The Star-Ledger Archive
COPYRIGHT © The Star-Ledger 2008
Date:
2008/10/02 Thursday Page: 045 Section: BUSINESS Edition: FINAL Size: 322 words
ASK THE BIZ BRAIN
By KARIN PRICE MUELLER
STAR-LEDGER STAFF
Q. I own Lehman Brothers preferred H shares purchased at $25 per
share. What are the chances, if any, of getting some value back in their bankruptcy?
— Concerned shareholder
A. The
recent turmoil in the financial services industry has left a lot of shareholders shaking their heads, wondering if they're
going to see any of their investment back.
The preferred stock market has experienced volatility in the wake of the
ongoing financial crisis, sending valuations to all-time lows, says Bill Connington of Connington Wealth Management in Pine
Brook. He says following the announcement of Lehman's Chapter 11 filing, the preferred market experienced its worst single
day price decline ever.
"All Lehman bonds fall senior in the capital structure and are expected to recoup
some of their par value," Connington says. "Bondholders must receive the full face value and interest payments before
preferred stockholders receive one thing."
Connington says for investors holding preferred stocks, a re- examination
of risks and the investment purpose is essential. Unfortunately, preferreds are trading at very distressed levels, but not
zero. So, he says, there is a chance preferreds could recover something, but only after bondholders are paid back first.
So
at this point, you should re-evaluate the rest of your portfolio and make sure your goals can still be met.
Vince
Pallitto, a certified financial planner, says you shouldn't plan on seeing any money from that security.
In
Chapter 11 cases, secured debts are paid first, unsecured or general obligation debts are paid next. If there are any funds
left, preferred shares' holders are paid first, followed by common shares' holders.
"Although,
theoretically, preferred stock holders have a higher claim than common shareholders, they very rarely see anything in bankruptcy,"
Pallitto says.
