A squeeze too tight

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Crisis deals under severe pressureIMF unsure if worst financial crisis is over

Almost 62 years ago to the day, Aubrey Pilgrim bought a two-bit feed and seed store in east Texas with the help of a $2,500 bank loan.

His tiny operation grew up to become the Pilgrim’s Pride Corp, the alpha-chicken of the poultry business, with 53,000 employees, customers like KFC and Taco Bell — and a heavy load of debt. Last week, Pilgrim’s Pride warned that it would break certain agreements with its lenders, underscoring the tightening bind that many companies, even those far from Wall Street, find themselves in as loans grow scarce and the economy struggles.

As a government bailout of the financial industry plan seemed elusive and the credit markets remained on edge, many analysts saw more pain ahead for debt-burdened companies, as well as their shareholders and employees. Some of these companies, like Pilgrim’s Pride, 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.

Every company needs to borrow money to finance its operations, and the cost is rising for virtually all of them because of the unease in the credit markets. But the weakest, like Pilgrim’s Pride, are being squeezed particularly hard.

Last week, yields on corporate junk bonds, that is, those without investment grade credit ratings, jumped to nearly 14.6%, 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% on the dollar on average, according to Standard & Poor’s. Bonds and loans of blue-chip companies like General Electric weakened too.

“Have we seen anything like this?” asked Kingman D Penniman, the 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.”

The turmoil in the credit markets is taking its toll on a wide variety of companies. Hard Rock Park, a theme park in Myrtle Beach, S C, filed for bankruptcy on last week, citing “frozen credit markets.”

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.