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Who's next?
With consumers shutting their wallets and corporate revenues plunging, the business landscape may start to resemble a graveyard in 2009. Household nameslike Circuit City and Linens 'n Things have already perished. And chances are, those bankruptcies were just an early warning sign of a much broaderepidemic.
Moody's Investors Service, for instance, predicts that the default rate on corporate bonds - which foretells bankruptcies - will be three times higherin 2009 than in 2008, and 15 times higher than in 2007. That could equate to 25 significant bankruptcies per month.
We examined ratings from Moody's and data from other sources to develop a short list of potential victims that ought to be familiar to most consumers.Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment.
But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the nextyear. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch it's adifferent story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. It's a terrible time to becash-poor.
[See how Wall Street continues to doom itself.]
That's why Moody's assigns most of these firms its lowest rating for short-term liquidity. And all the firms on this list have long-term debt thatMoody's rates Caa or lower, which means the borrower is considered at least a "very high" credit risk.
Once a company defaults on its debt, or fails to make a payment, the next step is usually a Chapter 11 bankruptcy filing. Some firms continue to operatewhile in Chapter 11, retaining many of their employees. Those firms often shed debt, restructure, and emerge from bankruptcy as healthier companies.
But it takes fresh financing to do that, and with money scarce, more bankrupt firms than usual are likely to liquidate - like Circuit City. That's whycorporate failures are likely to be a major drag on the economy in 2009: In a liquidation, the entire workforce often gets axed, with little or no severance.That will only add to unemployment, which could hit 9 or even 10 percent by the end of the year.
[Want to land a plum job without paying taxes? Here's how.]
It's possible that none of the firms on this list will liquidate, or even declare Chapter 11. Some may come up with unexpected revenue or creativefinancing that helps avert bankruptcy, while others could be purchased in whole or in part by creditors or other investors. But one way or another, thefollowing 15 firms will probably look a lot different a year from now than they do today:
Rite Aid. (Ticker symbol: RAD; about 100,000 employees; 1-year stock-price decline: 92%). This drugstore chain tried to boost itsperformance by acquiring competitors Brooks and Eckerd in 2007. But there have been some nasty side effects, like a huge debt load that makes it the mostleveraged drugstore chain in the U.S., according to Zacks Equity Research. That big retail investment came just as megadiscounter Wal-Mart was starting to sellprescription drugs, and consumers were starting to cut bank on spending. Management has twice lowered its outlook for 2009. Prognosis: Mounting losses, with noturnaround in sight.
Claire's Stores. (Privately owned; about 18,000 employees.) Leon Black's once-renowned private-equity firm, the Apollo Group, paid$3.1 billion for this trendy teen-focused accessory store in 2007, when buyout funds were bulging. But cash flow has been negative for much of the past yearand analysts believe Claire's is close to defaulting on its debt. A horrible retail outlook for 2009 offers no relief, suggesting Claire's could followLinens 'n Things - another Apollo purchase - and declare Chapter 11, possibly shuttering all of its 3,000-plus stores.
[See 5 pieces missing from Obama's stimulus plan.]
Chrysler. (Privately owned; about 55,000 employees). It's never a good sign when management insists the company is not going out ofbusiness, which is what CEO Bob Nardelli has been doing lately. Of the three Detroit automakers, Chrysler is the most endangered, with a product portfoliothat's overreliant on gas-guzzling trucks and SUVs and almost totally devoid of compelling small cars. A recent deal with Fiat seems dubious, since theItalian automaker doesn't have to pony up any money, and Chrysler desperately needs cash. The company is quickly burning through $4 billion in governmentbailout money, and with car sales down 40 percent from recent peaks, Chrysler may be the weakling that can't cut it in tough times.
Dollar Thrifty Automotive Group. (DTG; about 7,000 employees; stock down 95%). This car-rental company is a small player compared toEnterprise, Hertz, and Avis Budget. It's also more reliant on leisure travelers, and therefore more susceptible to a downturn as consumers cut spending.Dollar Thrifty is also closely tied to Chrysler, which supplies 80 percent of its fleet. Moody's predicts that if Chrysler declares Chapter 11, DollarThrifty would suffer deeply as well.
Realogy Corp. (Privately owned; about 13,000 employees). It's the biggest real-estate brokerage firm in the country, but that's abad thing when there are double-digit declines in both sales and prices, as there were in 2009. Realogy, which includes the Coldwell Banker, ERA, andSotheby's franchises, also carries a high debt load, dating to its purchase by the Apollo Group in 2007 - the very moment when the housing market wasstarting to invert from a soaring ride into a sickening nosedive. Realogy has been trying to refinance much of its debt, prompting lawsuits. One deal wasdenied by a judge in December, reducing the firm's already tight wiggle room.
