15 Companies That Might Not Survive 2009

[Cygnus]

http://finance.yahoo.com/news/15-Com...-14279875.html

Who's next?

With consumers shutting their wallets and corporate revenues plunging, the business landscape may start to resemble a graveyard in 2009. Household names like Circuit City and Linens 'n Things have already perished. And chances are, those bankruptcies were just an early warning sign of a much broader epidemic.

Moody's Investors Service, for instance, predicts that the default rate on corporate bonds - which foretells bankruptcies - will be three times higher in 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 next year. 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 a different 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 be cash-poor.

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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 that Moody'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 operate while 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 why corporate 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.

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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 creative financing that helps avert bankruptcy, while others could be purchased in whole or in part by creditors or other investors. But one way or another, the following 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 its performance 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 most leveraged drugstore chain in the U.S., according to Zacks Equity Research. That big retail investment came just as megadiscounter Wal-Mart was starting to sell prescription drugs, and consumers were starting to cut bank on spending. Management has twice lowered its outlook for 2009. Prognosis: Mounting losses, with no turnaround 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 year and analysts believe Claire's is close to defaulting on its debt. A horrible retail outlook for 2009 offers no relief, suggesting Claire's could follow Linens 'n Things - another Apollo purchase - and declare Chapter 11, possibly shuttering all of its 3,000-plus stores.

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Chrysler. (Privately owned; about 55,000 employees). It's never a good sign when management insists the company is not going out of business, which is what CEO Bob Nardelli has been doing lately. Of the three Detroit automakers, Chrysler is the most endangered, with a product portfolio that's overreliant on gas-guzzling trucks and SUVs and almost totally devoid of compelling small cars. A recent deal with Fiat seems dubious, since the Italian automaker doesn't have to pony up any money, and Chrysler desperately needs cash. The company is quickly burning through $4 billion in government bailout 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 to Enterprise, 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, Dollar Thrifty 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 a bad thing when there are double-digit declines in both sales and prices, as there were in 2009. Realogy, which includes the Coldwell Banker, ERA, and Sotheby'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 was starting to invert from a soaring ride into a sickening nosedive. Realogy has been trying to refinance much of its debt, prompting lawsuits. One deal was denied by a judge in December, reducing the firm's already tight wiggle room.

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Station Casinos. (Privately owned, about 14,000 employees). Las Vegas has already been creamed by a biblical real-estate bust, and now it may 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 key interest 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, offering women'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 a drought than competitors like Nordstrom Rack and TJ Maxx. If Loehmann's doesn't get additional financing in 2009 - a dicey proposition, given skyrocketing 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 storefronts are 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 a breakfast 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 could intensify 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 off properties 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 if consumers aren't spending during the peak summer season, that could imperil the company's ability to pay debts coming due later this year and in 2010.

Blockbuster. (BBI; about 60,000 employees; stock down 57%). The video-rental chain has burned cash while trying to figure out how to maximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores in general are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbuster's viability will come when two credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again when market 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 high volumes to meet expenses and interest payments. The company has cut costs and closed underperforming stores, but still hasn't earned an operating profit in three years. And now that consumers are cutting back on everything, such improvements may fail to offset top-line declines, leading Krispy Kreme to seek some kind 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, Rainforest Café, 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 have enough 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 a cash-flow crunch.

Sirius Satellite Radio. (SIRI - parent company; about 1,000 employees; stock down 96%). The music rocks, but satellite radio has yet to be profitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parent company 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 company profitable, and Moody's thinks there's a "high likelihood" that Sirius will fail to repay or refinance its debt in 2009. One outcome could be a 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 has received 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 with casino buyers scarce, competition circling, and gamblers nursing their losses from the recession, Trump Entertainment may face long odds of skirting bankruptcy.

BearingPoint. (BGPT; about 16,000 employees; stock down 21%). This Virginia-based consulting firm, spun out of KPMG in 2001, is struggling to 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 key interest payment due in April, management needs to hustle - or devise its own exit strategy.

[mshulman]

I think these companies are just going to get what they've had coming for quite some time.

A problemt that seems all to common with many big businesses today (retail especially) is that every penny that comes in, goes out. There's no saving. If they have money, they spend it on something else or open a new store.

I think these large companies need to start thinking differently and perhaps saving some of their money for a rainy day like we're seeing now. They could also start purchasing the buildings they are in or buying new buildings and moving. This would not only save them on ongoing costs, but give them something more tangible then just having money tied up in inventory.

I think the car industry is where they could really make changes as there are billions if not trillions of dollars tied up in cars just sitting on lots. I don't know about others, but I've never needed to buy a car and have it immediately. It seems it might be more beneficial for auto-makers to start filling orders as they come in. I think this would result in factory lay offs, but it would also very likely help make them more profitable.

[F91]

No Sony?

