Commentary by Gregory Hilton–
The below list of 15 companies is based on an examination of recent data from Moody’s. It says the companies to watch are Rite Aid (a 92% stock decline), Sirius XM Satellite (down 96%), Trump Entertainment (down 94%), Chrysler (sales down 40%), Sbarro (most stores in declining malls), Dollar/Thrifty car rental (stock down 95%), Six Flags (84% stock decline), Blockbuster (57% decline), BearingPoint (21% decline with heavy debt), Krispy Kreme (down 50%), Loehmann’s, Coldwell Banker, ERA and Sotheby’s.
The list reminds us that corporations, similar to consumers, are heavily reliant on debt. When the economy was doing well, a high debt equity ratio was not a significant concern for investors. Corporations that only had a dollar were able to borrow 9 more dollars and make a profit of 2 dollars. That was a 200% profit on the original investment. When things were going well, this scheme worked well but now that the money spigot has been turned off we can see the damage.
BearingPoint of northern Virginia is an excellent example of the current credit crunch problems few people envisioned. In many respects it is an excellent firm. Unfortunately they were delisted on the NYSE after selling for pennies a share, and the firms credit rating is now below junk status. The major problem dates from the loans they received in 2005 after separating from KPMG. At the time this was seen as the right move, but today the concern is having enough cash for the second and third quarters.
15 Companies That Might Not Survive 2009 by Rick Newman