Companies That Won’t Make It Through 2009 (HMC)(SIRI)(AIG)(FRE)(FNM)(RAD)(NYT)(NT)(PIR)(CHTR)(HOV)

AngrybearA lot of fairly well-known public companies either disappeared or went bankrupt this year. Circuit City is on the list. Based on the most recent news GM may get added soon.

24/7 Wall St. looked at some of the largest and most well-known companies, reviewed their SEC filings if they are public, analyst reports, and media observations about their businesses and picked ten that probably won’t be around at the end of next year. That does not mean that their brands will disappear, but these companies will have been dissolved as the world knows them now or working though the court system in the hopes of getting Chapter 11 protection and a chance at survival.

1) Chrysler already says it will be out of business by early next year. But, what does that mean. It is unlikely that its largest shareholder, hedge fund Cerberus, is going to throw good money after bad in an economy where US car sales are dropping 30% compared with 2007 figures. But, the Chrysler brand could be around. So could the brand of its Jeep division. Foreign car companies like VW and Honda (HMC) would love to get well-known operations without the baggage of debt, UAW contracts, and dealer networks. Chrysler still has some popular models including it 300 series cars and it created the minivan. Jeep is regarded as the grandfather of four-wheel drive. Watch Chrysler Motors LLC go away and some of its products move into other hands.

2) Sirius XM (SIRI) has traded under $.10 down from a 52-week high of $3.89. Reuters has reported that “Sirius XM faces some $1.1 billion in debt in 2009. Of that, about $300 million comes due in February.” In the current credit environment, that probably won’t happen. There is a theory that falling car sales will undermine the sale of Sirius subscriptions. The company says that it does no better than break-even in the first year it gets a new customer though GM. But, a shrinking subscriber based is not good news for the satellite radio company’s future. Sirius will be out of business, perhaps before mid-year. Who picks up the pieces? The logical choices are a healthy car company like Toyota or a satellite firm like DirecTV.

3) AIG (AIG) may be the biggest mess of all the financial firms that the federal government has bailed out. Uncle Sam has given AIG $153 billion in loans. The theory is that the money gets paid back by the huge insurance company selling assets. Investors don’t seem very sanguine about that. AIG shares trade at $1.60, down from a 52-week high of $60.04. Congress seems less and less enamored of having a lot of money sitting in troubled companies. Watch for the new administration to get frustrated quickly and appoint its own people to auction off AIG divisions. Better to get something back than keep writing AIG checks.

4) Fannie Mae (FNM) and Freddie Mac (FRE) is two for one. They are both penny stocks, reflecting the fact that the Treasury has essentially taken them over, putting them into a conservatorship and pledging up to $200 billion to back their assets. With mortgage defaults rising, and home prices falling, that is not the end of the amount of money that the government will have to sink into the firms. Within a few months, the value of the common shares in the firms will be gone. The new administration may even decide that it does not need both companies. They can be replaced with some of their role going to the FDIC and the rest to one consolidated entity controlled by The Treasury Department which is already funding them.

5) Rite Aid (RAD) trades at $.35 down from at 52-week high of $4.16. The pharmacy company has over 5,000 stores and Wall St. does not expect it to be profitable in the foreseeable future. The chain is a roll-up of the original company and Brooks and Eckerd stores which it acquired. With a debt load of over $6 billion, the firm is likely to falter. Competitors CVS Caremark (CVS) and Walgreen (WAG) would be happy to pick up the pieces. Rite Aid recently announced poor quarterly numbers and cut forecasts.

6) The New York Times (NYT) has to repay $400 million in debt in the first half of 2009. It does not have the money. It plans to mortgage its headquarters, but it is uncertain what that will bring in an uncertain real estate market. The firm’s Boston Globe and regional newspaper operations lose money, so they will be hard to sell. NYT is controlled by the Sulzberger family which has super-majority voting shares. That won’t matter much when the company runs out of money. Another big media operation, perhaps News Corp (NWS) which owns The Wall Street Journal and The New York Post, will come in and auction off what it can and keep the flagship New York Times newspaper and website.

7) Nortel (NT), the huge telecom equipment company, has already been mentioned as a firm which could file for bankruptcy. That may be a game to get creditors to cut down their demands. It could be that  a huge contraction in the industry which is also undermining the fortunes of competitor Alcatel-Lucent (ALU) is pulling Nortel under. Nortel keeps losing money and has cut about as many people as it can and still stay in business. With the need for its products and services falling as the recession grows. Nortel has a pension obligation which may approach $3 billion. Selling divisions in a poor credit market will be hard. A bankruptcy filing would let a court run an auction.

8) Pier 1 (PIR) trades down at $.32 from a 52-week high of $8.25. This holiday season will determine its fate. UBS recently made the comment that “We are increasingly concerned that a weakening macro environment will continue to weigh significantly upon sales at Pier 1 Imports and further undermine turnaround efforts at the chain.”  The retailer recently said that its same-store sales could fall as much as 18% during the current quarter. Long-term debt is $184 million. More losses mean debt service becomes a huge issue. No other retailer is likely to want the stores, so this is probably liquidation. The retailer’s latest earnings showed a widening loss and the company said it could be delisted.

9) Charter Communications (CHTR) has over $20 billion in debt. The cable business usually drives reasonable cash flow, but Charter has to upgrade its system to better compete with telecom companies. It does not have that money. Debt service is overwhelming operating income. Billionaire Paul Allen controls that company. The stock is down to $.15. Eighteen month ago, it was close to $5. Allen will get out while he can and sell to one of the other large cable companies. Charter recently said it is “exploring financial alternatives.”

10) Hovnanian (HOV) shares are down by 70% over the last year. Recently, the shares have been as low as $1.70, putting the company’s market cap at $171 million. The housing downturn may actually get worse as unemployment and foreclosures rise. The costs of credit default swaps on the homebuilder are way. JMP Securities recently commented that HOV is a “bankruptcy risk” due to debt and exposure in the hardest hit real estate markets. A liquidation with Hovnanian would probably be an auction of land and unsold homes.

Douglas A. McIntyre

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