Ten companies with at least $100 million in assets filed for Chapter 11 bankruptcy last month – the most since April when 17 such companies filed. So far in October five more big companies have filed, including Friendly Ice Cream Corp. and Open Range Communications Inc.
They join a list this year that includes Borders Group Inc. (PINK: BGPIQ), paper manufacturer NewPage Corp., skin-cream maker Graceway Pharmaceuticals and the notorious solar panel manufacturer Solyndra Inc.
In fact, 2011 has been the worst year for corporate bankruptcies since 2009, when the financial crisis touched off by the Lehman Brothers' collapse caused a record number of filings.
"It's getting busier for everyone I know," Jay Goffman, co-head of the Global Restructuring Group at law firm Skadden Arps, Slate, Meagher & Flom, told Reuters. "I think 2012 will be a busy year and 2013 and 2014 will be extraordinarily busy years in restructuring."
With many companies already struggling and experts warning that the U.S. economy is headed for another recession, odds are that the pace of corporate bankruptcies will accelerate.
Of course, when a publicly traded company goes bankrupt, the stock becomes essentially worthless, with bondholders and other creditors splitting up whatever is left of the company.
That's what happened to shareholders of General Motors Co. (NYSE: GM) when it declared bankruptcy in 2009. The old stock lost all value, while the reborn GM held an initial public offering (IPO) for a new stock trading with the former symbol.
While the mess angered those left holding old GM stock, that's one of the risks of buying equities. You don't want to be an investor who holds on to a dying company too long, or worse, buys a company expecting a turnaround that instead turns south.
So as an investor it behooves you know which companies are endangered. And while there may still be time for these companies to change course, right now they're on the road to bankruptcy.
Seven Endangered Companies
- Eastman Kodak Company (NYSE: EK): This iconic American company bungled the transition to digital photography and has become increasingly irrelevant. Kodak confirmed earlier this month that it's working with a law firm known for assisting companies through the bankruptcy process, although it denies any plans to file. The markets reacted accordingly, shaving 54% off a stock that's already down about 50% for the year.
- AMR Corp. (NYSE: AMR): Last week the parent company of American Airlines came under scrutiny when an unusually large numbers of its pilots announced plans to retire – supposedly to guarantee pension benefits in the event of a restructuring. But that's not AMR's only problem. As one of the few airlines that hasn't merged with a rival, AMR is finding it increasingly difficult to compete in a very tough industry and has yet to return to profitability.
- SunPower Corp. (Nasdaq: SPWRA): After the sudden and politically embarrassing demise of Solyndra, all solar energy companies have become suspect. But in the case of SunPower, the concern is justified. The company is carrying $820 million in debt, $20 million more than its market capitalization. Just last week SunPower opened a fresh $200 million line of credit with Deutsche Bank AG (NYSE: DB). And the company's officers are defendants in a shareholder lawsuit by institutional investors alleging a scheme to deceive the investing public. SunPower is down 94% from its 2007 high, so you can't blame them. It's also the ninth-most shorted stock on either the Nasdaq or New York Stock Exchanges.
- DineEquity Inc. (NYSE: DIN): You're probably familiar with DineEquity through such restaurant chains as Applebee's and IHOP. Unfortunately venerable restaurant chains haven't done well lately, with several going bankrupt during the current economic downturn, including Friendly's, Fuddrucker's and Sbarro. The company has $1.85 billion in debt on its balance sheet, which it refinanced last year hoping to buy time. But its declining revenue is a sign the move didn't work.
- Barnes & Noble Inc. (NYSE: BKS): With the fall of rival Borders earlier this year and the company's successful Nook e-reader, you'd think Barnes & Noble would be doing well. The trouble is, it still has to compete with Amazon.com Inc. (Nasdaq: AMZN), which recently introduced a fresh line of Kindle e-readers aimed directly at the Nook. The company has a negative profit margin for the most recent twelve months (-0.97%) and appears to be adding debt to cover its dividend payments. The stock is down 31% in the past three months.
- Dynegy Inc. (NYSE: DYN): This electricity producer has been short-circuited for some time already. A restructuring effort earlier this year to deal with its debt has resulted in a lawsuit from bondholders who claim Dynegy stole assets from them in the process. Last week, Macquarie Group Ltd. (PINK: MQBKY) downgraded the stock to "underperform" from "neutral" as it cut its 12-month price target to $3 from $5. Macquarie expects Dynegy's net debt to equity to increase to 180% in 2011, 197.4% in 2012 and 208.5% in 2013.
- Clearwire Corp. (Nasdaq: CLWR): As often happens in the tech sector, Clearwire has wound up on the wrong side of a trend: Its WiMax 4G technology is being abandoned for LTE networks. The most devastating blow came last week when Sprint Nextel Corp. (NYSE: S), which holds a stake in Clearwire, announced it would cut ties with its partner and build out a 4G LTE network. Clearwire stock fell 30% on the news and is now hovering near an all-time low of $1.30 – a far cry from its high of $32 just four years ago. Clearwire wants to pursue LTE technology itself, but will need $600 million to do it – a tall order for a company that already has $4 billion in debt and continues to lose money.
News and Related Story Links:
- Money Morning:
A Guide to Getting Rich in a Bear Market
- Money Morning:
The Airline Industry: How to Make Good Money From a Bad Business
- Money Morning:
Why the Government Should Have Seen the Solyndra Collapse Coming
- Business Insider:
The Next 11 Big Companies That Could Go Bankrupt
- 12/7 Wall St:
The Bankruptcy Rumor Mill Heads Toward AMR (AMR, EK,BAC)
Chapter 11 Bankruptcy
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.