More companies go public soon after bankruptcy

NEW YORK (Reuters) - SuperMedia Inc (SPMD.O) Chief Executive Officer Scott Klein stood on a platform at the Nasdaq MarketSite in Times Square to ring the opening bell for trading -- and tried not to choke up.

It had been a long nine months for Klein and his team at the small business advertising agency. In March, the company, then Idearc, had filed for bankruptcy, sunk by payments on $9 billion in debt and eroding demand for its yellow pages business directories.

But just six days before Klein took the Nasdaq stage on Wednesday, the company emerged from bankruptcy with a lighter debt load and a renewed sense of purpose. Now SuperMedia was the first company to list on Nasdaq in 2010, and its shares rose 17 percent that day.

Such a quick transition from bankruptcy court to stock exchange is not new, but more companies than usual have made the sprint in recent months.

Poultry processor Pilgrim's Pride Corp (PPC.N) and small-business financing provider CIT Group Inc (CIT.N) are among the companies that began trading within days of exiting Chapter 11 bankruptcy protection.

Investors should see more showing up on their stock-picking screens in coming months as the improving economy has made bondholders more willing to accept equity in lieu of cash repayment.

"There are sizable companies that are coming out now that have a decent story and sound underlying business," said Keith Cooper, senior managing director at business advisory firm FTI Consulting. "It's clearly a trend that is unique to this cycle."

RUSH TO MARKET

Cooper pointed to the peculiar nature of the recent U.S. recession.

Strong as well as weak companies filed bankruptcy because the widespread credit crunch prohibited market leaders such as Pilgrim's Pride from accessing capital to manage through a tough time.

On Nasdaq, SuperMedia is the only company to list upon its emergence from bankruptcy in the past two years.

Only two companies went public on the New York Stock Exchange soon after emerging from bankruptcy in each of the years 2003 and 2004 as the economy climbed out of the 2001 recession, according to NYSE data. There were no such listings in 2005.

By comparison, four such companies listed quickly on the NYSE in 2009 -- all in the latter half of the year, according to data from the exchange and Reuters.

"It is rather unusual that you have a lot of these companies coming out and immediately start trading on the public stock exchanges," Cooper said.

With the economy picking up and lending flowing more freely, bondholders of "good businesses with bad balance sheets" are accepting new equity instead of payment on their debt, Cooper said, betting the shares will be worth more down the line. The Standard & Poor's 500 index .SPX is up 28 percent over the past year.

Companies, too, can benefit from swapping debt for equity.

"When you come out of Chapter 11 as a public company, you've restructured debt to equity, and that's a major benefit," said Roger Frankel, head of the restructuring group at law firm Orrick, Herrington & Sutcliffe LLP. "You have eliminated the interest payments that previously accrued on the debt."

General Motors Co GM.UL and U.S. oil and gas transportation company SemGroup LP SEMGP.UL are expected to list their shares later this year.

WINNERS?

Distressed debt experts who have experience shepherding companies through a quick, prepackaged bankruptcy process have the most to gain.

"The winners have been hedge funds and private equity funds, which have bought the debt at distressed prices," Frankel said. "These are the ones who are going to be the holders of the new equity."

In a prepackaged bankruptcy, creditors and the company reach agreements on repayment before the filing, resulting in a faster and less expensive reorganization. The number of prepacks tripled to 30 in the first 11 months of 2009, compared with just 10 a year earlier, according to a BankruptcyData.com study.

The volume suggests there may be more share listings to come in 2010, restructuring experts said.

Investors who have taken a chance on recently bankrupt companies have mostly been rewarded.

Shares of CIT, which filed the largest prepackaged bankruptcy filing in history, are up 15 percent since the company emerged from bankruptcy, and car parts maker Lear Corp (LEA.N) is up 26 percent. Still, Pilgrim's Pride shares have slipped 7.5 percent.

Klein of SuperMedia said he practiced his opening-bell speech more than 30 times before he could get through it without becoming emotional.

"I always knew there'd be a day where we'd be able to say to the world, 'Look what we've done,'" he said. "I see today as an important first step on what is going to be an incredibly journey for our company and our clients."

SuperMedia shares have risen 11 percent since then.

(Reporting by Chelsea Emery; Editing by Lisa Von Ahn)