In the current credit environment, there are several fairly big companies that could get in enough trouble that it would wipe out the common shareholders. The ones in the financial industry like Countrywide (CFC) and E*Trade (ETFC) are obvious. But there are others outside finance that have huge debt loads which can no longer be fre-inanced to buy them time, especially if the core businesses are not doing well.
Charter Communications (CHTR) Charter now has over $19 billion in debt and a market cap of only $486 million. It stock has recently fallen from $4.93 to $1.20. In the last quarter, Charter had $105 million in operatng income on $1.525 billion in revenue. Interest expense was $452 million. Charter is up against increasing competition from satellite TV and telecom companies. It does not have the capital it needs to upgrade its infrasturcture to stay in the competitive game.
Journal Register (JRC) The newspaper chain had operating income of $22 million last quarter on revenue of $121 million. Interest expense was almost $10 million. Long-term debt is over $700 million, and revenue at JRC and most newspaper companies is dropping at about 7% year-over-previous year. Its stock has fallen from over $8 to about $2 over the last year.
AMD (AMD) The chip company recently got a cash infusion of $622 from the Abu Dhabi government’s investment arm. When the money came in, the stock traded above $13. It has since fallen to $10.27. Wall St. is not convinced that AMD can compete with Intel (INTC), at least not with its current capital structure. In the last quarter, AMD had an operating loss of $226 million on revenue of $1.632 billion. Interest expense was $95 million. Debt, much of its taken on witht the purchase of graphics chip company ATI, now runs almost $5.4 billion. Early word is that the market is not impressed with the company’s next-generation Barcelona chip. AMD would need a huge turnaround in a short time to handle its debt problems.
XM Satellite (XMSR) XM does not like to talk about it, but it needs to merge with Sirius (SIRI) for financial reasons as much as anything else. The company has total liabilities of over $2.4 billion including long-term debt of almost $1.5 billion. Its subscriber growth rate has been slowing each quarter and in the September period it had an operating loss of $113 million on revenue of $257 million. Interest expense was $27 million. Less than two years ago, XM traded for over $30. It now trades at under $14. Imagine what would happen if the merger is killed.
None of these companies is likely to fail in the sense that it will cease to operate, but it is not hard to imagine that all of them will be forced to restructure, and common sharesholders are likely to get nothing.
Douglas A. McIntyre
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