The list of bankruptcies in 2015 could be lengthy if we keep going at this rate.
The year is still young, and yet already three big-name companies — all hailing from the services sector, incidentally — are flirting with bankruptcy in some form or fashion. And while it’s true that, so far, the flat performance of the S&P 500 (INDEXSP:.INX) is nothing to boast about, the U.S. economy is generally chugging along quite nicely.
No, the imminent bankruptcies in 2015 have been looming for some time. For teen retailer Wet Seal Inc (NASDAQ:WTSL) and electronics retailer RadioShack Corporation (NYSE:RSH), you might as well put the nail in the coffin now. For casino operator Caesars Entertainment Corp (NASDAQ:CZR), the situation is less dismal, but still an ugly one.
As 2015 progresses, we’ll update this list and keep you apprised of the biggest corporate bankruptcies on the horizon. But for now, RSH, WTSL and CZR take the cake.
Here’s an abridged version of how these companies bit the dust:
2015 Bankruptcies: RadioShack Corporation (NYSE:RSH)
RSH stock has been circling the drain for some time now, and in 2014 it became apparent that the good times were over for the prototypical mall electronics retailer. Unfortunately for RadioShack, the single biggest shift in the retail world this century — the shift from the brick-and-mortar business model to online selling — caught the company completely off-guard.
As early as June 2014, the signs were clear: RSH stock was going to zero. Off nearly 90% in the last year and trading for just a quarter, RadioShack’s bankruptcy is only a matter of time. InvestorPlace‘s Kyle Woodley concisely explained the history behind the company’s fate back in June:
“RadioShack stock hasn’t been slowly dying — it has been in full-blown Last Crusade decay as the likes of Walmart (WMT), Target (TGT) and Amazon (AMZN) all rendered the company useless, and Best Buy (BBY) — while still struggling — is at least holding its own against RadioShack thanks to its size and scale.”
So, there you have it. With RadioShack reportedly preparing a bankruptcy filing that could happen as soon as February, there will likely be some vacant real estate in your local mall.
That is, until it gets replaced by a Chipotle (CMG).
2015 Bankruptcies: Wet Seal Inc (NASDAQ:WTSL)
Teen apparel retailer Wet Seal is a step further in the process, officially filing for Chapter 11 bankruptcy last week. WTSL stock, after a precipitous, one-year decline in which shares lost 98% of their value, now trades for less than a nickel.
There is some minimal chance that Wet Seal stock won’t go directly to $0, but don’t count on it. The company closed 66% of its stores last week and laid off about 3,700 employees in a last-ditch effort to restructure around its best-performing stores and e-commerce business.
Wet Seal’s situation as a company is already a nightmare, and macro factors in its industry don’t look much better. From Black Friday sales slumping 11% from 2013 to 2014 to December’s status as the worst month for retailers in 11 months, I wouldn’t bet on a decisive turnaround for WTSL.
2015 Bankruptcies: Caesars Entertainment Corp (NASDAQ:CZR)
Caesars Entertainment is no Wet Seal and no RadioShack, but its operating unit is filing for Chapter 11 bankruptcy. While CZR stock isn’t close to $0 — it was its Caesars Entertainment Operating Co. unit that filed for bankruptcy, not the entire company — the casino is in rough shape.
The plan, approved by 80% of the company’s senior noteholders, will reduce the debt of Caesar’s operating unit by nearly $10 billion, from $18.4 billion to $8.6 billion. Junior creditors are understandably peeved, though, as the filing calls for them to receive less than 10% of the $5 billion they’re owed.
But how exactly did CZR get in this perilous situation to begin with? In a nutshell, perfectly awful timing for a leveraged buyout in 2008 loaded the balance sheet with debt just as a global recession began wreaking havoc on the gaming industry:
“Back in 2008, TPG Capital and Apollo Global Management took Caesars private for a whopping $30 billion — then the Great Recession hit and casinos discovered their business was not nearly as recession-proof as everyone thought. Although gaming stocks have made a comeback in recent years, CZR was so saddled with debt that it couldn’t buy its way out of a bluff with its 2012 IPO.”
Caesar’s isn’t dead yet. But with CZR stock off 50% in the last year and a bankruptcy battle about to go down, I wouldn’t take any fliers on this bad boy.
There you have it: the three biggest bankruptcies of 2015…
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.