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Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.
Bally Total Fitness Holdings Inc. (Other OTC: BFTH), which I suggested shorting back in November, has filed for bankruptcy. According to Reuters, Bally listed $396.8 million of assets and $761.3 million of debts as of December 31. Its bankruptcy plan would wipe out common shareholders reduce debt by $150 million and provide $90 million of capital through a rights offering. Bally also lined up $292 million of financing to fund operations during and after bankruptcy proceedings. Today's announcement is confusing since it reportedly filed for bankruptcy in June, as well.
When I first suggested shorting Bally, I thought it was losing so much money that it would not be able to pay back its debts. It also had lots of accounting problems and was in violation of the terms of its lending agreements. But I was concerned that JPMorgan Chase & Co. (NYSE: JPM) had offered a rescue finance package and that hedge fund guru, Stevie Cohen was a big Bally investor.
But I turned out to be right and investors who had followed my advice and covered today would be 709% richer since Bally dropped from $2.59 to $0.32.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Bally.
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Reader Comments (Page 1 of 1)
8-02-2007 @ 3:10AM
Sean said...
I have to say, couldn't have happened to a more deserving company. I was a member of this gym until I joined the Marines, and was deployed to Japan. I asked how I cancel my membership, (being that service for your country is a valid reason to cancel your membership) and the girl at the desk told me to fill out a form and that was it. I got a bill for $1,800.00 for not paying it, and it went to collections. The jerks gave me hell even when I got a military attorney to put them in their place. They even tried to get me to pay a settlement of $15.00 near the end. I told them no, to take it off of my report and send a letter saying it was not my debt, and was done with it in 2000. Being the great people that they are, they of course sold it to a collection company. Luckily, I had my letter, and told them where to shove it with the threat of legal action. Then this year, a new collection company called on my cell phone. I would love to know how they got that number. This piece of trash told me that Bally's has nothing to do with this, and to be an adult and pay my debts. I called Bally's and told them to take care of it. They said I should have taken care of it myself. I then proceeded to tell them that I had this nice little letter from them sent seven years ago, and would take legal action. Finally was taken care of until I got a call from another collection company last week. These people are scum! I had a Bally's literally accross the street, and I would never go there. They brought this upon themselves with devious business practices, and terrible customer service! I had the same problem with Sprint at the same time, and for the same reasons. Such a surprise that both of these companies are having trouble with the masses of people leaving them. Word of mouth still works against these conglomerate bullies. They deserve what they are getting. I trash them to everyone I come in contact with.