Updated to include analyst earnings estimates and Chrylser IPO information. NEW YORK ( TheStreet) -- You thought these companies were dead. Now they're ready to come back to life and maybe even thrive. In the financial crisis, a surge in bankruptcies not seen since the Great Depression put hundreds of U.S. companies in jeopardy. To the surprise of many, it wasn't the end. Just a few years later, the shares of many once-bankrupt, now publicly traded companies are outperforming, showing there is a second act in life as long as you get debt under control. A longtime haunt for financiers like J. Christopher Flowers, Wilbur Ross and hedge funds, distressed investments made it to the doorstep of retail stock investors with little fanfare in the aftermath of the crisis. That's because after the credit freeze precipitated a wave of defaults, those companies used the bankruptcy process to fix problems, re-emerging in initial public offerings or secondary share sales.
The thought is counter to Lehman Brothers emergence from the largest bankruptcy in U.S. history on Tuesday, where it is expected to pay $65 billion to debt holders in a multi-year asset liquidation that will pay the average creditor about 18 cents on the dollar. While Lehman Brothers was a watershed bankruptcy moment in the crisis, it didn't turn out to be the model. "For companies where their problem was debt, over leverage or onerous executory contracts, whether they are collective bargaining agreements for airlines and auto companies, or leases for retailers, those companies have a unique opportunity to restructure and be an attractive asset for shareholders in the marketplace," says Cathy Herschcopf, a partner in bankruptcy and restructuring practice at Cooley. For instance, General Motors' ( GM) prospects are the brightest in a generation after it underwent the mother of all crisis-time bankruptcies and share sales. In a Tuesday interview with Detroit radio station WJR, Chrysler-Fiat's chief executive Sergio Marchionne said that doing a Chrysler IPO would be pain-free for the third largest U.S. automaker. Suffering from crippling debt and pension costs, in addition to falling sales and bloated operations, GM fell into a pre-packaged bankruptcy. After negotiating with lenders, the U.S Treasury and unions, GM re-emerged with a third of its debt load and leaner operations in a blockbuster November 2010 IPO. After a tough first year, GM's shares are up over 20% in 2012, as the automaker capped a year that returned it to the global top spot in auto sales. But the bankruptcies of automakers GM and Chrysler were rare cases of government led bankruptcy efforts notes Herschcopf of Cooley, in contrast to hundreds of other corporate failures across various sectors. In 2009, Moody's counted 265 defaults among corporations it followed, the most since 1933 and far more than a 2001 bankruptcy wave. Some bankruptcies like Lehman Brothers and Borders left little room for a future, but others, even in the financial services sector, entered pre-packaged restructurings where a debt or contract fix paved the way for a quick exit and a re-launch of shares with strong upside. The difference is that some companies were facing big operational issues, while others were just suffering from a historic credit freeze or negotiating standstill on employee or lease contracts, for instance. "There is a difference between a company that has filed for bankruptcy because of capital markets issues, versus a company that needs operational fixes," says Gary Holtzer, a partner in the business finance and restructuring practice at Weil, Gotshal & Manges. Holtzer says that some sectors like real estate just needed a way to refinance debts or shed unnecessary assets, making bankruptcy a quick stop. Contrary to its name, hotel chain Extended Stay spent just a few months in bankruptcy before being sold to a group of private equity investors. General Growth Properties ( GGP), a process that Holtzer was involved with, emerged from the largest ever real estate restructuring after its debts were amended and the company was split into two separate publicly traded entities, with both posting gains since their fall 2010 bankruptcy exits. There are dozens of other companies, once far too risky as they hurtled towards bankruptcy, which have returned to the public markets without much of the baggage that put them in peril. Recovering markets were also a tailwind for a flurry of bankrupt companies emerging in 2010 and 2011, notes Gerard Uzzi a partner in White & Case's financial restructuring and insolvency group. "The fact that the asset values were recovering facilitated deals getting done," says Uzzi of the quick exit of many companies to sales or IPO's. After a pre-crisis private equity buyout wave, Uzzi also says that a there was an abundance of levered companies in need of a quick fix like a debt renegotiation. "A lot of the companies that went through bankruptcy were a result of the LBO rage and the cheap amount of money available for leverage. Then the liquidity dried up," says Uzzi. All told, many strong investment ideas were available for stock investors in the aftermath of the bankruptcy wave, contrary to what many expected in 2008 and 2009 as the U.S. economy seemed to be falling into an intractable abyss. Still, even with a strong pipeline of initial public offerings, including many listings from private equity coffers, Scott Sweet of IPO Boutiques warns that due diligence is paramount. "There is a fine line between too much debt and debt that is workable," says Sweet of successful listings compared with those that flop. For some companies, restructuring doesn't go far enough and operational or balance sheet issues linger. Here's a look at five companies to watch for that are still private after finding new life after bankruptcy and another five that have returned to stock markets with a bang. For more on conservative investments to watch for, see 10 stocks owned by the best fund managers, 10 dividend stocks paying outsized yields and 9 dividend stocks that will let you retire.