The book and movie regarding the "Perfect Storm" depicted events that transpired in late October 1991. At that time, a number of atmospheric conditions combined to create a storm of epic proportion.
At its peak the storm was marked by winds in excess of 75 mph and waves that were more than 40 feet high. Those depending on the seas for their livelihood risked their lives to sail in such conditions. One, The Andrea Gail, was lost in the storm.
Today we have another perfect storm brewing in our economy. The consequences of the storm have been disastrous with more damage to come. Banks and financial companies are failing with repercussions throughout the entire system.
Big and small businesses across the nation are now stuck with an environment whereby consumers are not spending, making it difficult to meet profit goals and objectives. Those companies that have strong balance sheets are better positioned to withstand lower profits or losses.
Those companies with weak balance sheets will struggle. Compounding the problem is the tightness in the credit markets making it more difficult for companies to finance cash flow or refinance outstanding debt.
In fact, there could very well be a time when companies outside of Wall Street fail as a result of this crisis. We are already seeing this with the collapse of the auto market. Difficult to obtain financing for inventory or for buyers makes it tough to operate.
Auto dealers are at very real risk of failure. Are there other candidates for failure in other sectors?
One stock that the market is now pricing for bankruptcy due to the crisis is Sirius Satellite Radio (SIRI). Shares have recently fallen precipitously, mainly on fears that debt coming due in 2009 will not be replaced.
If the company is unable to pay off existing debt with new debt, there is a very real possibility that SIRI files for bankruptcy wiping out the current common shareholders. If so, SIRI would still operate as a business, but under a new ownership structure.
Ordinarily refinancing debt would be no trouble at all. If a company can show a history of paying that debt with a business model that showed growth, banks and financial companies would be lining up to finance such a company.
Unfortunately these are not ordinary times. Legitimate businesses with sound prospects are having difficulty obtaining loans. Banks are pulling back in a major way and financial companies are demanded higher rates and fees for filling the gap. (See also: "A Blueprint for Sirius (SIRI) Stock Manipulation?" and "Sirius Cutting Through the Noise")
For a company like SIRI this very well may be a death blow. Thus far there is no word from the company as to the prospect of refinancing debt. We do know that the exorbitant amount of time to approve its merger with XM did substantial damage.
Did it do enough to destroy this company? It very well may have despite the company having excellent prospects going forward. The debt puts SIRI in a box.
Can they get out of the box? Only time will tell. If you are an investor I would hold still. Chances are you already absorbed significant losses. Refinancing the debt puts the company back on track to generate cash flows that will not only repay debt over time, but profits for investors.