15 Companies That Might Not Survive 2009

[one...two...tree 2,762]

by Rick Newman

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.

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:

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.

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.

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.

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

[mkg265 2]

Not Krispy Kreme!!! Jesus NO! Take Dunken but leave me Krispy!

[alienlovechild 75]

Chrysler. 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.

I would have thought they were doomed long ago. I've never bought a Chrysler nor has anyone in my family. Does anyone own a Chrysler? Do they have any models seen as being as higher than average quality?

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.

I like their pizza but it seems like people don't shop in or hang out in malls like they used to. Could just be my cheapness or age showing on this one.

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.

Haven't been in a Six Flags in years but I assume ticket prices are so high that a lot fo families just can't afford it and the jacked up prices for everything in the parks.

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.

Hate these bastards and good riddance. They made a lot of money on late fees and Netflix is kicking their butt with a wider selection and cheaper prices.

[HAL 9000 96]

Six Flags just had a winter job fair here in Chicago. Lots of folks with advanced degrees lined according to the WGN report I remember seeing. Pretty tough times. But yes... ticket prices are close to $50 for one day's admission as of last summer.

Disney is around $70 or so I hear now.

[pedroh 21]

no krispy kreme!! nooo

I shall buy a dozen doughnuts every week to show my support to them

sbarro.. meh was never a big fan of their pizza

blockbuster got his @ss kicked by netflix, and by the new 'redbox' machines

[almaty 19]

Chrysler. 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.

I would have thought they were doomed long ago. I've never bought a Chrysler nor has anyone in my family. Does anyone own a Chrysler? Do they have any models seen as being as higher than average quality?

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.

I like their pizza but it seems like people don't shop in or hang out in malls like they used to. Could just be my cheapness or age showing on this one.

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.

Haven't been in a Six Flags in years but I assume ticket prices are so high that a lot fo families just can't afford it and the jacked up prices for everything in the parks.

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.

Hate these bastards and good riddance. They made a lot of money on late fees and Netflix is kicking their butt with a wider selection and cheaper prices.

amen, total agreement..

[Danno 1,228]

Not Krispy Kreme!!! Jesus NO! Take Dunken but leave me Krispy!

I heard that!

[I AM NOT THAT GUY 5,715]

Wal-Mart sales up in weak retail sector

US retailers reported another month of weak sales as the recession pressured consumer spending, though discount giant Wal-Mart rebounded with results above expectations.

For January, sector-wide sales at outlets open at least a year declined 1.8 per cent on average, the fourth-straight monthly decline, according to a Thomson Reuters survey of 35 retailers. But results at several chains weren't as bad as some analysts had forecast.

"While sales remain down overall, shoppers are giving signs that they do not necessarily intend to cut still deeper into their retail spending," said Frank Badillo, senior economist at market watcher TNS Retail Forward.

Wal-Mart's US same-store sales last month rose 2.1 per cent, excluding petrol; it had projected at most 2 per cent growth. Although it had a relatively weak December, the world's biggest retailer benefited from rising customer visits as cash-strapped shoppers sought bargains.

Same-store sales at its Sam's Club warehouse chain rose 2.4 per cent.

"Despite members being cautious with discretionary spending, demand for food and consumables drove solid sales increases during the January period," said Doug McMillon, who was Sam's Club chief before assuming the helm at Wal-Mart International on February 1.

Wal-Mart said it will begin supplying quarterly, rather than monthly, sales forecasts because "consumer swings" are making the predictions more difficult. For the 13-week period that started Saturday, the company sees US same-store sales growing by 1 per cent to 3 per cent.

The retail sector's troubles reflect the continued deterioration of consumer confidence, which has tumbled to record lows and contributed to the biggest drop in consumer spending in decades. Mounting job losses, coupled with slump in the US housing market, have Americans cutting back on consumption.

Aggravated by the worsening economy, trouble spots remained at some underperformers in the retail sector. Target said its fiscal fourth-quarter earnings won't meet analysts' expectations because of markdowns and account-receivables woes. Its same-store sales fell 3.3 per cent in January, which the company said was in line with its expectations.