[See why "Wall Street talent" is an oxymoron.]
Station Casinos. (Privately owned, about 14,000 employees). Las Vegas has already been creamed by a biblical real-estate bust, and now itmay face the loss of its home-grown gambling joints, too. Station - which runs 15 casinos off the strip that cater to locals - recently failed to make a keyinterest payment, which is often one of the last steps before a Chapter 11 filing. For once, the house seems likely to lose.
Loehmann's Capital Corp. (Privately owned; about 1,500 employees). This clothing chain has the right formula for lean times, offeringwomen's clothing at discount prices. But the consumer pullback is hitting just about every retailer, and Loehmann's has a lot less cash to ride out adrought than competitors like Nordstrom Rack and TJ Maxx. If Loehmann's doesn't get additional financing in 2009 - a dicey proposition, givenskyrocketing unemployment and plunging spending - the chain could run out of cash.
Sbarro. (Privately owned; about 5,500 employees). It's not the pizza that's the problem. Many of this chain's 1,100 storefrontsare in malls, which is a double whammy: Traffic is down, since consumers have put away their wallets. Sbarro can't really boost revenue by adding abreakfast or late-night menu, like other chains have done. And competitors like Domino's and Pizza Hut have less debt and stronger cash flow, which couldintensify pressure on Sbarro as key debt payments come due in 2009.
Six Flags. (SIX; about 30,000 employees; stock down 84%). This theme-park operator has been losing money for several years, and selling offproperties to try to pay down debt and get back into the black. But the ride may end prematurely. Moody's expects cash flow to be negative in 2009, and ifconsumers aren't spending during the peak summer season, that could imperil the company's ability to pay debts coming due later this year and in2010.
Blockbuster. (BBI; about 60,000 employees; stock down 57%). The video-rental chain has burned cash while trying to figure out how tomaximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores ingeneral are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbuster's viability will come whentwo credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again whenmarket conditions are better.
Krispy Kreme. (KKD; about 4,000 employees; stock down 50%). The donuts might be good, but Krispy Kreme overestimated Americans'appetite - and that's saying something. This chain overexpanded during the donut heyday of the 1990s - taking on a lot of debt - and now requires highvolumes to meet expenses and interest payments. The company has cut costs and closed underperforming stores, but still hasn't earned an operating profit inthree years. And now that consumers are cutting back on everything, such improvements may fail to offset top-line declines, leading Krispy Kreme to seek somekind of relief from lenders over the next year.
Landry's Restaurants. (LNY; about 17,000 employees; stock down 66%). This restaurant chain, which operates Chart House, RainforestCafé, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June. If lenders come through, the company should haveenough cash to ride out the recession. But at least two banks have already balked, leading to downgrades of the company's debt and the prospect of acash-flow crunch.
Sirius Satellite Radio. (SIRI - parent company; about 1,000 employees; stock down 96%). The music rocks, but satellite radio has yet to beprofitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parentcompany Sirius XM, which was formed when Sirius and XM merged last year. So far, the merger hasn't generated the savings needed to make the companyprofitable, and Moody's thinks there's a "high likelihood" that Sirius will fail to repay or refinance its debt in 2009. One outcome could bea takeover, at distressed prices, by other firms active in the satellite business.
Trump Entertainment Resorts Holdings. (TRMP; about 9,500 employees; stock down 94%). The casino company made famous by The Donald hasreceived several extensions on interest payments, while it tries to sell at least one of its Atlantic City properties and pay down a stack of debt. But withcasino buyers scarce, competition circling, and gamblers nursing their losses from the recession, Trump Entertainment may face long odds of skirtingbankruptcy.
BearingPoint. (BGPT; about 16,000 employees; stock down 21%). This Virginia-based consulting firm, spun out of KPMG in 2001, is strugglingto solve its own operating problems. The firm has consistently lost money, revenue has been falling, and management stopped issuing earnings guidance in 2008.Stable government contracts generate about 30 percent of the firm's business, but the firm may sell other divisions to help pay off debt. With a keyinterest payment due in April, management needs to hustle - or devise its own exit strategy.
----------------------------------
http://finance.yahoo.com/...-Not-usnews-14279875.html
If you guys don't want to read all of this, just take a look at the companies.
