Companies That Could Go Bankrupt

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source: msn

By Catherine Holahan
MSN Money
The B-word is in the headlines like never before. There were 7,843 commercial bankruptcy filings in March, according to AACER, a bankruptcy data management company. That's up 23% from the previous month and a staggering 65% from a year earlier. And the number of filings is accelerating.

"Bankruptcy typically has a lag behind what is going on in the marketplace," says Mike Bickford, the president of AACER, or Automated Access to Court Electronic Records. "So I think you are going to see increases in bankruptcy. . . at least over the next 12 to 18 months."

One potential victim: Blockbuster (BBI, news, msgs). On April 7, auditors speculated that the movie rental giant may have to declare bankruptcy before the year's end.

What company will be next to go? To find out, MSN Money took a look at credit default swaps. Swaps and other derivatives have been labeled "financial weapons of mass destruction" (by Warren Buffett himself), but they do serve legitimate purposes. Think of swaps, for instance, as a form of bankruptcy protection. Creditors that own swaps lower their risk of a debtor not paying back a loan, because a third-party insurer is on the hook for some of the unpaid debt.

Hedge fund managers, investment bankers and others can use credit default swaps to speculate on whether a company might be seen as a riskier borrower in the future. If that happened, the price of such default insurance would increase.

Sellers of credit default swaps for radio giant Clear Channel Communications, for example, currently want nearly 62 cents to insure a dollar's worth of that company's debt. That's known as the spread. And compared with how much sellers are charging to insure other companies' debts, that's a high premium.

MSN Money compiled a list of 30 companies the market judges to be the biggest bankruptcy risks, based on the credit-default-swap spreads on their five year bonds, the most widely-traded type.

Below are 10 big-name companies that made the unfortunate cut and why the market thinks they're in danger of failing. (You can see the full list here.) Blockbuster, surprisingly, was spared from the list because there are few buyers and sellers of protection on its debt. That's partly due to Blockbuster having just refinanced a $250 million revolving loan this month that severely threatened its ability to stay in business, and partly due to the fact that the new loan comes due in just 17 months.

Six Flags
Six Flags (SIX, news, msgs), the owner of more than 20 U.S. theme parks, is scarier for investors than the Dare Devil Dive, a ride at the company's Great Adventure & Wild Safari park in New Jersey. The company has a ton of debt and seemingly not enough money coming in to pay it off by the due dates.

At the end of last year, the company had about $2.1 billion in debt, according to Standard & Poor's, which cut Six Flags' credit rating last month. The company lost about $37.8 million in 2008 and $70.6 million in 2007, according to filings with the Securities and Exchange Commission.

The company also has bills coming due. Six Flags must pay holders of certain preferred income shares, known as PIERS, $287.5 million, plus $31.3 million in accrued and unpaid dividends, by Aug. 15. If Six Flags can't pay and can't refinance its debt obligations, it will be considered in default, which will trigger provisions in other loans requiring that some creditors are paid early.

Rite Aid
Rite Aid (RAD, news, msgs) made the mistake of expanding right before a severe downturn. The drugstore chain acquired competitor Brooks Eckerd for $3.4 billion in 2007. The recession has slashed demand for everything from name-brand prescriptions to pricey anti-aging creams. Rite Aid's revenue was down nearly 2% last year, and performance was particularly bad at former Eckerd stores.

Talk back: What retailers do you see closing in your area?

"What happened to Rite Aid happened to most retailers. But, unlike other retailers, we had just increased our size by more than 50% and embarked on a 16-month integration of more than 1,800 stores," Mary Sammons, Rite Aid's chairwoman, president and CEO, wrote in a March letter to shareholders.

The company posted a net loss of $1.1 billion for its fiscal 2008, which ended in March. Even worse, the company had debt of nearly $6 billion as of March 1.

Clear Channel
The main business of CC Media, the parent company of Clear Channel Communications, is selling ads, and that's a tough one in this market. The company posted a $3 billion loss in the fourth quarter of last year.

