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George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Bonds / Post-Bankruptcy Stocks

Mid-Year Bankruptcy Investing Update

Excerpted from the July 2012 Issue

July 27, 2012

Bankruptcy filings by publicly traded companies in 2012 are running at roughly the same pace as last year – 31 filings so far this year versus 37 at the same time last year. This year’s corporate bankruptcies are somewhat larger (both including and excluding financial companies) than the filings during last year’s first half, but in 2011 we saw a number of big companies go into Chapter 11 late in the year.

We are seeing a few more financial companies file for bankruptcy this year than last, but nowhere near the number that we saw from 2007 through 2010. There are also three aviation related companies (Hawker, Pinnacle and Global) on the list of largest bankruptcies of 2012. Otherwise, there are no obvious trends in the types of public companies going bankrupt.

Until we get a few more big Chapter 11 filings, we don’t see much in the way of great bankruptcy investing opportunities. The bonds of AMR (the parent company of American Airlines, which filed for Chapter 11 last November) could have further gain potential, but they have already run up quite a long way.  Kodak is probably the next most prominent Chapter 11 case, but the value of Kodak bonds will depend almost entirely on the value of the company’s patents, which is very hard to determine. We recommend that investors be patient because we expect better opportunities down the road.

For our thoughts on why we may see more bankruptcy filings in the not-too-distant future, as well as our 2012 bankruptcy statistics, see the full article in the July 2012 Turnaround Letter.

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2015 Bankruptcy Recap: 46% Increase Fueled by Oil & Gas/Mining Industry--Further Uptick Predicted

Looking back at 2015, research reveals a 14% decline in overall business bankruptcies but a 46% uptick in public company Chapter 11 filings—with a striking 51% of those filings coming from the battered Oil & Gas/Mining sectors. Economic indicators point to further increases in corporate bankruptcy, in general, and Energy-related filings, in particular. Just a few days into 2016, this viewpoint has already been validated by Arch Coal's long-awaited $8 billion Chapter 11 filing—and continuing oil price plummets severe enough that OPEC will likely convene an emergency meeting to address "shattered" economies. Read More.

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Spotlight: Junk Bond Market

stock market advice

MarketWatch's Mark Hulbert recently tapped George's distressed investing expertise to determine the fate of the junk-bond market and what its nearly three-year decline likely means for your portfolio.

 

Hulbert writes, "What’s really going on? For insight, I turned to George Putnam, an expert in distressed-company investing. His Turnaround Letter advisory service has handily beaten the stock market over the past 15 years, according to the Hulbert Financial Digest’s tracking, by an impressive margin of 7.3 percentage points a year on an annualized basis."

 

Commenting on the rapid growth of high-yield exchange traded funds (ETF's), Putnam notes, "They have become the investment vehicle of choice for short-term investors….Those investors tend to be trend followers and, therefore, are just the opposite of being contrarian."

 

Read the full MarketWatch junk-bond article to find out what George thinks these recent indicators likely mean for future distressed investing profit.