That’s especially true now, with numerous companies in the retail and energy industries filing for bankruptcy protection. 

So what is it?

Bankruptcy is a legal process that allows businesses that are unable to pay their debts to come up with a plan to pay back creditors, or people to whom they may owe money as a result of their normal business operations. The proceeding is typically handled in court and overseen by a judge.

Businesses may file for bankruptcy for a variety of reasons. Market forces may be unfavorable, the economy may be doing poorly, the business may have mismanaged its finances, or someone key to the company’s operations may have left, making it difficult for the business to continue. Whatever the case, the business needs to either stop functioning, or reorganize to meet its obligations and become profitable again.

It’s all about chapters

Bankruptcy is organized into chapters, which refer to subsections of the actual bankruptcy law. For example, businesses most often file for bankruptcy under chapters 7 and 11.  

Chapter 7 bankruptcy results in the complete liquidation of a business. That means the business stops all operations, and its assets, or what it owns, are sold off. Those proceeds from the sale of those assets are then distributed to creditors. Any money left after paying back creditors is returned to shareholders. 

Chapter 11 bankruptcy allows a business to reorganize, and potentially to round up new sources of financing, while discharging, or getting rid of, some of its debt. It hopes to become profitable again as a result of the reorganization. 

Good to know: Individuals can also file for bankruptcy. Like businesses, they can do so under Chapter 7, or under an additional section called Chapter 13. Both are court-mediated processes that allow individuals to either discharge or repay debt. Chapter 7 provides for complete liquidation of debts, whereas in Chapter 13 a debt repayment plan is drafted.

What happens to stocks and bonds of bankrupt companies? 

When a company files for bankruptcy, it pays its secured creditors first. That means entities like banks that have loaned money for things like a mortgage for the company’s property or equipment, are first in line. Bondholders are also likely to get paid because the company has agreed to pay them back by issuing bonds; equity shareholders, on the other hand, are usually paid last and often end up losing money. 

When public companies file for bankruptcy, the stock may also be delisted from its main stock exchange. Delisting is a process whereby a company is removed from the exchange where it trades for failing to meet the minimum value for its shares, typically $1 a share. If the company is delisted, it may continue to trade “over the counter,” on either the Over the Counter Bulletin Board (OTCBB), or the Pink Sheets. (Read more about delisting here.)

While there is no federal law that prohibits investing in the shares of companies in bankruptcy, it is extremely risky and can lead to substantial financial losses. It is possible for existing shareholders to lose all (or nearly all) of their investments. This is because creditors get paid first and shareholders only receive what’s left over, if there’s anything left over at all.

Remember, all investing involves risk and you can lose money on your investments. Stash does not recommend investing in the shares of companies in bankruptcy. 

The post What’s Bankruptcy and How Can It Affect Me? appeared first on Stash Learn.

But sometimes, businesses can encounter difficulties, or may even declare bankruptcy. In such cases, they may also be removed from exchanges, in a process known as delisting. 

Here’s what can happen:

• Different exchanges have different rules, but generally speaking, when a company’s shares fall below a threshold of $1 for an extended period of time, the stock may get delisted.
• When a company is delisted, it gets kicked off the exchange, and its shares stop trading there.
• The company may then go on to trade on a smaller exchange, called an “over the counter” (OTC) exchange, such as the Over the Counter Bulletin Board (OTCBB), sometimes called the Pink Sheets. (In times past, the listings of over-the-counter stocks were actually printed on pink sheets of paper.)
• Typically, before a stock is delisted, the company has about six months to get its share price back up. To boost the value of its shares, a company may do something called a reverse stock split.  With a reverse stock split, a company reduces the number of shares it has for sale, which can drive up the value of the shares. It’s the opposite of a stock split, where a company increases the number of shares it has outstanding, to make the shares more affordable. The total market value of the company, which is the total value of all of the shares outstanding, would not change. However, the share price would.
• A company may also be delisted if its market cap, or total dollar value on the market, falls below a certain amount over a 30-day period. In the case of the NYSE, that dollar value is $15 million.
• When a company is delisted, it is not subject to as many requirements from regulatory bodies, such as the Securities and Exchange Commission. The company may not file quarterly financial statements, or provide as much information about its operations.The lack of information can make it difficult to evaluate how the business is performing, and can add more risk to owning the shares.
• Good to know: If you own stock that is delisted, you still own the shares.

All investing involves risk, and you can always lose money on your investments. Stash does not recommend purchasing the shares of companies that are traded OTC. If you do, however, choose to buy them, you should exercise extreme caution as they may be hard to sell for liquidity reasons, or a lack of buyers.

The post What Happens When a Company Gets Delisted? appeared first on Stash Learn.

FCF Co. Ltd., a multinational seafood conglomerate based in Taiwan, will reportedly acquire Bumble Bee for $925 million.

