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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Allen Furlan who wrote (14020)	2/26/2002 5:45:11 AM
From: Don Earl	Respond to of 78659

<<<Don, how do you evaluate non recourse debt in your deliberations.>>> To be honest, I don't recall running across the term before. I did pull up some filings as I remember looking at AES as a possibility for short play with options. From what I could puzzle out of the filings, "non recourse" debt means the individual subsidiaries guarantee the debt rather than the parent company. It also looks like there are covenants on this type of debt which prohibits distributions of earnings from the subs to the parent company. The set up looks like it's intended as damage control in case they want to bankrupt one of the subs separately from the rest of the company. It also looks like they've had to issue additional debt against their subs which is guaranteed by the parent company. Maybe someone else can offer some insight into "non recourse" debt, since it isn't an issue I know much about. For the time being, I'll probably stick to my theory that an honestly profitable company should have a debt to equity ratio below .20. Leveraging assets to invest in the future of the company is probably good business in a lot of cases, but it seems to me there is a break point where it stops being an investment in the future of the company and becomes a gamble on the future of the company. There are so many companies out there that will never repay their debt that it's scary, and most of those are only able to service their debt through borrowing more money. They can get away with it as long as business conditions are perfect, but one misstep or wobble in their market and the whole thing comes crashing down.