May 18, 2005

Auto Supplier Bankruptcy

My brother works as an engineer at an autoparts supplier and he asked me if he should buy some shares in Collins & Aikman, which filed for chapter 11, yesterday while it trades around $0.10. I replied that he has plenty of risk on the books just by working in the industry and that the action will be in bonds once the stock price is below a buck.

The company has some 2011 bonds that are trading near $0.40 at a roughly 35% yield. It may have overshot in the short-run but at those levels there is not much hope for the stock. I mentioned as a source for corporate bond prices the other week and while it is not a very good market for individual investors the prices can give some insight into a company's prospects. Definitely worth checking out before playing in the equity.

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