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Borders Declares Bankruptcy

Mark — Thu, 17 Feb 2011 00:44:17 +0000

Borders Group (BGP) fought off filing for bankruptcy as long as possible but the bookstore chain couldn’t fight off the inevitable. Today, Borders filed for Chapter 11 Bankruptcy protection.

The bankruptcy filing is horrible news for shareholders of the company. Long suffering shareholders will be wiped out for holding onto this stock. I never understood why anyone was investing in this stock. The long-term fundamentals were horrible. The writing had been on the wall for a long time at Borders. Amazon and the e-book frenzy have killed off most bookstore chains. The last company standing intact is Barnes & Noble.

Borders bankruptcy filing is however good news for the chain. The company is seeking to close 30% of its stores and has received access to $400 million of its $505 million bankruptcy financing from GE Capital. That’s roughly 193 of its 642 stores. Borders is now trying to change its business model by getting more into digital distribution and selling more non book products.

I still don’t see how Borders will reinvent itself. The company is years behind Amazon in the digital distribution game and remains behind Barnes and Noble in the traditional bookstore business. I just don’t think that the market is big enough for Borders to be a viable player.

Back in December of 2008, Borders Group was included in my post about Dead Companies Walking. Since that time Borders and Blockbuster have gone bankrupt. The next big chain that I expect too bankrupt is Rite Aid. The company is suffocating under its massive debt load. Rite Aid’s terrible same store sales numbers can only be explained away by management for so long.

What national chain do you expect to go belly up next?

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Blockbuster Is Destined For Bankruptcy

Mark — Wed, 07 Jul 2010 11:20:33 +0000

If you typed in symbol BBI today looking for Blockbuster’s stock then you may have been surprised to find it no longer listed. Blockbuster was delisted from the New York Stock Exchange today for failing to maintain a $1 share price. Shares of Blockbuster haven’t traded at $1 since last October. The movie rental chain had hoped to stay listed by convincing shareholders to agree to a reverse stock split by merging Class A and B shares. Blockbuster could not garner enough votes among shareholders to approve the plan.

This might just be the final curtain call for Blockbuster. Blockbuster blamed low voter turnout for the failure of its reverse split plan. This begs the question, if shareholders are so apathetic that they didn’t even bother voting for the stock to avoid delisting then who will rescue Blockbuster? It’s not the bondholders. Bondholders have refused to budge on restructuring the $630 million dollars worth of bonds outstanding paying 11.75%. Bondholders seem content on forcing Blockbuster to make these high interest payments even if it is going to drive the company out of business.

There is no way that Blockbuster will survive this year with its current debt obligations. Blockbuster had to request an extension until August on a $42.4 million dollar interest payment that was scheduled to be paid tomorrow. Do bondholders really believe that Blockbuster will be able to repay the principal due to bondholders in 2014? The belief of bondholders must be that Blockbuster is worth more money in liquidation than as an ongoing entity in the future.

If shareholders and bondholders aren’t buying Blockbuster’s recapitalization plan then neither should you. Bankruptcy is now the best alternative for Blockbuster. It is the only way for the company to unburden its $900 million debt load. Blockbuster could emerge from bankruptcy as a leaner more efficient company with a legitimate chance of competing against Redbox and Netflix.

Blockbuster’s stock was worth 15 cents per share when it last traded on the NYSE. Blockbuster now trades on the pink sheets under the symbol BLOKA.PK.

Disclosure: I do not own any shares of Blockbuster

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Do You Really Want BP To Go Bankrupt?

Mark — Sat, 03 Jul 2010 20:04:10 +0000

There is a huge public outcry against BP (NYSE: BP) and rightfully so. The oil conglomerate’s lax standards and reckless behavior has led to the greatest oil spill that we have ever seen. Hundreds of thousands of people are boycotting BP stations and refusing to buy their gas there. Others are rooting for a BP bankruptcy. Although BP should have to pay every dime back to claimants harmed by the oil spill, a BP bankruptcy is not in the best interests of the United States.

Here are 3 reasons to root against a BP bankruptcy.

1. The federal government would be on the hook for BP’s liabilities.

A BP bankruptcy means that the company would be unable to pay back all of its liabilities. If BP declares bankruptcy then the government would be responsible for paying off all of the damage claims. The federal government would have to reimburse fishermen, oil rig workers, cleanup crews, and other employers. More than seven million businesses have been affected by the BP oil spill. If BP defaults then taxpayers are on the hook for all of the compensations claims.

2. The United States would increase its dependence on Middle Eastern oil imports.

BP is the only large integrated oil company that does not import a large percentage of its oil from the Persian Gulf. In 2009, Exxon (NYSE: XOM), Valero (NYSE: VLO), and Chevron (NYSE: CXV) imported 26%, 29%, and 36% of their oil from the Persian Gulf. Each of these companies imported over 100 million barrels from the Gulf. BP North America imported only 10 million barrels from the Persian Gulf which was less than 6% of its total imports. A BP bankruptcy would mean more U.S. dependence on Middle Eastern oil.