With consumers shutting their wallets and corporate revenues plunging, the business landscape may start to resemble a graveyard in 2009. Household nameslike Circuit City and Linens 'n Things have already perished. And chances are, those bankruptcies were just an early warning sign of a much broaderepidemic.
Moody's Investors Service, for instance, predicts that the default rate on corporate bonds - which foretells bankruptcies - will be three times higherin 2009 than in 2008, and 15 times higher than in 2007. That could equate to 25 significant bankruptcies per month.
We examined ratings from Moody's and data from other sources to develop a short list of potential victims that ought to be familiar to most consumers.Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment.
But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the nextyear. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch it's adifferent story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. It's a terrible time to becash-poor.
[See how Wall Street continues to doom itself.]
That's why Moody's assigns most of these firms its lowest rating for short-term liquidity. And all the firms on this list have long-term debt thatMoody's rates Caa or lower, which means the borrower is considered at least a "very high" credit risk.
Once a company defaults on its debt, or fails to make a payment, the next step is usually a Chapter 11 bankruptcy filing. Some firms continue to operatewhile in Chapter 11, retaining many of their employees. Those firms often shed debt, restructure, and emerge from bankruptcy as healthier companies.
But it takes fresh financing to do that, and with money scarce, more bankrupt firms than usual are likely to liquidate - like Circuit City. That's whycorporate failures are likely to be a major drag on the economy in 2009: In a liquidation, the entire workforce often gets axed, with little or no severance.That will only add to unemployment, which could hit 9 or even 10 percent by the end of the year.
[Want to land a plum job without paying taxes? Here's how.]
It's possible that none of the firms on this list will liquidate, or even declare Chapter 11. Some may come up with unexpected revenue or creativefinancing that helps avert bankruptcy, while others could be purchased in whole or in part by creditors or other investors. But one way or another, thefollowing 15 firms will probably look a lot different a year from now than they do today:
Rite Aid. (Ticker symbol: RAD; about 100,000 employees; 1-year stock-price decline: 92%). This drugstore chain tried to boost itsperformance by acquiring competitors Brooks and Eckerd in 2007. But there have been some nasty side effects, like a huge debt load that makes it the mostleveraged drugstore chain in the U.S., according to Zacks Equity Research. That big retail investment came just as megadiscounter Wal-Mart was starting to sellprescription drugs, and consumers were starting to cut bank on spending. Management has twice lowered its outlook for 2009. Prognosis: Mounting losses, with noturnaround in sight.
Claire's Stores. (Privately owned; about 18,000 employees.) Leon Black's once-renowned private-equity firm, the Apollo Group, paid$3.1 billion for this trendy teen-focused accessory store in 2007, when buyout funds were bulging. But cash flow has been negative for much of the past yearand analysts believe Claire's is close to defaulting on its debt. A horrible retail outlook for 2009 offers no relief, suggesting Claire's could followLinens 'n Things - another Apollo purchase - and declare Chapter 11, possibly shuttering all of its 3,000-plus stores.
[See 5 pieces missing from Obama's stimulus plan.]
Chrysler. (Privately owned; about 55,000 employees). It's never a good sign when management insists the company is not going out ofbusiness, which is what CEO Bob Nardelli has been doing lately. Of the three Detroit automakers, Chrysler is the most endangered, with a product portfoliothat's overreliant on gas-guzzling trucks and SUVs and almost totally devoid of compelling small cars. A recent deal with Fiat seems dubious, since theItalian automaker doesn't have to pony up any money, and Chrysler desperately needs cash. The company is quickly burning through $4 billion in governmentbailout money, and with car sales down 40 percent from recent peaks, Chrysler may be the weakling that can't cut it in tough times.
Dollar Thrifty Automotive Group. (DTG; about 7,000 employees; stock down 95%). This car-rental company is a small player compared toEnterprise, Hertz, and Avis Budget. It's also more reliant on leisure travelers, and therefore more susceptible to a downturn as consumers cut spending.Dollar Thrifty is also closely tied to Chrysler, which supplies 80 percent of its fleet. Moody's predicts that if Chrysler declares Chapter 11, DollarThrifty would suffer deeply as well.
Realogy Corp. (Privately owned; about 13,000 employees). It's the biggest real-estate brokerage firm in the country, but that's abad thing when there are double-digit declines in both sales and prices, as there were in 2009. Realogy, which includes the Coldwell Banker, ERA, andSotheby's franchises, also carries a high debt load, dating to its purchase by the Apollo Group in 2007 - the very moment when the housing market wasstarting to invert from a soaring ride into a sickening nosedive. Realogy has been trying to refinance much of its debt, prompting lawsuits. One deal wasdenied by a judge in December, reducing the firm's already tight wiggle room.