As the largest radio company in the U.S., Clear Channel needs to put a lot of ads on the airwaves. So the steady decline in radio advertising -- the market is projected to shrink 11% this year -- has hammered the company. In the fourth quarter of 2008, its radio broadcasting unit's revenue was down 13% from a year ago.

Many media companies are facing similar problems. Worse for Clear Channel is that it recently borrowed the remaining $1.6 billion of the $2 billion in lines of credit it had available. That has some worried that CC Media, owned by private-equity firms Thomas H. Lee Partners and Bain Capital, is struggling to keep up with payments on the $17 billion-plus it has in outstanding debts.

Univision
Univision Communications, a massive Spanish-language media conglomerate also partly owned by Bain and Thomas H. Lee, is looking malo.

In addition to suffering from the advertising slump hitting media companies, it also has large debts and is losing money. The company has about $10 billion in debts and posted a net loss of $5.1 billion for 2008, partly because it lowered the book value of several radio and TV properties.

Company executives insist Univision will be able to pay its debts. But investors are nervous. Even CEO Joe Uva acknowledged, in a March 30 statement, that its fourth-quarter results "reflect an operating environment that was among the most difficult we have seen across most industries."

Beazer Homes USA
Homebuilder Beazer Homes USA (BZH, news, msgs) is a poster child for the housing market's woes. Though home sales rose 4.7% in February from the previous month, according to the U.S. Commerce Department, they were down about 40% compared with a year earlier. The homes that are selling are going because they're at unbeatable and, for homebuilders, unbearable prices. The average selling price is down about 18%.

Beazer has posted large losses for the past two years, and its revenue was down 53.5% in its fiscal first quarter, which ended Dec. 31. It has about $2.1 billion in liabilities, and its existing lines of credit have been exhausted.

And with its debt insurance selling at one of the highest premiums on MSN Money's list, Beazer is sure to have difficulty refinancing.

Harrah's Entertainment
The gambling industry has had an unlucky year. And Harrah's Entertainment is holding a particularly bad hand.

The owner of more than a dozen casinos across the U.S., including Caesars Palace, Bally's and Paris Las Vegas, is highly leveraged because of a private-equity buyout. The company had more than $24 billion in debts at the end of 2008. Interest alone cost nearly $2 billion last year.

Harrah's isn't posting the profits needed to pay down its debts. It reported a $5.1 billion loss for 2008, partly because of write-downs on the value of some gambling properties. In a note to investors, Deutsche Bank (DB, news, msgs) securities analyst Andrew Zarnett said Harrah's will need to restructure and could lose customers due to business cuts.

Last month, Bloomberg reported that the owners of Harrah's had purchased about $2 billion of the company's debt. The move was widely seen as a sign that the owners are preparing for a bankruptcy filing, because owning more debt insures they have a larger voice in the bankruptcy restructuring process.

MGM Mirage
MGM Mirage (MGM, news, msgs) is facing the same debt problems as Harrah's, as well as a nasty lawsuit with its Saudi partner over a new Las Vegas development.

The owner of such celebrated Las Vegas Strip casinos as the Bellagio, Mandalay Bay and the Mirage has about $12.5 billion in long-term debt and posted a $1.1 billion loss in the fourth quarter of 2008, in part due to a drop in room reservations.

The bill for billions in MGM's debt was supposed to come due in March. But the company was able to persuade banks to extend the deadline until May 15. In its annual SEC filing, the company raised the possibility that it may not make the new deadline.

In addition to its debt position, MGM is fighting a lawsuit from Dubai World over the management of the $8.7 billion City Center project, a luxury condominium community on the Las Vegas Strip. The project is running over budget, and Dubai World appears to want out.

United Airlines
The airline industry's skies were supposed to be friendlier in 2009. But the industry emerged from one storm -- $147-a-barrel oil -- only to find itself facing a recessionary hurricane. The Federal Aviation Administration estimates that U.S. passenger traffic will drop 9% this year and forecasts a 5.7% revenue drop for airlines.

