by Ron Carleton | Jun 17, 2009
With the weak economy, we are seeing more companies breach covenants in their loan agreements. Such a default typically gives lenders these right: Acceleration (i.e. “call the loan”) – declare the principal of the loan to be immediately due and...
by Ron Carleton | Jun 10, 2009
Bio-Rad Laboratories Inc. is a life sciences company with sales of over $1.7 billion. In May of 2009, it issued $300 million of 7-year notes in a 144A offering through Credit Suisse. The company refers to the new debt as Senior Subordinated Notes. Does this mean the...
by Ron Carleton | Jun 1, 2009
Microsoft borrowed $3.8 billion in the US corporate bond market on May 11, driving its total debt up to $5.8 billion. But there’s no need for panic. The company had $36.9 billion worth of cash and investments at the end of March, was producing annualized EBITDA...
by Ron Carleton | May 18, 2009
When someone asked Sergio Marchionne what he would do if someone asked him to start a car company from scratch, he replied, “Lie down until the feeling passes.” Anyone counting on him to do for Chrysler what he did at Fiat has to be hoping he won’t...
by Ron Carleton | May 8, 2009
When Thomas H. Lee Partners purchased Michael Foods in 2003,it financed the deal with a combination of term loans and bonds. All partiesagreed that if there was ever a problem, the term loans would be repaid before the bonds. In exchange for agreeing to take this...
by Ron Carleton | Apr 23, 2009
Competition affects credit strength, and never more than in tough times. Favorable conditions can mask competitive weaknesses. Consider General Motors at the peak of the SUV craze. Unfavorable conditions can amplify weaknesses. Consider General Motors today. This...
by Ron Carleton | Apr 13, 2009
The U.S. accounting authorities are finishing a round of changes to the way banks account for the value of their impaired assets. A number of rules are involved: FAS 114, FAS 115, FAS 124, FAS 157. The combined effect will make it easier for banks to avoid reporting...
by Ron Carleton | Apr 2, 2009
Loans to non-investment grade and middle-market companies are typically secured by the borrower’s receivables, inventory, and fixed assets. Pledging this collateral, however, does not reduce the borrower’s likelihood of default. Security should reduce the loan’s loss...
by Ron Carleton | Mar 25, 2009
Eddie Bauer did not have a good fourth quarter of 2008. Reflecting the worsening economy, sales were down 5.7% compared to the forth quarter of 2007. Still, adjusted EBITDA for the full year 2008 was almost $53 million, up over 25% from 2007. As for liquidity, the...
by Ron Carleton | Mar 19, 2009
There’s a new book about the collapse of Bear Stearns. It’s House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan, and it is getting good reviews. The New York Times calls it “…high drama that is gripping…” The story may...
by Ron Carleton | Mar 16, 2009
Wendy’s/Arby’s Group, Inc. (ticker WEN) was formed in September 2008 through the merger of the Wendy’s and Arby’s fast food chains. In March 2009, WEN announced it had redone its main loan agreement to reflect the merger. Nothing unusual there....
by Ron Carleton | Mar 5, 2009
What do Whirlpool, Fiat, Sony, and Heinekin have in common? All took major restructuring charges recently, driving down profits that already were under pressure from the global economic slowdown. As the recession lasts longer and spreads farther, we’ll see many...
by Ron Carleton | Feb 25, 2009
Why does a company go bankrupt? We often point to factors such as the economy, high leverage, bad management, falling asset values, or strong competition. While all of these can be contributing factors, ultimately a company will file a bankruptcy petition when it...
by Ron Carleton | Feb 19, 2009
For many companies, financing an acquisition is a two-step process. The long-term strategy might call for raising cash using syndicated term loans and revolvers, bonds, equity, and asset sales. However, many companies use bridge loans to initially fund acquisitions,...
by Ron Carleton | Feb 12, 2009
We mentioned the absence of early warning signs in our earlier post on Satyam – especially the lack of a gap between earnings and cash flow. It turns out there were a few. We can classify them either as behavioral or financial. Behavioral Warning Signs Behavioral...
by Ron Carleton | Feb 4, 2009
It’s the biggest corporate fraud in Indian history, and the press labeled it “India’s Enron” as soon as the news broke. But Satyam looks to be worse than Enron in scope, if not in scale. How can we say that before the authorities have completed their investigation? We...
by Ron Carleton | Jan 26, 2009
Over the past 15 year, many businesses have adopted sophisticated inventory tracking systems and just-in-time inventory policies. As a result, they have gotten much more efficient in their use of inventory, as shown in this chart: Source: Wachovia Economics This...
by Ron Carleton | Jan 20, 2009
The 2007 year-end selling season was not good for the home furnishings retailer “Linens ‘n Things.” Quarterly sales were up 0.6%, but only because the company opened four new stores. Ignoring the new stores, same store sales were down 1.0% for the...
by Ron Carleton | Jan 10, 2009
How did General Motor’s run through so much liquidity so fast? Static measures like cash and liquidity don’t really give us the full answer. We need a more dynamic view of what’s driving GM’s liquidity; something that focuses on uses and sources instead. Here’s a...
by Ron Carleton | Jan 5, 2009
As we move further into recession, we often see a pattern in corporate free cash flow (defined here as cash from operating activities minus capital expenditures and dividends). A company’s ability to manage cash flow as sales decline is a key determinant of...
