Legacy Reserves (LGCY) Stock Flies On Court Approval

Legacy Reserves LGCY Stock News

Legacy Reserves Inc (NASDAQ: LGCY) has been tumbling in the market as of late after announcing that it would be filing bankruptcy. However, you wouldn’t know that with the strong gains that we’re seeing this morning.

In fact, at the moment, the stock is trading on gains of more than 100% and seems to be going higher. The catalyst here seems to be bankruptcy court approval of motions. This, combined with what may be a short squeeze is leading to strong gains, but be careful.

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US Bankruptcy Court Approves LGCY Motions

After announcing to investors that it would be filing for chapter 11 bankruptcy, Legacy Reserves has been diving. However, with the approval of motions from the bankruptcy court, the stock is rocketing. According to the documents, the following actions have been authorized by the bankruptcy court:

  1. LGCY is authorized to file a single Consolidated Creditor Matrix for all of the chapter 11 cases.
  2. The company is authorized to file a Consolidated Top 30 Creditors List.
  3. The company may redact address information of individual creditors listed.
  4. The company may also serve the Notice of Commencement on all parties in interest. The service of the Notice will be deemed adequate and sufficient notice of the commencement of the chapter 11 cases and the scheduling of the Section 341 Meeting.
  5. LGCY has also been authorized to take all necessary or appropriate steps to carry out the order.
  6. The requirement of the company to file a list of equity holders has been waived.
  7. Finally, the requirement to provide notice to equity holders of the commencement of chapter 11 cases and order for relief has been waived.

Why The Stock Is Seeing Dramatic Gains

There are a couple of reasons that we’re seeing such dramatic gains in the value of LGCY stock today. First and foremost, the approval by the bankruptcy court is positive news. It means that the company will be moving forward with the restructuring plan as outlined. However, the gains in multiples go far further than that.

A big part of the gains has to do with what’s been going on with the stock. Since the announcement of the bankruptcy, shorts have been piling in. At this point, there are few shares left that are able to be sold short. Nonetheless, with the positive news slight gains in value can lead to big losses for shorts. So, many shorts are likely abandoning their positions, leading to what’s known as a short squeeze.

Be VERY Careful Here

The fact that Legacy Reserves has received approval from the United States bankruptcy court is great news. However, it’s important not to forget that this is still a bankruptcy.

At the end of the day, there is no assurance that after the bankruptcy is completed, holders of common shares will be holding anything of value. Chances are high that at the end, equity holders will essentially be holding an empty bag.

Of course, traders are going to make plenty of money here if they make the right moves, but a long term investment in LGCY stock as it stands now is likely a big mistake.

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What Do You Think?

Where do you think LGCY is headed moving forward? Join the discussion in the comments below!

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