Of all the airlines, United is on particularly shaky ground. Its parent company, UAL (UAUA, news, msgs), said April 7 that traffic was down 13.6% last month compared with the previous March. Those results were slightly worse than many analysts and investors had expected. UAL also acknowledged this year that its attempt to create a low-cost airline, Ted, had failed. UAL shuttered the unit in January.

United also has a problem with how its ticket sales are structured. Credit card companies demand that the company set aside a reserve to pay them back for processing sales transactions. Such reserves are difficult to maintain when a company is operating at a loss, and UAL posted a $547 million loss for the last three months of 2008.

Ford Motor
Ford Motor (F, news, msgs) emerged as the healthiest U.S. automaker last year when it made clear that it didn't need a government bailout. But being the healthiest in the intensive-care unit doesn't mean that survival will come without some bitter medicine.

Some investors fear bankruptcy could be that medicine. Ford posted a $14.6 billion loss in 2008. That was the company's worst performance in its history, adjusting for inflation.

And that likely will keep the company from making a further dent in its $15.9 billion debt. Although the company has shown some progress in restructuring its debt -- shaving off $9.9 billion in April to get below $16 billion -- it still has a lot of work to do before assuaging bankruptcy concerns.

General Motors
What bankruptcy list would be complete without General Motors (GM, news, msgs)? Even with the federal government giving GM $13.4 billion in loans and potentially doling out more aid, GM is at the top of the list for riskiest borrowers.

Last year was dismal for the company. It posted a $16.8 billion loss. That number jumped to $30.9 billion after the company included new estimates of the worth of Hummer, Saab and other brands.

This year doesn't look much better. In March, GM's sales were down nearly 45% from a year ago. Cadillac, Saturn, Saab and Hummer had the worst sales of all of GM's brands, and some of those are slated to disappear. The company is phasing out Hummer and Saturn, according to SEC filings. GM is also reportedly nearing a sale for Saab.

Talk back: Which brands or products do you think should die?

Without government aid, a GM failure is nearly certain. Although President Barack Obama’s auto task force rejected GM's restructuring plan Feb. 17, the government does seem committed to helping the company. It has suggested that GM file for bankruptcy protection in June if it is unable to get unions and bondholders to negotiate new agreements.

The 30 biggest bankruptcy risks
The following companies are listed from most endangered to least endangered, based on the credit-default-swap spreads on five-year corporate bonds on April 3. (Note: AbitibiBowater was at the top of the list on that date, but it filed for bankruptcy on April 16 and was removed.)

R.H. Donnelley (RHDC, news, msgs)

Visteon (VSTN, news, msgs)

General Motors (GM, news, msgs)

Six Flags (SIX, news, msgs)

Financial Guaranty Insurance

Hawker Beechcraft

Ineos Group

NXP Semiconductors

McClatchy (MNI, news, msgs)

Unisys (UIS, news, msgs)

CC Media

Beazer Homes USA (BZH, news, msgs)

YRC Worldwide (YRCW, news, msgs)

Hellas Telecommunications II

Lear (LEA, news, msgs)

Ono Finance

American Axle & Manufacturing (AXL, news, msgs)

Harrah's Entertainment

Truvo Subsidiary

Ford Motor (F, news, msgs)

Rite Aid (RAD, news, msgs)

MBIA (MBI, news, msgs)

Realogy

UAL (UAUA, news, msgs)

MGM Mirage (MGM, news, msgs)

Freescale Semiconductor

Univision Communications

ArvinMeritor (ARM, news, msgs)

Pioneer Electronics

 

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General Motors
What bankruptcy list would be complete without General Motors (GM, news, msgs)? Even with the federal government giving GM $13.4 billion in loans and potentially doling out more aid, GM is at the top of the list for riskiest borrowers.

