When KB Toys filed for bankruptcy on Dec. 11, the troubled chain didn't even bother to try to stay in business. Management already had realized it would be impossible to borrow money to pay suppliers, retool the merchandise mix, and fund day-to-day operations--all critical for the company's survival. A week later the retailer moved to shut down and close its 461 stores.
With the economy rapidly deteriorating, thousands of companies are rushing to bankruptcy court in a last-ditch attempt to reorganize and improve their fortunes. Trouble is, their main source of cash is quickly evaporating. Loans to companies in bankruptcy, known as debtor-in-possession financing, have dropped from $7.9 billion in the second quarter of 2008 to $2.9 billion in the fourth quarter, according to data provider Deal Pipeline.
Without that financial lifeline, more businesses will abandon revival plans in favor of liquidation. While some purging is necessary, the worry is that the corporate contraction will be more painful than in past downturns and will only exacerbate the economy's woes. "Numerous bankrupt companies are just going to go away," says Stephen J. Czech, chief investment officer at hedge fund SJC Capital Partners, which makes corporate loans.
Click to read more
No comments:
Post a Comment