3. The number of jobless Americans would rise even further.

A BP bankruptcy would hurt all of the small business BP station owners. The majority of BP gas stations are independently owned and operated. Approximately 90% of BP gas stations are independently owned which means that a BP boycott hurts store owners and not BP. BP makes its money on oil exploration and drilling. A long term BP boycott will just increase the unemployment rate by putting thousands of station owners and families out of business.

As a BP shareholder, I would obviously be against a bankruptcy filing because it would completely wipe out my equity position. But as you can see a BP bankruptcy would have a ripple down effect on all U.S. citizens as well.

What do you think?

Photo by: showmeone

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The Importance Of Living Within Your Means

Mark — Mon, 28 Jun 2010 06:00:06 +0000

ESPN has a story on the bankruptcy of Mark Brunell. Brunell invested in businesses in which he did not have more than enough cash to cover the liabilities. Mark Brunell was one of the best QB’s in the NFL in the 90′s and I am certain that he is a good man. Brunell invested in a number of different real estate ventures that have led him to the doors of bankruptcy. The only way that he can escape his creditors is through bankruptcy. Don’t blame Brunell though. This can happen to just about anyone when you allow yourself to become overextended.

It’s estimated that Brunell made over $50 million dollars during his playing career. It’s believed that Brunell now has less than the $3 million dollars needed to cover the loan repayment. While we shouldn’t mire in the misery of others, you can learn an important lesson from the Mark Brunell case. You have to live within your means. Even athletes have to create a budget. They make a great sum of money for a limited time and need to adjust their spending so that they can maintain their standard of living after the glitz, glamour, and big contracts are long gone.

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$145 Billion Dollar Penny Stocks

Mark — Wed, 16 Jun 2010 18:56:56 +0000

I have been saying for some time now that Freddie Mac (FRE) and Fannie Mae (FNM) are worthless organizations. Both government sponsored organizations have massive debt loads that they can never hope to repay. The two firms have a combined market cap of just $1.1 billion dollars. The government owns $145 billion dollars worth of two companies that do not make even one cent of profit. These 2 companies only exist to prop up the mortgage market.

While both companies will likely stay in business (due to the federal government), common stock shareholders will ultimately lose everything. Both stocks have been booted from the New York stock exchange for failing to hold a $1 value. Shares of Fannie Mae dropped 40% and are currently trading at 56 cents. Freddie Mac isn’t faring much better dropping 40% to 73 cents per share. Investors shouldn’t go anywhere near shares of Fannie Mae or Freddie Mac. These 2 stocks have penny stock daytraders written all over them.

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GM Declares Bankruptcy

Mark — Tue, 02 Jun 2009 02:37:36 +0000

Well it finally happened. General Motors (GM) filed for Chapter 11 bankruptcy protection today. Bankruptcy appears to have been necessary as the US automaker was saddled with billions in debt and obligations. The bankruptcy courts have given GM 15 billion in emergency financing so that the company can continue to operate. It took the perfect storm to drive GM to bankruptcy but it happened in 2008. GM was undone by years of declining auto sales combined with an oversupply of bonds, underfunded pension obligations and unfavorable contracts along with the worst economic environment since the Great Depression. Chrysler has undertaken similar steps and still faces the possibility of extinction. GM hopes to rebound a leaner stronger more efficient company that investors are willing to invest capital in soon. Only time will tell if GM emerges from bankruptcy as an innovative new auto company or the same old repackaged auto supplier of the past 20 years.

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The future of General Growth Properties

Mark — Thu, 11 Dec 2008 19:46:11 +0000

Bill Ackerman, hedge fund manager of Pershing Capital, has been raising his stake in distressed mall owner General Growth Properties (GGP). I already commented on General Growth’s financial problems in an earlier post. General Growth is trying to stave off bankruptcy by restructuring debt that is due in the near term. Given its financial position there is no fundamental reason to invest in GGP. The stock is currently trading at $1.60. This might ibe an interesting speculative play if they can find a way to avoid bankruptcy.

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Newspapers Going..Going..Gone

Mark — Thu, 11 Dec 2008 18:53:22 +0000

The US newspaper industry is facing tough times. The Tribune Company, the nation’s second largest newspaper publisher, filed for Chapter 11 bankruptcy protection. The company has been saddled with debt and declining sales since billionaire Sam Zell took the company private last year. I paid particular attention to this bankruptcy announcement because they own my hometown newspaper, The Baltimore Sun. Tribune Company also owns some of the largest newspapers nationwide including Newsday, L.A. Times, and the Chicago Tribune.

