[aquaswim47]

I was looking at the financials of CHH. It's only down 8% as an insolvent company (a company that has more total liabilities than total assets).

Would such a stock be a good short or should you use puts to protect you against unlimited upside risk. I think that people should use a stop-limit order to limit losses from a short-squeeze.

Looking for opinions. What happens if the company files for Chapter 11 bankruptcy protection? Is it equivalent to Chapter 7 or is there a risk that the stock could rebound (15% likelihood) and wipe out your short position (or your portfolio)? Any way to sell the stock back to the broker for between a penny and a nickel per share to safeguard against any possible turnaround? I am wondering if people have ever shorted a potentially bankrupt company (or if that's too risky).

2002 2003 2004 2005 12/2006
Total Current Liabilities 84,308 102,211 102,055 120,316 139,791 Source: Yahoo Finance & Scottrade


Their current assets on December 31, 2006 was $87,082,000 and their current liabilities was 139,791,000; their assets are $303,309,000 and their total liabilities are $365,689. Their operating cash flows and net income are increasing, but they are always at risk. I don't understand their BBB rating since their competitors, i.e, CTRP. GET has a potential liquidity problem but its total assets exceed total liabilities. GET has cash outflows from operating activities, while CHH and CTRP have positive operating cash flows. Of the three, CTRP is by far, the strongest of the three hotel chains. I like that they (CTRP) cater to business travelers in China. I personally believe that insolvent means not having enough assets to cover your liabilities, while I consider liquidity to be the ability to pay off debt.

I see this as a consumer debt situation; the company is earning money and that's why it's trading at $36.92 per share. I guess lenders feel this company is a safe bet and will be able to get out of the insolvent hole it dug itself into. That means the company is at risk of bankruptcy at any time. If you're shorting the stock, your hoping that management files for chapter 11 bankruptcy protection or that the company is forced into bankruptcy since the cash-flow from operations deteriorates over a sustained period (such as 2-3 years).

Moreover, I heard on a radio show that someone had difficulty covering the bankrupt shares (he gets to keep the proceeds for now). But if the entity is in chapter 11 bankruptcy and recovers, your at risk. So I would attempt to negotiate with the broker to buy it for a penny to a nickel a share and then you get to keep 99.86% of the money since the shares are virtually, but not completely worthless. So if you invested $1,000 in the short and you bought the shares back at a nickel a share, you would get $998.60 and have to pay $1.40 for your $1,000 short.

About 15% of companies recover from a chapter 11 bankruptcy, yet they are much smaller than the original entity. Very few reach their former size; take MCI for example. However, I don't know if WorldCom holders would have lost all of their money, as a result of the reorganization or 90% of their value. My prediction is that new shares are issued as a result of the reorganization and that existing shareholders are left in the dust.

Just my two cents.

Now a person can determine for themselves if the company is insolvent or not. Thanks for providing the information. What you don't realize is that the creditors could close on the debt at any time this company defaults on payment. They won't because the company appears to be strengthing in capacity. But a bad quarter or quarters could result in the company being brought into bankruptcy. Also, if management wants to strategically eliminate debt, it might go through chapter 11 bankruptcy to lower its debt load. That would really hurt shareholders though.

I am glad you provided the SEC information so people can judge whether this company can pay bills or not. I take the dictionary definition to mean that either the company cannot meet its obligations as they come due or liabilities exceeding assets (negative equity) as being insolvent. I feel the ability to meet obligations as they come due is specifically an issue of liquidity.

Thanks for the notes below and for the SEC filings.