March 26, 2001

Telecoms Find Their Huge Debts Are Calling -- Collect!

Telecoms are just beginning to buckle under the weight of a falling stock market and massive debts. But they won't be alone. Throughout the bull market, all sorts of companies took out loans and issued massive amounts of stock thinking that the good times would last forever. Boy, were they wrong. And now, investors will have to suffer the consequences.

The severe economic slowdown coupled with the "whoosh" of air out of the stock market bubble has forced companies to default on their debt and even to file for bankruptcy. It started with the dot-bombs that we warned you about when many on Wall Street thought they were the best thing since sliced bread. And now the telecom sector is facing perilous times. It won't stop there.

Plus, Congress is putting the finishing touches on tougher bankruptcy laws. These laws have made it harder for companies to file Chapter 11, which gives financially strapped corporations protection from creditors and buys some time to work out restructuring plans. That means companies will quickly be forced into Chapter 7 bankruptcy, which requires them to liquidate assets and repay what they can. Since most of these companies are worth less than nothing, there's little chance that bondholders will end up with anything at all. Stockholders, of course, will end up with the short end of the stick -- they are last in line when it comes to divvying up the remains.

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