Revlon’s bankruptcy judge just dealt a reality check to meme stock dreams.
What happened: The judge overseeing the case on Wednesday denied a retail shareholder group’s request to form an official equity committee. The move would have given the group a better seat at the table for bankruptcy plan negotiations.
Why it matters: Judge David Jones basically said he sees little chance that shareholders will get money back in the eventual bankruptcy plan — despite the stock’s sevenfold increase in the wake of the filing.
- The kicker: “A positive stock trading price alone is insufficient” to prove shareholders are likely to recover anything, Jones said, according to Bloomberg.
- Yet, the shareholders had pointed to the stock price as evidence of just that, the WSJ noted. (That's even though Revlon's bonds — which will get repaid first — trade at pennies on the dollar.)
The background: Official equity committees aren’t common, but they’re a real thing — and they get the court’s blessing when there’s any reason to believe there’s value for shareholders.
- These committees get their lawyers paid for out of the bankruptcy estate, just like the more commonplace committees of official creditors do.
Wednesday's ruling means that while shareholders can still agitate, they have to pay for their own lawyers in order to fight for the scraps.
- Shares fell 12% — but are still nearly 500% higher than the lows around the time of the bankruptcy filing.
The bottom line: Judging from the objections to the shareholders' motion to form a committee — objections from the company itself, as well as creditors — virtually no one who's in a position to decide things thinks that Revlon's share price reflects reality.