<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Sep 27, 2008
U.S. Financial turmoil
</TR><!-- headline one : start --><TR>No business safe from credit squeeze
</TR><!-- headline one : end --><TR>Theme park goes bust; restaurants and retailers are feeling the pinch too </TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: Though the headlines have been dominated by the likes of Wall Street giants like Lehman Brothers, the American International Group and Washington Mutual, the disarray of the credit markets and the wider economy has extended to every part of corporate America.
On Thursday, Hard Rock Park, a theme park in South California, filed for bankruptcy, saying the collapsed housing market and the spike in energy and gas prices had led to lower-than-expected ticket sales.
But what drove Hard Rock Park to the bankruptcy court was its inability to refinance a US$15 million (S$21.4 million) revolving line of credit due to the 'frozen credit markets'. Essentially, the park operator ran out of money.
Every company needs to borrow money to finance its operations, and the cost is rising for virtually all companies because of the unease in the credit markets. But the weakest, like Hard Rock, are being squeezed particularly hard.
As a government bailout of Wall Street remained elusive and the credit markets remained on edge, many analysts saw more pain ahead for debt-burdened companies.
Some of these companies, like Hard Rock, went into hock when times were good to make acquisitions and grow.
Others were saddled with debts by financiers who bought them with borrowed money. And still others simply find themselves struggling to pay the bills as the economy worsens.
On Thursday, yields on corporate junk bonds - that is, those without investment-grade credit ratings - jumped to nearly 14.6 per cent, the highest level since late 2002.
Prices of risky corporate loans, which are traded like bonds on Wall Street, fell to record lows, fetching about 82 cents on the dollar on average. Bonds and loans of blue-chip companies like General Electric weakened too.
'Have we seen anything like this?' asked Mr Kingman Penniman, president of KDP Investment Advisors, a bond-research firm. 'No. I don't think I've seen good credit go down so much so quickly.'
Analysts worry that a host of other companies, ranging from mortgage lenders to restaurant chains, will come under mounting pressure, and that companies will start to default on their debts in growing numbers.
Already, scores of restaurants and retailers have filed for bankruptcy protection. Some, like retailers Linens 'n Things, Mervyns, and Steve and Barry's, were backed by private equity firms. Others, like The Sharper Image and the Bennigan's restaurant chain, were crushed by debt they had incurred for other reasons, like expanding their businesses.
'For consumer-facing companies, you can already see the early stages of trouble,' said Mr Barry Ridings, a co-head of the restructuring advisory group at Lazard. He added that companies like restaurants are often 'the canaries in the coal mine' that presage trouble across the economy.
Dozens of other companies are being closely watched for signs of trouble, according to Mr Penniman.
Among those he cited whose debt showed distress were Sbarro, an Italian fast-food chain; Dollar Thrifty Automotive Group, a rental-car company; and Sealy, a mattress-maker. NEW YORK TIMES
U.S. Financial turmoil
</TR><!-- headline one : start --><TR>No business safe from credit squeeze
</TR><!-- headline one : end --><TR>Theme park goes bust; restaurants and retailers are feeling the pinch too </TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: Though the headlines have been dominated by the likes of Wall Street giants like Lehman Brothers, the American International Group and Washington Mutual, the disarray of the credit markets and the wider economy has extended to every part of corporate America.
On Thursday, Hard Rock Park, a theme park in South California, filed for bankruptcy, saying the collapsed housing market and the spike in energy and gas prices had led to lower-than-expected ticket sales.
But what drove Hard Rock Park to the bankruptcy court was its inability to refinance a US$15 million (S$21.4 million) revolving line of credit due to the 'frozen credit markets'. Essentially, the park operator ran out of money.
Every company needs to borrow money to finance its operations, and the cost is rising for virtually all companies because of the unease in the credit markets. But the weakest, like Hard Rock, are being squeezed particularly hard.
As a government bailout of Wall Street remained elusive and the credit markets remained on edge, many analysts saw more pain ahead for debt-burdened companies.
Some of these companies, like Hard Rock, went into hock when times were good to make acquisitions and grow.
Others were saddled with debts by financiers who bought them with borrowed money. And still others simply find themselves struggling to pay the bills as the economy worsens.
On Thursday, yields on corporate junk bonds - that is, those without investment-grade credit ratings - jumped to nearly 14.6 per cent, the highest level since late 2002.
Prices of risky corporate loans, which are traded like bonds on Wall Street, fell to record lows, fetching about 82 cents on the dollar on average. Bonds and loans of blue-chip companies like General Electric weakened too.
'Have we seen anything like this?' asked Mr Kingman Penniman, president of KDP Investment Advisors, a bond-research firm. 'No. I don't think I've seen good credit go down so much so quickly.'
Analysts worry that a host of other companies, ranging from mortgage lenders to restaurant chains, will come under mounting pressure, and that companies will start to default on their debts in growing numbers.
Already, scores of restaurants and retailers have filed for bankruptcy protection. Some, like retailers Linens 'n Things, Mervyns, and Steve and Barry's, were backed by private equity firms. Others, like The Sharper Image and the Bennigan's restaurant chain, were crushed by debt they had incurred for other reasons, like expanding their businesses.
'For consumer-facing companies, you can already see the early stages of trouble,' said Mr Barry Ridings, a co-head of the restructuring advisory group at Lazard. He added that companies like restaurants are often 'the canaries in the coal mine' that presage trouble across the economy.
Dozens of other companies are being closely watched for signs of trouble, according to Mr Penniman.
Among those he cited whose debt showed distress were Sbarro, an Italian fast-food chain; Dollar Thrifty Automotive Group, a rental-car company; and Sealy, a mattress-maker. NEW YORK TIMES
