Pre-Paid Toll Mounts

Pre-Paid can ill afford future courtroom losses.

S&P made that much clear in its credit downgrade last month. The firm stated that a significant award, or multiple awards, could materially hurt the company's financial condition. Moreover, it warned lenders to expect little or no money back from Pre-Paid if the company did, in fact, wind up facing big damages down the road.

Even now, S&P views Pre-Paid as risky. In addition to pending litigation, the firm points to the company's unique business model -- which relies on direct sales to individuals -- as the reason for its cautious view. Most other legal service providers, operated by big corporations like MetLife (MET) and ARAG, market their products to companies as employee benefits instead.

To be fair, S&P notes that Pre-Paid dominates the "niche" market that it currently serves. However, the firm has warned that legal setbacks could threaten that position and ultimately leave the company's creditors empty-handed. S&P estimates the liquidation value of Pre-Paid -- a company with a market capitalization of nearly $600 million -- at just $38 million in all.

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