Thursday, March 12, 2009

Freddie Mac Lost $265 Million Every DayPosted Mar 12, 2009 08:46am EDT by John Carney in Recession, Banking, Housing Related: FRE
The Business Insider, March 12, 2009:

Freddie Mac reported yesterday that its liabilities now exceed its assets, in part because the fair value of its loan portfolio declined by a massive $120 billion. It has said it will need to draw another $30.8 on the loan facility established to keep it afloat. All told it lost just a smidge under $24 billion in the fourth quarter.
Those a mind-boggling numbers. Regular readers know we have a special way of breaking these down to more comprehensible numbers.
Freddie Mac Losses By The Calendar
Full Quarter: $24. billionEach Day: $265 millionEach Hour: $11 millionEach Minute: $184,000Each Second: $3000
Each and every day in the last quarter of 2008--including weekends Thanksgiving and Christmas--Freddie Mac lost $265 million. That beats out General Motors, which lost just $85 million a day. It means that every second, Freddie Mac lost more than two weeks worth of the average American's income. Every 90 seconds, Freddie Mac lost as much as the average home price in the most expensive region in the country.
The main skill required to run Freddie Mac seems to be the ability to light three one thousand dollar bills on fire every second of every day. If these guys keep it up, they may even be able to get a job at AIG one day.

Total $ 587 bn loss in derivatives...from Citi,BoA,HSBC,Wells Fargo..and JP Morgan....

15 Companies That Might Not Survive 2009

February 06, 2009 09:29 AM ET Rick Newman Permanent Link Print
Corrected on 2/9/09:

An earlier version of this article used the wrong company name for Apollo Management and gave the wrong year for real estate declines.
Whos next?
With consumers shutting their wallets and corporate revenues plunging, the business landscape may start to resemble a graveyard in 2009. Household names like Circuit City and Linens n Things have already perished. And chances are, those bankruptcieswere just an early warning sign of a much broader epidemic.

Moodys Investors Service, for instance, predicts that the default rate on corporate bonds which foretells bankruptcies will be three times higher in 2009 than in 2008, and 15 times higher than in 2007. That could equate to 25 significant bankruptcies per month.
We examined ratings from Moodys and data from other sources to develop a short list of potential victims that ought to be familiar to most consumers. Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment.
But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the next year. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch its a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. Its a terrible time to be cash-poor.
[See how Wall Street continues to doom itself.]
Thats why Moodys assigns most of these firms its lowest rating for short-term liquidity. And all the firms on this list have long-term debt that Moodys rates Caa or lower, which means the borrower is considered at least a very high credit risk.
Once a company defaults on its debt, or fails to make a payment, the next step is usually a Chapter 11 bankruptcy filing. Some firms continue to operate while in Chapter 11, retaining many of their employees. Those firms often shed debt, restructure, and emerge from bankruptcy as healthier companies.
But it takes fresh financing to do that, and with money scarce, more bankrupt firms than usual are likely to liquidate - like Circuit City. Thats why corporate failures are likely to be a major drag on the economy in 2009: In a liquidation, the entire workforce often gets axed, with little or no severance. That will only add to unemployment, which could hit 9 or even 10 percent by the end of the year.
[Want to land a plum job without paying taxes? Heres how.]
Its possible that none of the firms on this list will liquidate, or even declare Chapter 11. Some may come up with unexpected revenue or creative financing that helps avert bankruptcy, while others could be purchased in whole or in part by creditors or other investors. But one way or another, the following 15 firms will probably look a lot different a year from now than they do today:
Rite Aid. (Ticker symbol: RAD; about 100,000 employees; 1-year stock-price decline: 92%).
This drugstore chain tried to boost its performance by acquiring competitors Brooks and Eckerd in 2007. But there have been some nasty side effects, like a huge debt load that makes it the most leveraged drugstore chain in the U.S., according to Zacks Equity Research. That big retail investment came just as megadiscounter Wal-Mart was starting to sell prescription drugs, and consumers were starting to cut bank on spending. Management has twice lowered its outlook for 2009. Prognosis: Mounting losses, with no turnaround in sight.
Claires Stores. (Privately owned; about 18,000 employees.)
Leon Blacks once-renowned private-equity firm, Apollo Management, paid $3.1 billion for this trendy teen-focused accessory store in 2007, when buyout funds were bulging. But cash flow has been negative for much of the past year and analysts believe Claires is close to defaulting on its debt. A horrible retail outlook for 2009 offers no relief, suggesting Claires could follow Linens n Things another Apollo purchase and declare Chapter 11, possibly shuttering all of its 3,000-plus stores. (Update: See this response from Claire's.)
[See 5 pieces missing from Obamas stimulus plan.]
Chrysler. (Privately owned; about 55,000 employees).
Its never a good sign when management insists the company is not going out of business, which is what CEO Bob Nardelli has been doing lately. Of the three Detroit automakers, Chrysler is the most endangered, with a product portfolio thats overreliant on gas-guzzling trucks and SUVs and almost totally devoid of compelling small cars. A recent deal with Fiat seems dubious, since the Italian automaker doesnt have to pony up any money, and Chrysler desperately needs cash. The company is quickly burning through $4 billion in government bailout money, and with car sales down 40 percent from recent peaks, Chrysler may be the weakling that cant cut it in tough times.
Dollar Thrifty Automotive Group. (DTG; about 7,000 employees; stock down 95%).
This car-rental company is a small player compared to Enterprise, Hertz, and Avis Budget. Its also more reliant on leisure travelers, and therefore more susceptible to a downturn as consumers cut spending. Dollar Thrifty is also closely tied to Chrysler, which supplies 80 percent of its fleet. Moodys predicts that if Chrysler declares Chapter 11, Dollar Thrifty would suffer deeply as well.
Realogy Corp. (Privately owned; about 13,000 employees).