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DETROIT – General Motors Corp. took a key step toward its downsizing on Tuesday, striking a tentative deal to sell its Hummer brand to a Chinese manufacturer, while also revealing that it has potential buyers for its Saturn and Saab brands. GM has an agreement to sell its Hummer brand to Sichuan Tengzhong Heavy Industrial Machinery Co. of China, said a person briefed on the deal.

The Detroit automaker announced Tuesday morning that it had a memorandum of understanding to sell the brand of rugged SUVs, but it didn't identify the buyer. A formal announcement of the buyer was to be made Tuesday afternoon, said the person briefed on the deal. The person spoke on condition of anonymity because the details have not been made public.

Sichuan Tengzhong deals in road construction, plastics, resins and other industrial products, but Hummer would be its first step into the automotive business.

GM said the sale will likely save more than 3,000 U.S. jobs in manufacturing, engineering and at various Hummer dealerships.

As part of the proposed transaction, Hummer will continue to contract vehicle manufacturing and business services from GM during a transitional period. For example, GM's Shreveport, La., assembly plant would continue to contract to assemble the H3 and H3T through at least 2010, GM said.

The automaker also said Tuesday that it has 16 buyers interested in purchasing its Saturn brand, while three parties are interested in the Swedish Saab brand.

Chief Financial Officer Ray Young told reporters and industry analysts on a conference call that GM is continuing to pursue manufacturing agreements with a new Saturn buyer.

GM would like to sell the money-losing Saturn brand's dealership network, contracting with the new buyer to make some of its cars while the buyer gets other vehicles from different manufacturers.

At the same time, bridge loan discussions with the Swedish government are progressing, Young said.

GM, which filed for Chapter 11 bankruptcy protection in New York on Monday, is racing to remake itself as a smaller, leaner automaker. In addition to its plan to sell the Hummer, Saab and Saturn brands, GM will also phase out its Pontiac brand, concentrating on its Chevrolet, Cadillac, Buick and GMC nameplates.

The company hopes to follow the lead of fellow U.S. automaker Chrysler LLC by transforming its most profitable assets into a new company in just 30 days and emerging from bankruptcy protection soon after.

But GM is much larger and complex than its Auburn Hills-based rival and isn't up against Chrysler's tight June 15 deadline to close its deal with Fiat Group SpA.

Sharon Lindstrom, managing director at business consulting firm Protiviti, said the companies pose different challenges. But as with Chrysler, she notes that the Treasury Department made sure many of GM's moving parts were in order ahead of time so a quick bankruptcy reorganization might be possible.

"They had a lot of their ducks in a row because the terms of the government financing forced them to get all the parties to the table in a very, very short period of time," Lindstrom said.

Separately, the German government said Tuesday it paid out the first euro300 million ($425 million) in bridge loans to GM's Adam Opel GmbH division. The loans are part of a deal to shrink GM's stake in Opel and shield it from GM's bankruptcy protection filing in the U.S.

Canadian auto supplier Magna International Inc. and Russian-owned Sberbank will acquire 55 percent of Opel.

A sale of the Hummer brand had been expected. Chief Executive Fritz Henderson had said in April that the automaker was expecting final bids from three potential buyers within the month.

Eric Lane, vice president of Baton Rouge, La.-based Gerry Lane Enterprises, which has four dealerships — including one offering Hummers — welcomed the sale.

"Even though they've put out a fantastic product, they haven't come out with enough new models to keep up," said Lane. "We'd like a new owner to come in and inject some new products."

Lane said the lack of new products and the recession figured into the Hummer equation much more than last year's runup in gasoline prices. "I haven't had a single owner complain about mileage. Nobody buys a Hummer because of the gas. You don't buy a vehicle for $60,000 and worry about the price of gas."

Critics had seized on the rugged but fuel-inefficient Hummer as a symbol of excess as GM's financial troubles grew and gas prices rose. Sales at Hummer, which is known for models with military-vehicle roots, have been in a steep slide since gasoline prices rose to record heights last summer. For the first four months of this year, Hummer sales are down 67 percent.