Tribune is not the only struggling newspaper publisher. Gannett, EW Scripps and the New York Times all face similar problems. The newspaper industry as a whole is in trouble. Newspapers are becoming increasingly irrelevant. Newspapers throughout the country have experienced declining revenue from subscriptions losses and lower ad revenue. Ad revenue declined 18.3%, 11.1%, 17% over the past quarter at the New York Times, Gannett and EW Scripps respectively.

Subscribers have abandoned newspapers for online content. Following this trend advertisers have moved ad dollars from print media to online media. The newspaper industry is at a crossroads. In the age of 24 hour news, newspapers seem out of date. By the time you read the newspaper you have probably already seen the news. National news has been replaced by CNN, Fox, MSNBC or your local news station.

Newspapers have become a niche item. People are no longer concerned with having a physical product to hold in their hands. Newspapers only sell well during major historical events. Special events such as this past presidential election demonstrate that people do still want a tangible product but only when a significant event occurs. Newspapers sold out of issues the day after the election.

I think the only hope for the newspapers publishers is to reinvent themselves. They should move their focus from print to online. Publishers should allocate more capital to their online websites. They need to get their online sites on par with the larger media conglomerates. They need to utilize their advantage over major news outlets which is in having the scoop on all local news. They need to focus on becoming a 24 hour news site on all things locally. They could use the print editions for special issues and weekend editions only.

Until newspaper companies can find a way to reinvent their business models, I wouldn’t buy these stocks even at these prices.

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Chief Excessive Officer

Mark — Thu, 20 Nov 2008 12:29:02 +0000

Why do executives get paid millions of dollars a year to run a company into the ground? Why do these same executives earn hundreds of millions of dollars in bonuses, stock options and golden parachutes after driving these companies into bankruptcy? I was watching CNBC the other day and saw an alarming statistic. The average CEO’s salary is more than 435 times the average worker’s salary. That is unbelievable. I am an advocate of the whole pay for performance philosophy. But not when CEO’s like Richard Fuld of Lehman Brothers, James Cayne of Bear Stearns, Kerry Killinger of Washington Mutual, Martin Sullivan of AIG, Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac were paid hundreds of millions of dollars in salary and bonus packages to drive their companies into Chapter 11 bankruptcy. Why is it that when a company falls into financial trouble the employees are always the ones who have to suffer the losses?

The latest example of poor management can be found in the US auto industry. Richard Wagoner of GM, Robert Nardelli of Chrysler and Alan Mulally of Ford have been paid millions of dollars to fix the three largest domestic auto manufacturers. They have failed miserably. Their companies are on the verge of going out of business. So you would think they would be willing to take a cut in compensation? Of course not. A CEO would rather lay off 30,000 employees then eliminate his own bonus.

The management of GM, Ford and Chrysler have mismanaged the auto companies and are now seeking 25 billion dollars to stay afloat. I think that if Congress does give the auto manufacturers federal assistance that they will keep doing business as usual. This means laying off a significant number of employees in 2009 while management takes no reduction in compensation. Don’t get me wrong. I think the Federal government should help the auto makers but with some stipulations: (1) management needs to be replaced (2) salaries need to be much more realistic (3) management needs to develop a workable business plan. So what happens to the typical corporate CEO after he is let go from a failing company that he has mismanaged? He is given a signing bonus along with a hefty compensation package at another firm and begins the process all over again.

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Is bankruptcy next for General Growth Properties?

Mark — Wed, 19 Nov 2008 18:54:34 +0000

General Growth Properties (GGP) is the 2nd largest mall owner in the United States. General Growth Properties owns over 200 malls and shopping centers throughout the country. I first noticed General Growth because they own a lot of malls that I frequently visit. Malls such as White Marsh Mall, Owings Mills Malls, Towson Town Center and the Mall in Columbia to name a few. General Growth has a portfolio of attractive real estate holdings that any company would love to own. So why is GGP in at risk of declaring bankruptcy? GGP borrowed too heavily to finance its property acquisitions which include its 12.6 billion dollar merger with the Rouse Company. The economic recession has hit the retail industry especially hard. GGP has seen decreased demand for properties that they lease.

Mall traffic has slowed substantially and this has hurt the earnings of existing tenants. General Growth Properties is now saddled with over 24 billion in long term debt and has only 100 million in cash. The major assets on General Growth’s balance sheet are the mall properties. GGP may soon default on 1.5 billion in debt that is due in the next 6 months. They are actively seeking financing. But General Growth may be forced to liquidate its real estate holdings to pay off its debtors. General Growth has seen its stock slide from 50 dollars per share to 50 cents. GGP has ceased paying its dividend and seen its credit ratings slashed to junk status. Unless emergency financing is secured General Growth may soon be having its own going out of business sale.

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