Battle for Bally's Heats Up

Why do this? For one thing, nobody wins in a default:

Shareholders lose, because their equity is wiped out. Debtholders get paid back first in a bankruptcy.

The management team loses, because sooner or later they will be fired by whoever steps in to restructure the company in a bankruptcy.

Since most of the debtholders are hedge funds, they lose too -- even if they get paid first. Hedge funds are reporting monthly results to their investors. When everything is going fine, the debtholders report great results to their shareholders (the interest rate divided by 12) and at extremely low volatility. When debt is impaired (i.e., there is a default), the dreaded word "writedown" is used. Nobody wants to see or hear that word. So both the company and the debtholders will do anything they can to avoid the writedown word.

In effect, the bondholders extended the runway to Bally's and changed the terms so that it would actually be harder for the company to default. In exchange, Bally's gave them some money. It's win-win -- unless Bally's doesn't work through its financial reporting problems by Nov. 30.

Bally's has at least temporarily solved the problems with debtholders. And equity holders have now seen that the debtholders will do whatever it takes to avoid bankruptcy. My guess is sometime soon we'll hear the next word from Liberation as to how they suggest the company modify its operations now that the issue with the debtholders has been resolved. And with Pardus talking to Liberation and accumulating shares as high as $3.93, my guess is they're expecting more than a gain of 13 cents.

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