Most of the business news since even before the major events of September and October 2008 has been very unsettling. Several major high profile companies have already bit the dust due to declining consumer demand, sagging sales, and a credit market that has made it almost impossible for poorly performing companies to refinance debts or extend their credit arrangements. Businesses continue to lay off workers, hold onto cash for as long as possible, and do whatever they can to stay in business.
In a recent article in US News and World Report (Feb 6, 2009) you can find predictions for several more well-known companies that are likely to follow. It might be surprising to see some names on this list that have become familiar to almost everybody in North America. But then this economic slowdown is claiming victims everywhere in its path.
The 15 companies USNWR predicts may not survive 2009 include Rite-Aid, a major drug store chain with 100,000 employees, Claire's Stores with 13,000 employees, Chrysler (the auto company) with 55,000 employees and not very good prospects for the immediate future. Others include Dollar Thrifty Automotive Group, the car rental company with close ties to Chrysler.
Station Casinos a Las Vegas casino operator is also on the list, as is Trump Entertainment Resorts, a major operator of casino-based resorts in Las Vegas and elsewhere, and Realogy who own Coldwell Banker and are the largest real estate broker in the US.
In the food and entertainment industries major companies include some familiar names: theme park operator Six Flags, video rental outfit Blockbuster, Krispy Kreme donuts, Landry's Restaurants, Sbarro pizza, and Sirius Satellite Radio.
All of these companies have serious debt and cash flow problems and have essentially been victims of the double-whammy brought on by lack of consumer demand for their products and the difficulty of refinancing bad-looking debt.
What are the common features of these companies that make it likely they will not survive 2009 in their current form? First, through a combination of poor sales and bad-timing they are all strapped for cash. That makes it very difficult to go on as though it was business as usual.
Second, they are all leveraged to the hilt with debt. Even with interest rates at historic lows, carrying large amounts of debt is bad news because this makes their balance sheets look weak, their stock less desirable, and makes it more difficult to refinance that debt when it comes due. Who wants to invest in or lend money to a company that is teetering on the edge.
Third, they are all in industries that have been hardest hit by the recession. In the current economic climate, wherever a business has been built on the willingness of people to part with their discretionary income that business is going to be experiencing lost sales. That includes most luxury items, entertainment, restaurants, travel, casinos - even home improvement accessories, and, of course, real estate.
What started out as a serious problem in the credit markets quickly turned into a loss of consumer confidence resulting in a serious drop in consumer spending. Companies hurt by lost sales in turn have become victims of the tight credit market. The only option for many of these companies may be Chapter 11 bankruptcy. This may give them some breathing room as they attempt to settle with creditors and restructure their debt in a more manageable fashion.
Author Resource:-
When you buy stock, pay close attention to respected stock market analysts. Look for objective investing information you can trust.
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