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Credit Crunch Puts Some Companies on S&P Watch List
By MATT KRANTZ, USA Today
Posted: 2008-03-24 20:25:23
Homeowners aren't alone in struggling to keep up with their interest payments. As Bear Stearns' near-brush with bankruptcy shows, some companies also are dodging the repo man. Already this year, 24 public companies with assets worth $9.9 billion have filed for bankruptcy protection, BankruptcyData.com says. That's two-thirds higher than the defaults during the same periods in 2007 and 2006.
Things will likely get much worse. Bond watchers are braced for many more blowups as companies struggle with their debt loads and consumers cut back on their spending. Debt-rating agency Standard & Poor's expects at least 4.6% of speculative-graded companies to default by the end of the year, up from the 25-year low of 1.1% in January and above the historical 4.4% average, says Diane Vazza, managing director at S&P.
Companies in Trouble
Over the last few months, several retailers announced that they are closing their stores. Is your favorite store among those shutting down?
If S&P is right, that could mean as many as 74 additional defaulting companies within the next 12 months.
While nobody knows exactly which companies will default and which will turn themselves around, S&P's latest list of its "weakest links" shows companies that have the lowest credit ratings and face a strong possibility of additional downgrades.
Worldwide, there are 114 companies on the weakest-link list, the highest number in 16 months. And there are now 93 U.S. companies on the list, including some household names, such as Eddie Bauer, Sbarro, Guitar Center, Blockbuster, Six Flags and Linens 'n Things. The number of U.S. weakest-link companies jumped 13% from February through March, showing just how much strain some companies are under.
"We're on the first leg in the up-cycle of defaults," Vazza says. "The second half and in 2009, we're going to see a lot more deterioration. This is just the beginning."
There are some clear-cut trends among companies that are struggling the most, including those that:
Rely on consumer discretionary spending
Companies that depend on consumers spending money for non-essential items are most at risk as the economy slows, S&P says. Industries with the most "weak links" include entertainment, consumer products and restaurants.
One industry that really stands out is retailing. Consider Linens 'n Things, which sells home products. It is not publicly held and declined to comment for this story. But industry leader Bed Bath & Beyond cut its forecast for its fiscal fourth quarter ended in February. Bed Bath & Beyond has no long-term debt, unlike Linens 'n Things, which has $650 million, S&P says.
Another well-known retailer, Eddie Bauer, is on S&P's list. Last year, the seller of outdoor apparel lost $102 million on top of a $212 million loss in 2006. Eddie Bauer also carries heavy debt — more than $260 million, exceeding the $256 million of equity in the company, says S&P's Capital IQ.
Eddie Bauer is part of a trend that saw retailers boost debt by 31% the past year, says research from Marti Kopacz of Grant Thornton. Eddie Bauer did not return calls for comment. High debt is a heavy load for firms when shoppers are in a sluggish economy.
"You can buy fewer pillows and not eat out as many times," Vazza says.
http://money.aol.com/creditdebt/article/usa-today/_a/credit-crunch-puts-some-companies-on/20080324160309990001
"We're on the first leg in the up-cycle of defaults," Vazza says. "The second half and in 2009, we're going to see a lot more deterioration. This is just the beginning."
By MATT KRANTZ, USA Today
Posted: 2008-03-24 20:25:23
Homeowners aren't alone in struggling to keep up with their interest payments. As Bear Stearns' near-brush with bankruptcy shows, some companies also are dodging the repo man. Already this year, 24 public companies with assets worth $9.9 billion have filed for bankruptcy protection, BankruptcyData.com says. That's two-thirds higher than the defaults during the same periods in 2007 and 2006.
Things will likely get much worse. Bond watchers are braced for many more blowups as companies struggle with their debt loads and consumers cut back on their spending. Debt-rating agency Standard & Poor's expects at least 4.6% of speculative-graded companies to default by the end of the year, up from the 25-year low of 1.1% in January and above the historical 4.4% average, says Diane Vazza, managing director at S&P.
Companies in Trouble
Over the last few months, several retailers announced that they are closing their stores. Is your favorite store among those shutting down?
If S&P is right, that could mean as many as 74 additional defaulting companies within the next 12 months.
While nobody knows exactly which companies will default and which will turn themselves around, S&P's latest list of its "weakest links" shows companies that have the lowest credit ratings and face a strong possibility of additional downgrades.
Worldwide, there are 114 companies on the weakest-link list, the highest number in 16 months. And there are now 93 U.S. companies on the list, including some household names, such as Eddie Bauer, Sbarro, Guitar Center, Blockbuster, Six Flags and Linens 'n Things. The number of U.S. weakest-link companies jumped 13% from February through March, showing just how much strain some companies are under.
"We're on the first leg in the up-cycle of defaults," Vazza says. "The second half and in 2009, we're going to see a lot more deterioration. This is just the beginning."
There are some clear-cut trends among companies that are struggling the most, including those that:
Rely on consumer discretionary spending
Companies that depend on consumers spending money for non-essential items are most at risk as the economy slows, S&P says. Industries with the most "weak links" include entertainment, consumer products and restaurants.
One industry that really stands out is retailing. Consider Linens 'n Things, which sells home products. It is not publicly held and declined to comment for this story. But industry leader Bed Bath & Beyond cut its forecast for its fiscal fourth quarter ended in February. Bed Bath & Beyond has no long-term debt, unlike Linens 'n Things, which has $650 million, S&P says.
Another well-known retailer, Eddie Bauer, is on S&P's list. Last year, the seller of outdoor apparel lost $102 million on top of a $212 million loss in 2006. Eddie Bauer also carries heavy debt — more than $260 million, exceeding the $256 million of equity in the company, says S&P's Capital IQ.
Eddie Bauer is part of a trend that saw retailers boost debt by 31% the past year, says research from Marti Kopacz of Grant Thornton. Eddie Bauer did not return calls for comment. High debt is a heavy load for firms when shoppers are in a sluggish economy.
"You can buy fewer pillows and not eat out as many times," Vazza says.
http://money.aol.com/creditdebt/article/usa-today/_a/credit-crunch-puts-some-companies-on/20080324160309990001
"We're on the first leg in the up-cycle of defaults," Vazza says. "The second half and in 2009, we're going to see a lot more deterioration. This is just the beginning."
