Bankruptcies Are on The Rise: Could These Companies Be Next?

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

Several big-name companies are finding themselves in a struggle to survive in the economic downturn, suggesting a wave of bankruptcies akin to one sparked by the Lehman collapse could be expected in the upcoming months.

Reuters reports, “companies in a range of businesses, including hair salons, restaurants, renewable energy, and the paper industry, have tumbled into Chapter 11 in the past few months.” The effects of the struggling economy also threaten “companies in industries as diverse as shipping, tourism, media, energy and real estate.”

Industry experts say predicting a wave of bankruptcies is “no easy task.” The largest threats to already struggling companies are the probability of sovereign debt crisis in the euro zone and a double-dip recession in the US.

These events could ultimately induce a string of business failures that some bankruptcy and restructuring experts warn could “rival the one that followed Lehman Brothers.”

According to bankruptcy data, Chapter 11 filings are on the rise with “at least $100 million in assets filed for bankruptcy in September, the most since 17 filed in April.”

Some names recently filed include Friendly’s and Open Range Communications Inc. Meanwhile, warnings of imminent bankruptcy filings for American Airlines and Eastman Kodak have been recently making headlines.

So we were wondering, which big US companies might be next? To find out we compiled a list with the help ofBusiness Insider of bankruptcy candidates based on financial distress models developed by GovernanceMetrics International.

GovernanceMetrics International identifies these companies as having elevated financial distress probability and to have experienced high risk events that increase the likelihood of bankruptcy.

Here are the top ten biggest US names on their list. Do you think any these companies will file in the near future?

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1. SunPower Corporation (SPWRA): GovernanceMetrics International finds the Financial distress probability at 3.20% and the accounting and governance risk to be "aggressive." Business Insider reports: SunPower has been getting killed with the rest of the U.S. industry. SunPower sold its 250MW California Valley Solar Ranch to NRG Energy this year. According to Reuters, it also just signed a new $275 million revolving credit facility as well as a new $200 million letter of credit facility.

2. The Shaw Group Inc. (SHAW): GovernanceMetrics International finds the Financial distress probability at 3.81% and the accounting and governance risk to be "aggressive." Business Insider reports: The energy and construction conglomerate is trading at its 52-week low. Shaw is selling its 20% stake in Westinghouse to Toshiba Corporation, which has been seen as a move away from nuclear.

3. CoreLogic, Inc. (CLGX): GovernanceMetrics International finds the Financial distress probability at 4.44% and the accounting and governance risk to be "very aggressive." Business Insider reports: CoreLogic has put itself up for sale. According to Reuters, at least seven different firms have expressed interest in acquiring the data firm. It has hired Greenhill to help with the sale as a whole, or as pieces.

4. DineEquity, Inc. (DIN): GovernanceMetrics International finds the Financial distress probability at 5.97% and the accounting and governance risk to be "aggressive." Business Insider reports: DineEquity owns Applebee's and IHOP. U.S. chain restaurants have suffered during the recession, with many going bankrupt including Friendly's, Fuddruckers, Sbarro, Perkins & Marie Callender, Charlie Brown's Steakhouse and Real Mex.

5. Quad/Graphics, Inc. (QUAD): GovernanceMetrics International finds the Financial distress probability at 6.25% and the accounting and governance risk to be "aggressive." Business Insider reports: Quad/Graphics has been on a buying spree, picking up competitor World Color Press out of bankruptcy and buying HGI Company in 2010. Since then profit margins have been under pressure and debt is high, according to The Street.

6. Barnes & Noble, Inc. (BKS): GovernanceMetrics International finds the Financial distress probability at 6.32% and the accounting and governance risk to be "aggressive." Business Insider reports: Borders went bankrupt earlier this year. Barnes & Noble's business model is only slightly more viable. It faces new pressure from Amazon after last week's announcement of the new Kindle Fire and cheaper Kindles.

7. Community Health Systems (CYH): GovernanceMetrics International finds the Financial distress probability at 6.88% and the accounting and governance risk to be "very aggressive." Business Insider reports: Poorer patients and lower Medicare reimbursements have hurt the hospital sector. Community Health Systems has suffered particularly on deteriorating net income and poor profit margins, according to The Street. The company recently sold two of its hospitals in Oklahoma.

8. Dynegy Inc. (DYN): GovernanceMetrics International finds the Financial distress probability at 10.61% and the accounting and governance risk to be "aggressive." Business Insider reports: Dynegy was recently sued by bondholders who believed they were shortchanged by Dynegy's restructuring. The restructuring was done to try and help Dynegy avoid bankruptcy.

9. Standard Pacific Corp. (SPF): GovernanceMetrics International finds the Financial distress probability at 13.35% and the accounting and governance risk to be "very aggressive." Business Insider reports: Standard Pacific CEO Ken Campbell will step down next year after attempting an aggressive turnaround. The California luxury home builder bought a bunch of land in 2009 and made a number of layoffs and cost cuts. It has been losing money since 2010, as the housing market double dips.

10. Clearwire Corporation (CLWR): GovernanceMetrics International finds the Financial distress probability at 14.93% and the accounting and governance risk to be "aggressive." Business Insider reports: Clearwire's WiMax 4G network — used by Sprint — is getting edged out by Verizon and AT&T's LTE 4G networks. The company will be even more screwed if the AT&T/T-MoBusiness Insiderle deal goes through. Furthermore, Clearwire shares declined on reports that Sprint will lose money on the iPhone deal, which makes Sprint less likely to buy its struggling part. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Credit and Debt , Stocks


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