Apparel and department-store chains have been weak performers for some time and that continued. Macy's, which announced on Monday that it would cut almost 4 per cent of its workforce, reported a less-than-expected 4.5 per cent decline in same-store sales. J.C. Penny posted a 16 per cent decline.

Among apparel chains, Gap reported a 23 per cent same-store sales decline, led by a 34 per cent plunge at its long-ailing Old Navy chain. Discounter TJX posted a 4 per cent drop, while Limited Brands, the parent of Victoria's Secret and Bath & Body Works, reported a 9 per cent decline.

Luxury-goods retailers have taken it on the chin as the effects of the economic downturn work their way up the income ladder. Saks same-store sales fell 24 per cent last month, and the company said its profit margins are narrowing because customers are focusing on promotional and clearance-priced merchandise. Earlier in the week, Neiman Marcus Inc. reported a 24 per cent drop in comparable-revenue for January.

Numerous companies cut bottom-line expectations last month when releasing December sales figures because of sales woes and margin pressure from discounting.

And Costco Wholesale has warned that its quarterly earnings will be "substantially below" analysts' expectations, partly due to its aggressive pricing of core items during the holiday-shopping season.

Talbots said that fiscal fourth-quarter sales at its namesake brand slumped 23 per cent to $US328 million ($501 million). As such, it expects a "significant decrease" in gross margins and a quarterly loss. The company also announced it got a new $US200 million unsecured term loan from Aeon, which is Talbots's major shareholder.

There were some bright spots, including at teen retailers Aeropostale, up 11 per cent, and Buckle, which exceeded analysts' expectations with a 15 per cent increase.

http://www.theaustralian.news.com.au/busin...5-36375,00.html

It's not all bad, but it is not good either.

[mawilson 2,133]

blockbuster got his @ss kicked by netflix, and by the new 'redbox' machines

Netflix doesn't have any actual brick-and-mortar stores, does it? Only online stuff - DVDs by mail?

I don't see how it can kick BlockBuster's #### then.

[LaL 418]

The malls are all packed here, all the time. Are people just going out of habit but buying less?

[Mononoke28 135]

I feel for these two, Six Flags & Krispy Kreme. My summers are always about going to Six Flags at least once and Krispy Kreme... best doughnuts period. So let's hope they don't fold any time soon.

I also think Netflix and the Redbox thingies drove Blockbuster down the tubes. I mean you can get a movie at one of those machines for about a buck while it costs over $4 at Blockbuster. And Netflix is always a lot faster than Blockbuster, I'm all about getting my movies in the mail ASAP, Blockbuster always took its sweet old time with that.

Diana

[w¡n9Nµ7 §£@¥€r 123]

BearingPoint?

[Saddle Bronc 124]

The ones which surprised me:

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.

surprising considering their ubiquity

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.

GAMBLING taking such a hit, FTW?

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.

Partial surprise, as it also has fronts in travel-plazas and airports (and one at Union Station)--where I actually thought the bulk of them were

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.

this trio really surprising

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.

Edited February 9, 2009 by CherryXS

[Saddle Bronc 124]

Chrysler. 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.

I would have thought they were doomed long ago. I've never bought a Chrysler nor has anyone in my family. Does anyone own a Chrysler? Do they have any models seen as being as higher than average quality?

From what I've seen of Chrysler products since 1993:

• they have SMALL cars, but these are also guzzlers (I've personally tested GM-model rental cars against Chrysler--and consistently I got GM's larger models kicked tar of Chrysler's smaller ones on fuel economy)
• as for quality, their best-known nameplate ("Dodge") sums up what to do with them

[NickD 203]

Six Flags just had a winter job fair here in Chicago. Lots of folks with advanced degrees lined according to the WGN report I remember seeing. Pretty tough times. But yes... ticket prices are close to $50 for one day's admission as of last summer.

Disney is around $70 or so I hear now.

Is that the one in Gurnee? Ha, took my step daughter down there when she first came here in August, only warmed up to about 50*F, started raining, so we left at noon, but recall the ticket prices were very steep. Recall taking my kids there, could buy tickets a Jewels or some grocery store for half price, was around seven bucks a kid, not bad, but still spend a vast majority of the day, waiting in line. That was a drag.