Valaris Warrants

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Mollinska
Posts: 29
Joined: Sun Mar 29, 2020 7:54 am

Valaris Warrants

Post by Mollinska »

I did some gambling during the covid market downturn and bought 263 shares of Valaris (VAL) for $243. The company soon after filed for Chapter 11 bankruptcy (did I mention I was gambling, LOL?). :oops: :oops:

The Valaris Chapter 11 resulted in me being issued 7 "Valaris Warrants" (VAL/WS) that expire in April of 2028.

Bogleheads, I have no idea what any of this means... something about I "need to transfer the warrants to the new ticker symbol" (or something).

Valaris has a company ("Stretto") to contact to instruct them to transfer the warrants, but ... I don't get it. Is there an optimal way for me to "transfer the warrants"? I read that if I don't transfer the warrants by April of 2028, they expire and are worthless. But...Why do I have to transfer them? Why didn't Valaris just issue them to me after they finished Chapter 11?

As of today, if I wanted to buy Valaris stock, the per share price is $75.13. But my 7 shares (held in Schwab) are currently valued at a whopping $18.80 per share.

If I transfer the 7 warrants, would those be worth $525.91?? That wouldn't be so bad... but as far as I know, transferring the warrants could make them be worth $0. :greedy :greedy

Thank you in advance to anyone who is willing to explain this PhD-level stock rigamarole to this neophyte! Oh, and I sure learned my lesson: I'm sticking with broad market index funds from here on out! :sharebeer
psteinx
Posts: 5785
Joined: Tue Mar 13, 2007 2:24 pm

Re: Valaris Warrants

Post by psteinx »

A warrant is basically a synonym for "option". Warrants usually last longer (~5 years in your case - options are often for 1-12 months).

The warrant should have a strike price. Let's say the strike price is $20. That means that, to turn the warrant into an actual share of whatever stock, you'd have to pay $20 per warrant. If the common shares are at $55, that's a good deal (you'd pay $20, and get something worth $55. $35 to the good.) If the common shares are worth $14, that's a bad deal (why pay $20 to exercise, when you could buy the same shares on the open market for $14 each?)

I'm not quite sure what the language about "transferring" is about. If you held the original shares in your brokerage account, I would expect the warrants to show up there too. But given that it's a bankruptcy, maybe this was a little different. That said, I suspect that you're confusing EXERCISE of the warrant (at the STRIKE price) with "transferring".

Warrants will show up on a brokerage statement with a value. As the expiration date approaches, that value will converge towards either $0 (if the strike price is above the common stock price), or the difference between the common stock price and the strike price (in my example above, if the common is at $55, and the strike price is $20, then the warrant value would trend towards $35). That said, if the warrants DO have value (i.e. are "in the money") you'd likely have to take SOME action, before expiration - either sell the warrants to somebody else (who will probably exercise it), or call your broker, speak to the "corporate action" desk and exercise the warrants yourself.
Last edited by psteinx on Fri Jan 27, 2023 10:04 am, edited 3 times in total.
Topic Author
Mollinska
Posts: 29
Joined: Sun Mar 29, 2020 7:54 am

Re: Valaris Warrants

Post by Mollinska »

I think this is what a warrant is:

An offer from the previously bankrupt company to buy shares of their stock at a "reduced" price.

So in my case, when Valaris "gave" me 7 warrants, they're basically "allowing" me to buy their stock at a price they chose.

And if I don't want to buy any more of their stock, in April of 2028 my warrants become worthless.

:annoyed
Topic Author
Mollinska
Posts: 29
Joined: Sun Mar 29, 2020 7:54 am

Re: Valaris Warrants

Post by Mollinska »

Thanks, psteinx!
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Valaris Warrants

Post by Apathizer »

I'm sorry this didn't work out, but it's instructive. Don't buy individual stocks. :x
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Hyperchicken
Posts: 2001
Joined: Mon Mar 02, 2020 4:33 pm

Re: Valaris Warrants

Post by Hyperchicken »

they're basically "allowing" me to buy their stock at a price they chose.
Sounds like a call option.
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