Ten Companies that are Veering for Bankruptcy

As our economic forecast seems to be improving with good news coming out every week but it seems as if the unemployment rate is not the only bad news that is in the atmosphere. Also it seems as if bank failures and the FDIC being on the brink of bankruptcy are not the only bad signs in this economy either. In fact there are 10 big companies that are veering toward bankruptcy.

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? Auditor Integrity took the list and removed any company with a market cap under $3 billion. They 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.

Therefore here is the following list:
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. The Market Cap (MC)/Enterprise Value (EV) = 32%

2. Textron
What a tough time to be selling business jets. Textron wrote down $2.3 billion its backlog this year after it canceled a new jet design, and demand for its other aircraft-related offerings has plummeted. Shareholders may be heartened by the company’s ability to push back some debt maturities lately, but deteriorating credit quality at the company’s leasing arm makes the outlook uncertain at best. MC/EV=39%

3. Sprint Nextel
Sprint Nextel is bleeding customers, and could lose as many as 4.4 million net post-paid subscribers this year. This is a huge problem when you have large amounts of maturing debt over the next few years. A recent Deutsche Telekom acquisition rumor offered some hope, but that appears to have faded. Facing a difficult road ahead on its own, the company better keep its lawyers on speed-dial. MC/EV=41%

4. Macy's
Does anyone even shop at department stores anymore? Same store sales will likely keep falling at Macy’s right through 2009. With $2.4 billion of maturing debt over the next five years, the company is trying to cut costs, and has already reduced its dividend. Hopefully the US consumer will bounce back soon, and actually want to shop at Macy's. MC/EV=47%

5. Mylan
In a classic case of management empire building, Mylan overpaid big time when it bought Merck’s generic business back in 2007 and is now stuck with $5 billion of long-term debt as a result. From 2007 – 2008, the company lost over $1.3 billion very much due to goodwill write-downs. While the company could earn $300 million this year, they’ll have to earn far more than that in the future to make their debt manageable. MC/EV=51%

6. Goodyear
Demand for Goodyear tires has sunk, and the company is saddled with massive debt and pension obligations. It doesn’t help that The United Steelworkers union prevents the company from proper cost control by forcing factories to stay open. Shareholders have to wonder how much value will be left of the company after bondholders and the union members have their way. MC/EV=53%

7. CBS
Weak advertising and falling license fees have sent CBS's earnings off a cliff in 2009. If they remain depressed for too long, the company could have trouble refinancing $3.2 billion of debt coming due over the next five years. It will really come down to whether or not CBS’s earnings collapse is merely cyclical, or the result of structural trend whereby traditional TV is dying. As a business blog, we can't help but feel partly guilty here. MC/EV=55%

8. Advanced Micro Devices
When will AMD actually make money again? The question is becoming more important by the day since it carries over $5 billion in long-term debt. After losing almost $3 billion from 2007 – 2008, analysts expect the company to lose more money in 2009 and 2010. While the shares rallied from their February $2 low, they still appear stuck in a long-term down trend from $40 highs way back in 2006. MC/EV=55%

9. Las Vegas Sands
Las Vegas Sands over-expanded and over-levered in the last few years and now has over $10 billion in debt to deal with. Despite jumping 13 times from their March low, Las Vegas Sands shares still face an uphill battle. Conditions in Las Vegas are horrible, Asian expansion isn’t enough, and if this lasts too long then LVS will end up in bankruptcy court looking like it bit off more than it can chew. MC/EV=60%

10. Interpublic Group
As one of the largest advertising and marketing companies in the world, IPG was slammed by the global recession. As the company’s CEO said during recent second quarter results, the downturn “is proving steeper and more lasting than expected”. Revenues have fallen double digits and the company’s exposure to General Motors as its largest client hasn’t helped. MC/EV=80%

Now when looking at this list of potential companies that could go bankrupt, there are some big names on this list such as Macy’s, Goodyear, CBS and Spirit Nextel which should cause many Americans to worry. While there are positive signs that the recession is coming to an end, there is still the possibility the many big companies that Americans are used to might not make it out of the recession to see a brighter economic future. Therefore if any one of these 10 companies goes under what would that mean for America’s economy. It probably won’t hinder our economic future or make a huge splash considering that none of these companies are financial entities or huge manufacturers but they still could impact parts of the economy in some way of the other.

The truth of the matter is that bankruptcy for anyone of these companies is a sure sign of just how economically unstable and hazardous the recession really was for our nation. This is why in the upcoming months and years to come, many economists will have a field day trying to see where exactly did the recession come from and how did any of these 10 companies and the hundreds of others that have folded came to the point where they are now. For now though, the recession is still much alive and well and its impact probably will be around for at least one or two years more. It is truly unclear to say that America’s economy is in the clear from tumbling again when ten big name companies could still become bankrupt in the upcoming months.

So time will tell all things which is why this is a wait and see game now.