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Strategies & Market Trends : Bankruptcy Predictor Model

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To: Terry Thomas who wrote (177)	3/27/1999 1:23:00 AM
From: Bob Rudd	Read Replies (2) of 477

I have no knowledge of TWA, but here are some issues one might consider when looking at a shorting the stock, long the bond strategy: Will the liquidation value of the assets exceed the market value of the bonds [Liquidation value isn't cost and it isn't book...it's what you can get in a forced sale]? Debt is illiquid and typically trades at wide spreads...so such a long short trade has a Roach Motel impact once you're in, it's tough to get out without big cost Which debt: senior mortgage bonds have 1st dibs on the assets ahead of subordinated debentures Is the stock shortable...above $5 for US based investors, shares are available, enough liquidity that a squeeze is unlikely? I think the stock of a company where the enterprise value is less than the book value of the bonds, might be valued like an out of the money call. Is these a stubborn dream-driven following of the equity that won't let it go down no matter how silly it looks? Just some ideas... Bob

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