GM nailed down deals with its union and a majority of its bondholders and arranged the Opel deal in order to appear in court Monday with a near-complete plan to quickly emerge with a chance to become profitable.

The government has said it expects GM to come out of bankruptcy protection within 60 to 90 days. By comparison, the judge overseeing Chrysler's case approved the sale of its assets to a group led by Italy's Fiat in just over a month. Some industry observers think Chrysler could emerge as early as this week.

During Monday's hearing, GM attorney Harvey Miller stressed the magnitude of the case and the importance of moving GM through court oversight as fast as possible. He noted that the automaker only has about $2 billion in cash left.

"If there's going to be a recovery of value, it's absolutely crucial that a sale take place as soon as possible," Miller said in his opening statement.

The automaker wants to sell the bulk of its assets to a new company in which the U.S. government will take a 60 percent ownership stake. The Canadian government would take 12.5 percent of the "New GM," with the United Auto Workers union getting 17.5 percent and unsecured bondholders receiving 10 percent. Existing shareholders are expected to be wiped out.

U.S. Judge Robert Gerber moved swiftly through more than 25 mostly procedural motions during the automaker's first-day Chapter 11 hearing.

Gerber set GM's sale hearing for June 30, putting it on a path similar to that of Chrysler. Objections are due on June 19, with any competing bids required to be submitted by June 22.

Gerber also gave GM immediate access to $15 billion in government financing to get it through the next few weeks, and interim approval for use of a total $33.3 billion in financing, with final approval slated to be ruled on June 25. The funds are contingent on GM's sale being approved by July 10. Gerber also approved motions allowing the company to pay certain prebankruptcy wages, along with supplier and shipping costs.

The sheer size of GM makes it a more complicated case than Chrysler.

GM made twice as many vehicles as Chrysler's 1.5 million last year and employs 235,000 people compared with Chrysler's 54,000. GM also has plants and operations in many more countries, meaning it will likely have to strike separate deals to navigate the bankruptcy laws of those places.

Henderson said GM has learned a few things by watching Chrysler's case.

"Certainly the court showed that it can address 363 (sale) transactions in an expeditious fashion," Henderson said at a news conference Monday. "Particularly in our case with what will be a very large 363 transaction."

GM's filing for Chapter 11 bankruptcy protection is the largest ever for an industrial company. GM, which said it has $172.81 billion in debt and $82.29 billion in assets, had received about $20 billion in low-interest loans before entering bankruptcy protection.

Source
http://news.yahoo.com/s/ap/20090602/ap_on_bi_ge/us_automakers

 

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<font size="5"><center>
GM, Ford, Chrysler adding jobs,
near pre-crash employment levels</font size></center>

Detriot Free Press
May. 11, 2011



With General Motors promising Tuesday to add or retain more than 4,000 jobs, the Detroit Three are gaining credence as job creators.

In fact, they're on course to return to the pre-crash employment levels of 2008.

Ford, which restructured without federal aid, now has 76,000 workers -- more than it had in 2008.

Ford also has promised to add 7,000 workers in the next two years, hiring that starts late this year.

Chrysler added 4,300 jobs last year, ending 2010 about 600 shy of its 2008 employment level of 52,200. It also plans to hire 1,000 more.

At GM, U.S. employment stands at 77,000. Based on its forecasts, GM could employ up to 85,000 in the U.S. in the next two years -- closer to the 92,000 it had in 2008.

Rebecca Lindland, an analyst with IHS Automotive, said GM's hiring plans aren't overly ambitious. "It's a goal they can meet," she said.

In many cases, the Detroit Three's job promises in the next few years are dependent on sales hitting forecasts and, in some cases, tax incentives.

Still, the Detroit Three employed 417,623 workers worldwide last year -- a long way off the 1.1 million at the start of the century. But industry experts forecast that the Detroit Three will add as many as 35,000 jobs through 2015.

In a blog post Tuesday, the White House patted itself on the back for the new auto jobs.

