A tale of two bankruptcies
Two bankruptcy cases from opposite ends of Missouri apparently will have very different outcomes for people who play the risky game of speculating in failed companies’ shares.
Shares of Interstate Bakeries fell 85 percent today, closing at 15 cents apiece, as the company’s reorganization plan moved forward. Common shareholders would receive nothing under Interstate’s plan.
Shares in Solutia, however, have been a hot property since the chemical company announced a settlement of its long-running Chapter 11 case. There, shareholders will get 1 percent of the stock in the reorganized company, plus the right to buy more shares at a discount. Solutia’s shares traded for 69 cents today, up 82 percent from their value of 38 cents on Sept. 26.
Interstate Bakeries is based in Kansas City; Solutia is based in St. Louis County but its bankruptcy proceedings are in New York.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
This illustrates the extreme risk (both upside and downside) associated with the stocks of companies that are financially troubled.
If a person had invested a dollar in both Solutia and Interstate Bakeries before these developments, their dollar in Solutia would have grown to $2.63, while their dollar in Interstate Bakeries would have declined to $0.15. Overall, their investment would have grown from $2.00 to $2.78 — an increase of 39%. I think that I’ll use this principle to start a hedge fund, where I get to keep 20% of gains for my managerial insight.
Don’t tell the prospective clients of my hedge fund, but I calculated the above hypothetical investment wrong. The $1 invested in Solutia would have grown to $1.82. Added to the $.15 value of Interstate Bakeries, that would have been $1.97, representing a loss of $0.03. Of course, we hedge fund gurus can always point out the tax advantages of such losses to sell our products.