Several Large Cap Stocks at Risk of Bankruptcy
The Motley Fool identifies a number of large-cap companies at risk of bankruptcy in a new report, Will These Large Caps Go Bankrupt? The list includes not just GM and Ford Motor Company, but also Verizon, Sprint Nextel, Qwest, AMD and JDS Uniphase.
TMF uses the the Z-score, developed by NYU professor Edward Altman, as a statistical indicator of the risk of financial distress. The lower the score, the greater the risk of bankruptcy.
With a Z-score of 1.8 or below, a firm is thought to be distressed, with a significant risk of bankruptcy.
If heightened risk of bankruptcy weren’t bad enough, companies now face a greater risk that bankruptcy will lead to liquidation (as in the case of Circuit City) rather than simply reorganization.
That’s due to the fact that so-called “debtor-in-possession” (DIP) lending has dried up along with other forms of credit — the number of lenders has shrunk from about 30-plus in 2006-7 to a single digit now. DIP loans are the lifeline that allows companies to continue operating as they navigate the Chapter 11 bankruptcy process.”
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