, I talked about some free money I had seen then that I presented here in my blog entitled: “ Free cash in the corner?” This was about a small biotech company called BIND Therapeutics that had just bankrupted but the Pharma giant Pfizer bought it. The thing got my attention and interest was the fact that it was trading in a price far less than the liquidation value after the bond obligations per their CFO. Basically I could buy it at a very discounted price but could be reimbursed for more than the price I paid. It was indeed like free money to me. So I did buy the stock at about $0.9 per share. Soon after I posted the blog and bought the stock, actually its trading price went up towards $1.1 briefly I believe. Apparently many traders also realized the free money deal and wanted to take a stake. I was thinking to sell the shares at that time but somehow got distracted and didn’t do it before it was delisted within days. Then the interesting and rewarding “ordeal” started.


Actually I won’t say it is too bad and painful process but just a very long dragging process. Most of the time I was just doing nothing but would from time to time to receive the bankruptcy court documents informing me what had happened. I also had to provide my tax related information in order to receive distributions, which also involved a few phone calls to my broker for their verification information. That’s basically what it has all happened in the past 18 months or so and I have received in total 4 batches of distribution I recall. Last week, I got the final notice for the final distribution. Based on my cost base, I got about 30% return in less than 2 years. Not a great return that I can brag about but not too shabby that I should complain as well. It is just an interesting liquidation process I have ever experienced. Indeed the market may sometimes handle us some free money but we need to be savvy enough to grasp it. This often occurs in the bond investment area when a company has got too much debt and cannot service its debt with the current cash flow. That will cause the panic selloff of their bonds but from time to time you may find some good deals when the company’s asset value is much more than the bond obligations or they can easily find refinancing alternatives. This is the time savvy investors can easily get an equity like return much safely, e.g. 15-30%, when buying the distressed bonds at a huge discount. Of course, this requires special expertise that most people don’t have. It is more complicated in analysis than stock investment. That’s why bond investors are generally much smarter than stock investors and they can spot potential problems much earlier than the equity market. As a general note, the bond market is signaling an ominous future for the stock market. Of course, I’m not talking about anything near term in just a few months. But the stock market in a few years from now? Won’t be great as far as I can understand the signal the bond market is sending! Be careful about any long term financial products that you are getting or want to get, if they are based on the stock market. In this case, even the seemingly safe products like life insurance (that is based on the stock market performance) could get you into troubles if we indeed see a long lasting persistent bear stock market. It is a bit off the topic but it’s a relevant and important one to take a note on. On the other hand, a life insurance purely based on the bond market may very well become a very good and safe financial asset in the years to come. Remember, bond investors are generally much smarter than equity investors and life insurance companies have great bond investing experts who can take great advantage of distressed debts during financial crises for high returns beyond your imagination. This is just one little example how a bankrupted company may let smart debt investors earn an equity like return without much risks involved.