Ten Big companies That Are Veering Toward Bankruptcy

[MellowOne]

Ten Big Companies That Are Veering Toward Bankruptcy
Posted Sep 18, 2009 12:21pm EDT

From The Business Insider, Sept. 18, 2009:

Despite a few green shoots in the economy and a rocketing stock market, many large companies are still struggling to avoid bankruptcy.

A new report by Audit Integrity identifies some high-profile names "that have the highest probability of declaring bankruptcy among publicly traded firms."

Which companies appear the worst off? We took the list and removed any company with a market cap under $3 billion. We then ranked the remaining names by a simple measure of the market's perceived bankruptcy risk - Market Cap (MC) divided by Enterprise Value (EV). The less MC vs. EV, the less residual shareholders' value (above what debt holders can claim) the market is pricing-in for the company. Thus a lower MC/EV means the market thinks the company is more likely to go bankrupt.

1. Hertz

When you have tons of debt financing your fleet of cars, falling rental demand really hurts.

While the company raised new capital in May for some breathing room, Fitch and Moody’s actually cut their ratings for the company in July.

Ignoring the downgrade, shares kept rallying and are now at over five times the March $2 low. Best of luck.

Market Cap (MC)/Enterprise Value (EV) = 32%


http://finance.yahoo.com/techticker/article/336235/Ten-Big-Companies-That-Are-Veering-Toward-Bankruptcy

[imdjh]

1. Of all those, Hertz, Macy's, and Goodyear are the most astounding.

There is no excuse for these companies to even have debt, much less to be in trouble. Everything they own should have been paid for long ago.

Isn't it time that someone take a hard look at what was being taught in Ivy League business schools and who was teaching it? When did sound business practices become "old fashioned"? Was it the 1980's. Oh, I know the defense- rich companies with low stock prices were prime targets for takeovers, greenmail, and shakeouts. But surely there was a way to protect sound companies while keeping them sound.

[2Design]

4. Macy's has been in trouble before - I thought years ago they might not make it

even with 75% off they are overpriced for me

[Warpy]

5. Me, too! Their prices are just plain outrageous

especially on clothing, although they do have deals in housewares, occasionally.

It might be different if their clothing were sturdy, natural fiber, classic stuff, but it's the same Chinese sleaze everybody else sells and in the same unflattering crayon colors.

I used to look at things in Bloomingdale's and then buy the fabric and pattern and make it myself. Now I can't even find anything worth making in a store.

I shop online or just go ahead and buy the patterns and make it. It's the only way to get natural fibre clothing in decent colors that will last for more than 10 washings.

[girl gone mad]

8. Do you really have to ask this question?

The short answer is that the guys at the top figured out how to loot these companies for the maximum amount of money possible. The shareholders did nothing to prevent because they liked the short term gains that they were getting.

[HamdenRice]

9. Actually no. Hertz is structured to be built mostly on debt and leveraged leases

A company like Hertz had no desire or incentive to have paid for what they own.

Hertz buys brand new cars every year and only keeps them for a year or two and then sells them into the used car market. That's why when you rent a car from a big rental company the car always feels and even smell new. It makes no sense for Hertz to buy a car that it will only hold for a year or two.

Hertz also has a peculiar tax problem -- which is very similar to the airlines. It makes no financial sense for Hertz (or American Airlines) to own their own vehicles. They are relatively small profit companies with gigantic amounts of equipment. Owning equipment provides very big tax deductions in the form of depreciation of capital equipment. Hertz's problem is that they use so much equipment, that they could never use all the tax deductions, which would go to waste. The solution is that they find a big profitable company that needs tax deductions to shield their profits. The big profitable company borrows almost all the money to buy Hertz's new fleet of cars, and then immediately turns around and leases the cars to Hertz at a low rate because the "owners" are getting these juicy depreciation deductions. That's called a "leveraged lease." A leveraged lease is considered a debt to Hertz. The on-paper owner of the cars gets both a depreciation deduction and an interest rate deduction on the loan, usually from bondholders. After the car is depreciated in a year or two and its tax value used up, the owner sells the cars to a division of Hertz, which immediately sells them onto the used car market.

The same principles work for airlines. In the past, when you flew you could go to the front of the plane and there was a little plate that said who owned the plane. It was never the airline, because the airline could never use all the depreciation deductions.

[DJ13]

2. A hedge fund hit piece

I dont know about the other 9, but Advanced Micro is being funded by Abu Dhabi, so I seriously doubt they will go under.

[Warpy]

6. Right, and I'd hardly say CBS's earnings have fallen off a cliff

They're not paying what they did 2 years ago, but they're still paying.

I also don't think Mylan can be in that much difficulty considering how much stuff of theirs I take. They're one of the main generic drug producers out there and they really don't have any competition for a lot of what they produce. They might be overextended in the short term, but sales in the long term should compensate.

[jakeXT]

7. Abu Dhabi also has to finance Dubai

To continue to backstop ventures that have lost significant value or may take longer than expected to generate free cashflow, Dubai may be forced to turn for assistance to its cash rich neighbour Abu Dhabi, which has already lent it $10 billion and has provisionally undertaken to provide a further $10 billion of assistance.
http://blogs.reuters.com/commentaries/2009/09/16/dubai-builds-but-they-dont-come/

[xchrom]

3. a fire sale on used cars? nt