Friday, February 13, 2009

seekingalpha: 15 Companies That Might Not Survive 2009

"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.

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.

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:"


Scott said...

I don't know if I could deal with the loss of donuts

Anonymous said...

I'm glad krispy kreme was a close one though.

Scotty Snacks said...

@ scott / @ anonyomous,

Funny you all should say donuts b/c when I last traveled back to new orleans (this past christmas, actually), I tried to visit one of my favorite old donut shops, tastee's donuts (the same tastee's donuts that had a krispy kreme across the street from it) and was told that they didn't have any donuts b/c no one had been buying them. yep, the same place that used to serve all night, no matter how late/early. I, naturally went across the street to krispy kreme and got my donut fill. Still not as good as tastee donuts but, well, right on point, give the circumstances.

*in the voice of homer simpson*,

Anonymous said...