[See why "Wall Street talent" is an oxymoron.]
Station Casinos. (Privately owned, about 14,000 employees). Las Vegas has already been creamed by a biblical real-estate bust, and now itmay face the loss of its home-grown gambling joints, too. Station - which runs 15 casinos off the strip that cater to locals - recently failed to make a keyinterest payment, which is often one of the last steps before a Chapter 11 filing. For once, the house seems likely to lose.
Loehmann's Capital Corp. (Privately owned; about 1,500 employees). This clothing chain has the right formula for lean times, offeringwomen's clothing at discount prices. But the consumer pullback is hitting just about every retailer, and Loehmann's has a lot less cash to ride out adrought than competitors like Nordstrom Rack and TJ Maxx. If Loehmann's doesn't get additional financing in 2009 - a dicey proposition, givenskyrocketing unemployment and plunging spending - the chain could run out of cash.
Sbarro. (Privately owned; about 5,500 employees). It's not the pizza that's the problem. Many of this chain's 1,100 storefrontsare in malls, which is a double whammy: Traffic is down, since consumers have put away their wallets. Sbarro can't really boost revenue by adding abreakfast or late-night menu, like other chains have done. And competitors like Domino's and Pizza Hut have less debt and stronger cash flow, which couldintensify pressure on Sbarro as key debt payments come due in 2009.
Six Flags. (SIX; about 30,000 employees; stock down 84%). This theme-park operator has been losing money for several years, and selling offproperties to try to pay down debt and get back into the black. But the ride may end prematurely. Moody's expects cash flow to be negative in 2009, and ifconsumers aren't spending during the peak summer season, that could imperil the company's ability to pay debts coming due later this year and in2010.
Blockbuster. (BBI; about 60,000 employees; stock down 57%). The video-rental chain has burned cash while trying to figure out how tomaximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores ingeneral are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbuster's viability will come whentwo credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again whenmarket conditions are better.
Krispy Kreme. (KKD; about 4,000 employees; stock down 50%). The donuts might be good, but Krispy Kreme overestimated Americans'appetite - and that's saying something. This chain overexpanded during the donut heyday of the 1990s - taking on a lot of debt - and now requires highvolumes to meet expenses and interest payments. The company has cut costs and closed underperforming stores, but still hasn't earned an operating profit inthree years. And now that consumers are cutting back on everything, such improvements may fail to offset top-line declines, leading Krispy Kreme to seek somekind of relief from lenders over the next year.
Landry's Restaurants. (LNY; about 17,000 employees; stock down 66%). This restaurant chain, which operates Chart House, RainforestCafé, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June. If lenders come through, the company should haveenough cash to ride out the recession. But at least two banks have already balked, leading to downgrades of the company's debt and the prospect of acash-flow crunch.
Sirius Satellite Radio. (SIRI - parent company; about 1,000 employees; stock down 96%). The music rocks, but satellite radio has yet to beprofitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parentcompany Sirius XM, which was formed when Sirius and XM merged last year. So far, the merger hasn't generated the savings needed to make the companyprofitable, and Moody's thinks there's a "high likelihood" that Sirius will fail to repay or refinance its debt in 2009. One outcome could bea takeover, at distressed prices, by other firms active in the satellite business.
Trump Entertainment Resorts Holdings. (TRMP; about 9,500 employees; stock down 94%). The casino company made famous by The Donald hasreceived several extensions on interest payments, while it tries to sell at least one of its Atlantic City properties and pay down a stack of debt. But withcasino buyers scarce, competition circling, and gamblers nursing their losses from the recession, Trump Entertainment may face long odds of skirtingbankruptcy.
BearingPoint. (BGPT; about 16,000 employees; stock down 21%). This Virginia-based consulting firm, spun out of KPMG in 2001, is strugglingto solve its own operating problems. The firm has consistently lost money, revenue has been falling, and management stopped issuing earnings guidance in 2008.Stable government contracts generate about 30 percent of the firm's business, but the firm may sell other divisions to help pay off debt. With a keyinterest payment due in April, management needs to hustle - or devise its own exit strategy.
----------------------------------
http://finance.yahoo.com/...-Not-usnews-14279875.html
If you guys don't want to read all of this, just take a look at the companies.