[HDnSeek]

This is pretty terrifying. I have a former employer somewhere in that list. Just unbelievable.

[Low Res]

I didn't expect BlockBuster to be on that list. I thought more people would be renting movies as opposed to going out for movies/dinners and other entertainment.

[Cygnus]

Really? BB has been struggling for several years now, ever since netflix became popular. I have not been to BB for a while.

Originally Posted by Low Res

I didn't expect BlockBuster to be on that list. I thought more people would be renting movies as opposed to going out for movies/dinners and other entertainment.

[Chris Gerhard]

That is just speculation and things aren't so bad that all 15 of those companies will fold up. I would say Blockbuster survives, although some stores will close.

Chris

[Cygnus]

True it is speculation and there is a reason why the subject sez "might" instead of "will"... Regarding BB, I am amazed they are still in biz. Netflix seems to always be two steps ahead of them. Netflix started the internet rental biz and are now one of the leaders in streaming content to millions. Cable's on demand service has to be negatively impacting BB as well. Thus BB days are numbered...

[rbinck]

What strikes me in that list is there does not seem to be any road, bridge, school or other infrastructure builders that will be unemployed. Maybe they can be cross trained.

[Chris Gerhard]

Originally Posted by Cygnus

True it is speculation and there is a reason why the subject sez "might" instead of "will"... Regarding BB, I am amazed they are still in biz. Netflix seems to always be two steps ahead of them. Netflix started the internet rental biz and are now one of the leaders in streaming content to millions. Cable's on demand service has to be negatively impacting BB as well. Thus BB days are numbered...

I am not buying it although I agree Blockbuster hasn't responded to the market as it should have. I am sure Blockbuster is still huge compared to Netflix and the rest of the competition. Things look bad for Movie Gallery so that company should close many competing stores.

Chris

[Cygnus]

True but many of them are affected by the lack of consumer spending, e.g. six flags, restaurants, car purchases and rentals, etc. They say that consumers make up 2/3 of GDP... Instead of just roads, bridges, etc, I'd like to see some kind of high speed train system to compete against airlines.

[glennb1]

Originally Posted by mshulman

I don't know about others, but I've never needed to buy a car and have it immediately. It seems it might be more beneficial for auto-makers to start filling orders as they come in. I think this would result in factory lay offs, but it would also very likely help make them more profitable.

So if someone wants a new car, the dealer calls the factory and the factory builds one car at a time as the orders come in.

I don't think a system like this would work now or in the future.
Most people that go looking for a car don't want to wait weeks or months for a car to be put together for them.

It wouldn't do any good right now since the dealership lots are full of cars they can't unload.

[Low Res]

I guess that explains it.

Originally Posted by Cygnus

Really? BB has been struggling for several years now, ever since netflix became popular. I have not been to BB for a while.

[mshulman]

Originally Posted by glennb1

So if someone wants a new car, the dealer calls the factory and the factory builds one car at a time as the orders come in.

I don't think a system like this would work now or in the future.
Most people that go looking for a car don't want to wait weeks or months for a car to be put together for them.

It wouldn't do any good right now since the dealership lots are full of cars they can't unload.

It doesn't necessarily have to be to that extent, but I think there are far too many cars sitting in lots right now. Why not reduce production?

How big a deal is it really though to wait a couple weeks for a car? If I recall correctly, I think it was done similiar to this in the past. If you can't wait, perhaps they have models on the lot, but just not a big selection. Or maybe no selection. Need a car immediately, then you get the best selling the dealership has. There's little to no risk keeping that in stock.

Dealerships have tens of millions in stock at minimum. It just a lot of money out there that doesn't need to be.

[Cygnus]

http://finance.yahoo.com/news/Sirius...-14327724.html
Sirius in Serious Trouble

Sirius XM Satellite Radio Inc. (SIRI) lost nearly half of its remaining value today on reports that the satellite radio provider may file for bankruptcy protection. Attributing the news to people close to the company, The New York Times said Sirius had hired advisers to discuss restructuring options.

As the credit markets remain tight and falling demand for radios installed in cars have choked cash generation, there are serious doubts about the company's ability to meet its looming debt obligations. Sirius has $175 million in bonds due on Feb. 17 and about $3.25 billion in total debt. Last November, the company posted a third-quarter loss of $4.88 billion, with its share price trading below $1 since Sept. 10.

With more than $5 billion in assets, a Chapter 11 bankruptcy filing by Sirius would make it the second-biggest bankruptcy so far this year, behind that of packaging maker Smurfit-Stone. However, the company's troubles could also lead to a takeover bid from Charles Ergen's EchoStar Corp.(SATS) The satellite TV group has been buying Sirius XM's debt since the company rejected its unsolicited bid in December.

While Sirius shares were trading down 47% at 60 cents, Echostar shares fell 2% to $15.40 at noon on the NASDAQ.