America's Next Major Bankruptcy
(it's not GM or CitiGroup)...
Happens this FRIDAY at Midnight
By Porter Stansberry
Founder, S&A Investment Research
Dear Reader —
This Friday, Dec. 12th, the next stage of the financial crisis will begin.
That's when one of America's biggest businesses (they
operate in 44 states), will undoubtedly declare bankruptcy.
How can I be so sure it will happen on Friday, December 12th?
Two words...
Unpayable debt.
You see, the company I'm talking about, which is the 2nd biggest in its industry, and is headquartered in Chicago, has until Friday, December 12th at midnight to pay back a $900 MILLION loan.
In the current market, this amount of debt is lethal.
The company is currently paying over $1 billion per year in interest expenses to finance their debt—that's MORE THAN THEIR OPERATING INCOME. (That's like having a mortgage payment that's bigger than your entire paycheck.)
There is absolutely no way the company can make this $900 million payment or raise this kind of money.
And there is absolutely no way they can continue as an ongoing business. The firm basically said as much, in their most recent Quarterly Report (10-Q), dated November 10th of this year.
"Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern."
In finance, this "growing concern" language is the kiss of death. So what this company is really saying is they'll be forced to declare bankruptcy if they can't find the cash—and the deadline is Friday, Dec. 12th, at midnight.
I don't think there's any way they can make it.
Already, the company has eliminated its dividend, and has had to replace both its Chief Financial Officer and Chief Executive Officer, who were forced to quit after selling millions of shares.
The point is, this company is going bankrupt. Period. There's no way around it. And it's happening by the end of the day on Friday.
So what does that mean for you and me?
Well, several important things, which are potentially worth a heck of a lot of money.
You see, I conservatively estimate you can triple your money... and possibly make as much as 500% or more over the next 12 months, thanks to this bankruptcy, and the events it will spur in the ensuing months. And you don't have to touch the company that is going bankrupt on Friday.
Let me explain...
You've done business here before
As I mentioned, the company that's going bankrupt on Friday is one of the biggest and most important in the country.
I'm certain you've done business with them before.
You see, this firm (with 200 locations across the country) performs an incredibly important "behind the scenes" service for many of America's biggest and most well-known corporations, including: Apple Computer, McDonald's, Home Depot, and Wal-Mart.
What I'm talking about has nothing to do with credit cards, warehouse storage, shipping and receiving... or anything like that.
In fact, this company's assets are so important that without it, there's basically no way these well-known companies could stay afloat. So this looming bankruptcy is obviously a very big deal, not only for some of America's most well-known companies, but also for hundreds of other businesses... and thousand of employees as well.
And here's the incredible thing...
There are actually more than 30 other U.S. companies that basically do the exact same thing as this business headquartered in Chicago. And, as astounding as it may seem, roughly a dozen of these companies have actually put themselves in very similar financially precarious situations:
● JANUARY 15th: A Colorado firm in essentially the same businesses has a huge $50 million debt payment they can't afford that's due on January 15th, just over a month from now. The company owes another $200 million in June of next year.
● JANUARY 30th: An Ohio company in the exact same business has a $275 million debt payment they can't afford due on January 30th, just seven weeks from now. They have another $500 million due in 2010... and another $500 million due in 2011.
● MARCH 7th: A Georgia company in the same business has a $400 million payment they can't afford due on March 7th.
● MARCH 15th: A New York company in the same business has a $200 million payment they can't afford due March 15th.
I believe--as strongly as I have believed anything in my financial career over the last decade--that at least a half-dozen of these companies will go bankrupt over the next year.
In short, I predict the first bankruptcy will take place this Friday, December 12th, before midnight. It will start a domino effect over the next 12 months, in which we'll see plummeting share prices and bankruptcy for these highly-leveraged firms.
Remember what happened when the banking and brokerage shares started to collapse in recent months?
First Lehman Brothers went bankrupt...
Then CitiGroup plunged nearly 80%... Goldman Sachs plunged 70%... and even Bank of America dropped more than 40%.
Well, now the same thing is about to happen in an industry few Americans are even thinking about.
How do I know this collapse will happen as I expect?
Well, first, there are the debt payments that simply cannot be repaid or refinanced.
And there are two other big factors pushing these companies to bankruptcy...
