As if we needed any more proof that the economy is in the dumps. The housing market is dismal, the stock market is down and the jobs market is extremely bad. Well add an exclamation point to the obvious as Nortel Networks and Gottschalks Inc have both filed for bankruptcy protection.
Nortel Networks is a tech giant and the largest maker of telecommunications in North America. Now the company has the not so great honor of becoming the first major technology company to file since the economic downturn started. The bankruptcy filing came just one day before Nortel was scheduled to repay $107 million interest debt on bonds. The company sights a steep drop in orders from phone clients as one of the main factors for the bankruptcy filing. Nortel once traded on the Toronto stock Exchange for $1,200 Canadian dollars before the first tech bubble burst and as of the close Tuesday January 13, 2009, the company closed at a dismal 38.5 Canadian cents (source: finance.yahoo.com).
While the tech sector is just starting to reveal its bad times, the retail sector is no stranger to the down economy, just ask Circuit City. Retailers that have usually enjoyed a nice steady growth are now struggling just to get by. The retail sector has just finished one of the worst Christmas seasons on record and the turmoil has proved to be too much for another one of them.
Gottschalks Inc has filed for Chapter 11 bankruptcy and has put itself on the market for sale. The regional department store chain has negotiated a $125 million debtor-in-possession financing from a group of investors led by GE Capital. If the funding is approved in bankruptcy court it will allow Gottschalks to pay its employees wages and benefits, some vendors and other operating expenses while the company tries to reorganize. Jim Famalette, who is the Chairman and CEO of Gottschalks said of the bankruptcy filing, “Persistent challenges in the economy and recent unexpected reductions to our borrowing capacity as a result of tightening credit markets have left us with no other recourse (source: finance.yahoo.com).”
Unfortunately with the economy heading in the wrong direction, Nortel and Gottschalks will probably not be the last two major players to fall. It is a sure sign of our economic times, though an ugly one, when large publicly traded companies start to fall by the wayside. For many companies it is survival time. The rule in the wild is survival of the fittest and that rule has now transcended to Wall Street.