At first impression, the fact that debt holders are selling off...

At first impression, the fact that debt holders are selling off holdings below par, would suggest that they believe they will not get back their original capital lent to the business. What does this signal to equity investors. It signals that not only do they believe the value of the equity is worth zero, but they also believe the residual assets of the company will not cover the outstanding debts of the business. This is obviously not a pretty situation for holders of Billabong shares.

While the above situation is one interpretation, an alternative and why the shares are likely trading higher. Is that this trading in the company's debt will make the refinancing a lot easier. This is because the expectations of current debt holders is being lowered therefore making it easier for them to swallow an alternative refinancing proposal.

The next question is if management can refinance the debt of the company, it means bankruptcy has been avoided for the short to medium term, so where will the shares trade?