Credit Crunch Hitting Main Street

Tightening credit is hurting more than just Wall Street (see BusinessWeek article). As of September 9 of this year, 57 companies had defaulted on a total of $45.3 billion of debt, up from 22 total companies defaulting in all of 2007. For the 57 that have defaulted, 45 are not in the financial industry. Unfortunately, the trend may get worse as approximately 70 percent of non-financial companies carry a junk credit rating, with the default rate possibly rising to levels not seen since 1981. Companies that are feeling the impact of the credit crunch include automakers (in particular GM), airlines (UAL Corporation - UAUA), franchisees (such as some at McDonald's, MCD, who may not default, but are having problems getting loans for coffee bar expansions), and entertainment (Boyd Gaming - BYD, Trump Entertainment - TRMP, and Six Flags - SIX). The S&P list of "weakest links," or companies that could default in the next 12 months, is now at 162 firms and growing.