Ron Bloom, the president's assistant for manufacturing policy, wrote that because of President Barack Obama's "tough love, the American auto industry is now positioned to grow and prosper. ... Since GM and Chrysler emerged from bankruptcy in June 2009, the auto industry has added 115,000 jobs -- the fastest pace of job growth in the auto industry since 1998."


<font size="4">Detroit 3 light-vehicle sales bouncing back</font size>

TOLEDO -- With U.S. auto demand approaching 2008 levels, U.S. employment for the Detroit Three is starting to look like 2008, too.

Despite the crisis at Japanese factories, analysts are still saying U.S. light-vehicle sales will total about 13 million this year -- almost identical to the 13.2 million vehicles Americans bought in 2008.

Back in '08, 13.2 million was a disappointment compared with the 16 million to 17 million in annual U.S. sales to which automakers had grown accustomed. In 2011, however, 13 million sales is a cause for rejoicing -- and rehiring.

That's why in December, the General Motors board approved an upcoming investment of more than $2 billion to update 17 U.S. plants in eight states, adding or preserving 4,000 jobs, primarily in the Midwest.

"We're trying to match supply and demand," GM CEO Dan Akerson told reporters Tuesday at GM's Toledo Transmission plant. "Our cars are selling well. We seem to have hit a sweet spot. And so we're not going to forgo any opportunities."

As the market grows, the Detroit Three should gain more of it, too. GM, Ford and Chrysler gained market share last year for the first time in 16 years, and analysts say they will likely do it again this year as Japan's automakers experience vehicle shortages after a March earthquake and tsunami.

At GM, U.S. employment stands at 77,000. The automaker has promised to add or retain about 9,000 jobs since its bankruptcy, and roughly half of those workers have begun their jobs already.

Including the 4,000 announced Tuesday -- and previously shared plans to add about 1,000 electric vehicle engineers in Michigan in the next two years -- GM could employ as many as 85,000 people in the U.S. in the next two years, compared with the 92,000 it had in 2008.

The automaker has about 1,350 U.S. workers on layoff who will have first dibs on any new jobs. UAW Vice President Joe Ashton said Tuesday that all those people should be back to work by September at the latest.

Then, GM plans to start hiring new workers at its second-tier wage of about $14 an hour, roughly half of what most line workers make.

The nearly 4,000 new and retained jobs, first reported by the Free Press, include about 250 in Toledo to build a new eight-speed transmission after an investment of $204 million to install new equipment, Akerson said.

Besides those jobs, and last week's announcement of 250 new jobs to build Corvettes in Bowling Green, Ky., GM has yet to announce the other plants that make up the 17 involved in the hiring wave. In some cases, those announcements are contingent upon GM's receipt of tax incentives.

The Free Press has reported that the Warren Tech Center and powertrain plants such as those in Spring Hill, Tenn., and Tonawanda, N.Y., are among those targeted for new or preserved jobs. GM also plans to add hundreds of jobs at its Detroit-Hamtramck Chevrolet Volt plant, and it is considering adding up to 2,000 positions there as soon as late summer.

The Detroit-Hamtramck plant will finish making 2011 Volts at the end of the month and then will close to retool for the 2012 model year. Building about 25,000 Volts this year is still possible, Akerson said, and he hopes GM will eventually build more than 100,000 Volts a year.

For now, however, GM's official stance is that it will build 10,000 Volts this year to sell in the U.S. Additional production is contingent on battery production, Akerson said.

"I want more, faster," he said.

The UAW is still hoping GM will agree to add more jobs during contract negotiations this summer, Ashton said. In particular, he said, he's still hoping GM will agree to reopen the assembly plants in Spring Hill and in Janesville, Wis., and keep a compact truck plant in Shreveport, La., from closing.

"We're not looking to make sacrifices," Ashton said. "We've made them."

Contact Chrissie Thompson: 313-222-8784 or cthompson@freepress.com. Staff writer Brent Snavely contributed to this report.


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