Always found this interesting. Technically equity is wiped out the moment liabilities exceed assets, but these stocks never go straight to zero.
In many ways distressed equity behaves like an option. With downside capped, upside open if the business somehow recovers above its debt. Which also means volatility actually helps equity holders in these situations, counterintuitive as that sounds.
Curious if anyone here has traded distressed names and how you think about when the optionality becomes pure speculation.