Bumble Bee has sold canned seafood and other food products under a variety of different brand names, helping to make tuna a staple of consumer lunchboxes for close to 120 years. It has reportedly faced some challenges in recent years with legal issues and increasing debt problems, as well as declining demand for tuna, which it has blamed on the changing tastes of millennials.

What is price fixing?

Bumble Bee’s declaration of bankruptcy comes two years after the company pleaded guilty to fixing the price of tuna along with two other canned tuna producers, Chicken of the Sea and StarKist.

Generally speaking, price fixing occurs when competitors agree to raise the price of a product, according to the U.S. Department of Justice.  Price fixing is usually done secretly between companies that typically compete with one another, and at the expense of the consumers, who are often forced to pay higher prices. The practice is illegal, according to the Federal Trade Commission, a federal agency charged with consumer protection.

The Department of Justice fined Bumble Bee $25 million for price fixing that occurred between 2011 and 2013. Bumble Bee still owes $17 million of that fine, according to its news reports. Bumble Bee also faces civil lawsuits related to its role in price fixing from companies including Sysco and U.S. Foods.

It also reportedly owes FCF, its potential buyer, $50 million for business expenses.

Did millennials kill the tuna sandwich?

Despite its debt problems, some canned tuna companies have blamed millennials for the “death” of the tuna industry. In fact, per capita consumption of canned tuna has fallen 42% during the 30 years up to and including 2016, according to the Wall Street Journal.

Research also indicates that 32% of people between the ages of 18 and 34 have recently bought tuna, compared to 45% of people 55 years and older, according to a 2018 Mintel study. 

*Source: Mintel

Millennials have been lampooned for eating avocado toasts and for killing a variety of other classic foods including American cheese, cereal, and even raisins. Most recently, millennials were blamed for killing the milk industry, when milk producer Dean Farms declared bankruptcy.

Between 2012 and 2017, sales of dairy milk fell 15% while sales of non-dairy milk alternatives increased 61%, according to a Mintel study.

StarKist’s CEO Andy Mecs has reportedly said that millennials aren’t buying canned tuna because they “don’t even own can openers,” and therefore can’t open canned tuna.  In reaction, companies including StarKist and Bumble Bee have started selling tuna in millennial-friendly pouches.

Traditional tuna producers are also combatting the emergence of tuna manufacturers such as Wild Planet Foods, which allegedly produce more sustainable and environmentally friendly tuna.

The post Here’s the Buzz on Bumble Bee’s Bankruptcy appeared first on Stash Learn.

Sears has found it hard to compete in the era of online sales, dominated by Amazon, and in the era of big-box stores, ruled over by Walmart, Target, Home Depot and others, according to industry experts.

The 130-year-old chain is also drowning in debt and needs to repay $134 million in loans early this week, according to reports.

But Sears has been in decline for years. Just ten years ago, the company had 300,000 employees. Today, plagued by falling sales, it has fewer than 70,000 workers, according to reports.

Here are the details:

• The chain will close 186 unprofitable stores, according to its press release.
• Sears’ chief executive officer Eddie Lampert will step down and will be replaced by three other top executives at the company.
• Lampert owns a hedge fund called ESL, which has loaned Sears close to $1 billion.
• Sears also owns Kmart; many of its stores are also set to close.
• Sears has secured at least $600 million in post-bankruptcy financing to help reorganize the company, according to its press release.
• The company’s last profitable year was 2010, and it has reportedly lost $12 billion since then and closed 2,800 stores since 2005.

What is bankruptcy?

Businesses file for bankruptcy to protect themselves from creditors, which are entities or people that have loaned them money. They typically go through a court-mediated process, called Chapter 11, that allows them to reorganize and round up financing to continue operations, as well as discharge some of their debts.

In contrast, consumers can file for something called Chapter 7 or Chapter 13, which are also court-mediate processes that allow them to get rid of debts. With Chapter 13, debts are not liquidated completely, and a repayment plan for some of the debt is drafted.

The story of Sears

Sears was founded in 1893, as Sears, Roebuck &  Co. It started out as a catalog company selling watches and jewelry and opened its first department stores in the 1920s. Its catalog ultimately expanded to include hundreds of pages, selling everything from clothing to kit houses delivered by railroad.

In its heyday, it dominated the 20th-century retail landscape, even launching brands like Craftsman tools and Kenmore appliances. It shipped to nearly every U.S. home, was the first department store to create parking lots outside its stores to accommodate customers, and to stay open seven days a week, according to reports.

Interesting fact: It also launched Allstate Insurance and the Discover credit card.

Tough times for retail

Sears’ bankruptcy comes at a time when other high-profile retail stores are also going out of business.

These include Toys R Us, which closed down in March, and RadioShack, Payless Shoe Source, and The Limited.

The post Sears is Filing for Bankruptcy: What’s Bankruptcy, Anyway? appeared first on Stash Learn.