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Fallout: The Financial Crisis

Companies in debt struggle to borrow

Steve Henn Jan 20, 2009
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Fallout: The Financial Crisis

Companies in debt struggle to borrow

Steve Henn Jan 20, 2009
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TEXT OF STORY

KAI RYSSDAL: In this country this year, close to $700 billion in corporate debt is coming due. Firms are scrambling to refinance a lot of it. But with so many banks still choking on billions in bad mortgages, and institutional investors afraid of lending money to any but the strongest corporations, a lot of companies might have a hard time coming up with the cash they need.

Marketplace’s Steve Henn reminds us this crisis we’re in used to be called a credit crunch.


STEVE HENN: Circuit City just went bankrupt after failing to refinance its debt. Close to 30,000 employees will lose their jobs, and hundreds of stores across the country are closing. And this may be just the beginning.

DIANNE Vazza: There’s going to be a lot of bankruptcies this year.

Dianne Vazza is Standard & Poor’s expert on corporate debt markets.

Vazza: Right now we are swirling in the epicenter, of not only deep recessionary conditions but in unprecedented tight lending conditions with financial institutions who are in rough shape themselves.

Precious few companies can borrow these days for less than 10 percent a year. For companies with less than stellar credit, interest rates have skyrocketed.

Vazza: Well, now it’s close to 15 percent, 15 percent over Treasuries.

So, what kind of firm can afford to pay that kind of interest?

Vazza: Virtually none.

Vazza says any firm in America that doesn’t have an investment-grade credit rating could be vulnerable. And that includes Eddie Bauer, Krispy Kreme, Rite Aid and Six Flags.

Vazza: So you’re looking at lots of companies — retailers, you’re looking at restaurants, consumer product discretionary types of companies, media and entertainment companies.

Ed Leibert’s chairman of the National Association of Corporate Treasurers.

ED Leibert: Treasurers are going to have to use all their creative abilities.

But Vazza says no amount of creativity is going to solve this problem. Instead, she says, brace yourself for a big wave of corporate bankruptcies.

In Washington, I’m Steve Henn for Marketplace.

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