Its the biggest real-estate brokerage firm in the country, but thats a bad thing when there are double-digit declines in both sales and prices, as there were in 2008. Realogy, which includes the Coldwell Banker, ERA, and Sothebys franchises, also carries a high debt load, dating to its purchase by Apollo Management in 2007 the very moment when the housing market was starting to invert from a soaring ride into a sickening nosedive. Realogy has been trying to refinance much of its debt, prompting lawsuits. One deal was denied by a judge in December, reducing the firms already tight wiggle room. [Update: See this response from Realogy.]
Station Casinos. (Privately owned, about 14,000 employees).
Las Vegas has already been creamed by a biblical real-estate bust, and now it may face the loss of its home-grown gambling joints, too. Station - which runs 15 casinos off the strip that cater to locals - recently failed to make a key interest payment, which is often one of the last steps before a Chapter 11 filing. For once, the house seems likely to lose.
[See why Wall Street talent is an oxymoron.]
Loehmanns Capital Corp. (Privately owned; about 1,500 employees).
This clothing chain has the right formula for lean times, offering womens clothing at discount prices. But the consumer pullback is hitting just about every retailer, and Loehmanns has a lot less cash to ride out a drought than competitors like Nordstrom Rack and TJ Maxx. If Loehmanns doesnt get additional financing in 2009 a dicey proposition, given skyrocketing unemployment and plunging spending the chain could run out of cash.
Sbarro. (Privately owned; about 5,500 employees).

Its not the pizza thats the problem. Many of this chains 1,100 storefronts are in malls, which is a double whammy: Traffic is down, since consumers have put away their wallets. Sbarro cant really boost revenue by adding a breakfast or late-night menu, like other chains have done. And competitors like Dominos and Pizza Hut have less debt and stronger cash flow, which could intensify pressure on Sbarro as key debt payments come due in 2009.
Six Flags. (SIX; about 30,000 employees; stock down 84%).
This theme-park operator has been losing money for several years, and selling off properties to try to pay down debt and get back into the black. But the ride may end prematurely. Moodys expects cash flow to be negative in 2009, and if consumers arent spending during the peak summer season, that could imperil the companys ability to pay debts coming due later this year and in 2010.
Blockbuster. (BBI; about 60,000 employees; stock down 57%).
The video-rental chain has burned cash while trying to figure out how to maximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores in general are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbusters viability will come when two credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again when market conditions are better.
Krispy Kreme. (KKD; about 4,000 employees; stock down 50%).
The donuts might be good, but Krispy Kreme overestimated Americans' appetite - and that's saying something. This chain overexpanded during the donut heyday of the 1990s - taking on a lot of debt - and now requires high volumes to meet expenses and interest payments. The company has cut costs and closed underperforming stores, but still hasn't earned an operating profit in three years. And now that consumers are cutting back on everything, such improvements may fail to offset top-line declines, leading Krispy Kreme to seek some kind of relief from lenders over the next year.
Landrys Restaurants. (LNY; about 17,000 employees; stock down 66%).
This restaurant chain, which operates Chart House, Rainforest Café, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June. If lenders come through, the company should have enough cash to ride out the recession. But at least two banks have already balked, leading to downgrades of the company's debt and the prospect of a cash-flow crunch. (Update: Moody's recently upgraded its long-term outlook for Landry's - but maintained the company's short-term liquidity rating - after the company refinanced some of its debt.)
Sirius Satellite Radio. (SIRI - parent company; about 1,000 employees; stock down 96%).
The music rocks, but satellite radio has yet to be profitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parent company Sirius XM, which was formed when Sirius and XM merged last year. So far, the merger hasn't generated the savings needed to make the company profitable, and Moody's thinks there's a "high likelihood" that Sirius will fail to repay or refinance its debt in 2009. One outcome could be a takeover, at distressed prices, by other firms active in the satellite business. (Update: Sirius recently averted a bankruptcy filing when Liberty Media took a 40 percent stake in the company.)
Trump Entertainment Resorts Holdings. (TRMP; about 9,500 employees; stock down 94%).
The casino company made famous by The Donald has received several extensions on interest payments, while it tries to sell at least one of its Atlantic City properties and pay down a stack of debt. But with casino buyers scarce, competition circling, and gamblers nursing their losses from the recession, Trump Entertainment may face long odds of skirting bankruptcy. (Update: Trump Entertainment declared bankruptcy on Feb. 17 but said it will continue to operate normally.)
BearingPoint. (BGPT; about 16,000 employees; stock down 21%).
This Virginia-based consulting firm, spun out of KPMG in 2001, is struggling to solve its own operating problems. The firm has consistently lost money, revenue has been falling, and management stopped issuing earnings guidance in 2008. Stable government contracts generate about 30 percent of the firm's business, but the firm may sell other divisions to help pay off debt. With a key interest payment due in April, management needs to hustle - or devise its own exit strategy. (Update: BearingPoint declared bankruptcy in February.)
With Carol Hook, Danielle Burton, Jenny O'Shea, Bobbie Kyle Sauer and Stephanie Salmon

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