Is an insolvent company a good short or a bit risky?

[WallStGolfer31]

Originally Posted by aquaswim47

I believe that they can miss it. Also, BBB implies that the company has a 6% chance of default (1/16 chance). BBB is not a high credit rating; it's just barely investment grade.

Do you have any supporting documentation for the 6% default rate for BBB? Although that is a very small chance, I recall seeing a much lower value when I read my book on corporate credit analysis. BBB is investment grade though; why would S&P as well as Moody's give an company with, in your opinion, a high chance of bankruptcy a credit rating of BBB?

[aquaswim47]

I was wrong; the default rate on BBB stocks is only 1.6% and it has a 11% chance of being down-graded in credit quality. A B rating has a 19.6% rate of default. So I was wrong and I'll admit it. Thanks for the info. At least I didn't short the stock with an inclination that only had some information, especially since the company has growing profitabiltiy and cashflow that is only now negative.