hello fellow fools! i need some current information on this company and would appreciate any guidance or information. i recently learned that ets has filed chapter 11 bankruptcy. what, exactly does this mean and how does it effect the "investors"? i have a person who is very close to me that has about $80K invested, and she relies on this money along with her social security funds to live on. is it likely that my fried will lose her investment? thanks much for your input.
Chapter 11 usually means the company was unable to pay interest on its bonds on time or was unable to meet requirements of its loan covenants. Therefore, these creditors have forced it into bankruptcy court to sort out what it owes and how to pay off everyone. It may also be that a key creditor was about to seize key assets that would have prevented the company's continued operation. So Chap 11 protects the company from the seizure for now.The future for your friend's investment depends on the "class" of what is owned. If common stock, she may get something back when the company is reorganized or sold, but the odds are against it. Chapt 11 is not always disaster, but usually it is. She may get nothing. Meanwhile, it will probably take years for the issue to be resolved--unless a buyer for the company is found sooner.I recall discussing the risks of Payphone on this board a few years ago. We are now discussing the downside of what can happen when one of these high yield investments goes bad.Best of luck to you and your friend. People who consider high yield investments to increase payout in retirement should be especially aware of how bad it can be.I'm sorry if this advice is painful, but for others thinking about it, high yield investments require close monitoring. If the company appears not to be succeeding, you are usually best off to sell and take your losses before they get to Chapt 11. Once they get to Chap 11, you can usually still sell the shares, but their value then is often very low.
I recall discussing the risks of Payphone on this board a few years agoAbout 14 months ago in these two threads:http://boards.fool.com/Message.asp?mid=11176994&sort=threadedhttp://boards.fool.com/Message.asp?mid=11417336&sort=threadedThe first thread on 8/21/99 begins:Our financial advisor has suggested we invest in Payphones. It is a lease arrangement with a "guaranteed" return of 14%. Since our only income is Social Security (not very much) we are anxious to find out more about this company.If I described my thoughts about the financial planning vulture that charged a fee for such exceptionally inappropriate advice, the message would have to be pulled for improper language.
The possibility of chapter 11 is is an excellent reason to avoid junk without broad diversification, the kind of diversification most people can only get with mutual funds IMHO. If you are like me and use bonds for the fixed income the risk is just too great A lot of people prefer to hold bonds directly and that certainly makes sense for treasuries, probably makes sense for investment grade, and probably makes no sense at all for junk.OTOH there are a number of junk funds out there with low expense ratios and an excellent record of steady yields, even in bad times. Vanguard High Yield Corporate is one.
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