Factor #1: Plummeting Prices
In essence, these companies are all in a commodities business. They all basically own and produce the exact same type of product.
The problem is, after the bankruptcy that takes place on Friday, December 12th, I can pretty much guarantee there will be a wholesale re-pricing of these products.
In other words, the price these products are fetching today will be drastically lower in just a few weeks.
The same thing happened recently to home prices...
If you own a home that you think is worth $500,000... but your neighbor loses his property to foreclosure, and the bank is forced to liquidate the house at $250,000, you can be pretty darn sure you're not going to get anywhere near the $500,000 price you were expecting, if you are forced to sell soon.
Well, the same exact thing is about to happen with these companies' products. I suspect asset prices will fall by at least 50%. In this kind of environment, these companies will be stuck between the proverbial rock and a hard place. They will be unable to raise prices. And they will be unable to raise any more money to pay their debts.
This is a complete disaster in the making.
And this brings me to the 2nd factor this entire industry is about to go bankrupt...
Factor #2: The U.S. government has set them up to fail
I know this is going to sound hard to believe, but the U.S. government is actually helping to force these companies into bankruptcy.
In short, the government has created a corporate and tax structure for these firms that makes it against the law for these companies to save money and pay off their debts.
Incredible, isn't it?
Here's what I mean...
According to legislation passed by Congress in 1960, and again in 1999, it is essentially illegal for these companies to save money. You see, in return for certain tax breaks, these companies are obligated to distribute all of their profits.
In boom times, this seems like a great deal for company executives and shareholders, who get paid large dividends...
But in a crisis like we're in the middle of right now, it is a fatal flaw that will destroy these businesses.
Just imagine if your family was in the same situation...
Imagine if it was illegal for you to have any savings. If you had a big medical bill or mortgage payment to make, you'd basically be forced into bankruptcy.
Well, it's the same for these companies...
Essentially, when they need to raise money to pay debts, they don't have any savings to fall back on. And this means they have only two options to raise capital: Issue more shares... or sell assets.
And after the first bankruptcy in this sector starts on Friday, December 12th, these two options will no longer be on the table. No one's going to want to buy shares... and the assets will be plummeting in price.
As bad as all of this sounds, however, there is a silver lining...
How to Make a Fortune
Over the Next 12 Months
The good news is, this type of purging creates once-in-a-lifetime opportunities for investors and entrepreneurs.
One thing you can do to take advantage of this situation is wait until it plays out, and buy up these companies and assets on the cheap. That's what a colleague of mine, who's generally considered one of the best investors in the world, is doing.
This guy is worth hundreds of millions of dollars, and he is setting up a "distressed" fund, to take advantage of what he calls the "asset puke" over the next 12 to 18 months.
The problem with this strategy is that it requires a lot of capital... a lot of legal wrangling... and a lot of patience.
To me, a much better way to take advantage of this situation is to capitalize on the fall of these share prices over the next few months.
Ideally we'd be able to take advantage of the Chicago company that is going bankrupt on Friday. But shorting this stock this week will likely prove to be impossible as the company's lenders attempt to hedge their exposure. Buying "put" options (to bet on the falling share price) is also likely to prove futile—there's simply not enough downside left in the shares to produce a significant gain.
But... there is a way for us to profit on the collapse of this industry. And here's how I recommend you play it.
The Domino Effect...
Remember, there are more than 30 companies across America that are in essentially the exact same business.
Well, two things are going to happen over the next few months that will allow us to make an incredible amount of money:
1) The Domino Effect: First, the companies in the exact same industry are all going to take big hits, as the details emerge about their own finances, after this Chicago company's collapse.
Remember, this is exactly what happened when homebuilder stocks started falling... and banking stocks too. First it was just one... then another... then another... and another. We've got the same opportunity here over the next few months.
2) Looming Debt Payment Dates. The other thing that will send these other companies plummeting is the looming debt dates for many of these other firms.
Remember:
● On JANUARY 15th, a Colorado firm has a huge $50 million debt payment they can't afford.
● On JANUARY 30th, an Ohio company has a $275 million debt payment they can't afford.
● On MARCH 7th, a Georgia company in the same business has a $400 million payment they can't afford.
● On MARCH 15th, a New York company has a $200 million payment they can't afford.
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