This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Distressed Debt Investors Hover as Default Risk Soars

Since the Chapter 11 bankruptcy filing of homebuilder TOUSA last month, investors continue to wonder if more public homebuilders will be forced to restructure. So far, lenders have been willing to give limited waivers to builders who violate debt covenants, heading off a restructuring.

Steve Zelin, a managing director in the restructuring group at Blackstone, says lenders are granting the waivers in an attempt to step back and get local market experts to come in and value the builder's assets.

While real estate is clearly a hot distressed target, others sectors in focus are retail and autos, which have spillover real estate effects, as the consumer weakens from housing price declines.

Jim Malley, portfolio manager at Chilton Investment Company, says his distressed fund is researching forest products and basic materials companies. While he did not provide names, he says these companies are facing high input cost inflation, which cannot be passed along to consumers in the form of higher prices.

He said restaurants and retailers are facing a similar cost inflation issue.

Jim Chanos, the legendary short seller who bet on Enron's decline before it went bankrupt, says there is a huge spike of defaults coming from the fallout of the LBO boom.

"I don't know what crack pipe these people were smoking," he says.

Chanos also expects students lenders such as SLM Corp (SLM), better known as Sallie Mae, will run into trouble as college student loan default rates spike.

Chanos also believes for-profit colleges are a "dicey proposition." He expects such colleges to face increasing student loan defaults, while he also questions the overall value of education such schools are offering.

Although Chanos did not name stocks in this group, Apollo Group (APOL) is the largest for-profit educator, owning the ubiquitous University of Phoenix.

As originally published, this story contained an error. Please see Corrections and Clarifications.
2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs