Forgive Us Our Debts, Please!

By John Greenwald

Donald Trump is not alone in his misery. Hapless borrowers, crushed by debts they assumed during the go-go 1980s, have made the term "cash crunch" a byword of the '90s. The average U.S. company is so loaded down with loans that it must spend fully 50% of its pretax earnings on interest payments, vs. 32% in 1980. "The major issue facing the nation is that people and companies can't live off debt indefinitely," says Louis Masotti, a professor at the Stanford and Northwestern business schools.

Greyhound became one of the latest casualties of debt last week when the strike-bound bus line entered bankruptcy proceedings. Although a violent, three-month walkout by 6,300 drivers was the immediate cause of trouble, Greyhound remains burdened by $430 million it borrowed in 1987 when it went private in a leveraged buyout and acquired the Trailways bus line. After the buyout, Greyhound cut wages to restore profits and found itself on a collision course with drivers, who struck last March. Greyhound has since hired more than 3,000 nonunion drivers and says its ridership has reached 75% of prestrike levels. The firm received court permission last week to keep its buses rolling.

For some companies, debt was a by-product of attempts to escape takeover raids. Interco, a St. Louis-based conglomerate whose holdings include the Converse and Florsheim shoe companies, borrowed $1.9 billion in 1988 to fend off a hostile bid. Interco said last month that it was willing to give creditors a controlling interest in the firm to avoid bankruptcy court.

The same problem has staggered Southland and Circle K, the two largest U.S. operators of convenience stores. Southland, which runs 7-Eleven outlets (total stores: 6,900), ran into trouble after borrowing $4.9 billion for an LBO in 1987. The cash-strapped company is now negotiating to sell 75% of its stock for $400 million to Japanese investors. Circle K, with 4,600 stores in 32 states, sought protection under Chapter 11 last month after accumulating $1.2 billion of debt during a six-year expansion binge.

Wisconsin-based G. Heileman Brewing had been enjoying heady success until Australian raider Alan Bond took over the company in 1987 for $1.6 billion. Bond's empire collapsed two years later, leaving the brewer swamped with debt. Heileman is now attempting to give creditors an equity stake in return for loan relief.

Even the venerable R.H. Macy is living uncomfortably close to the edge. The Manhattan-based retailer said last week it was "actively examining opportunities to reduce or refinance our debt." Macy's has been reeling from interest charges on $3.7 billion that it borrowed in 1986 for an LBO. The company's woes worsened last Christmas, when it tried to match desperate markdowns at the bankrupt-bound Allied and Federated department store groups -- the properties of debt-driven Canadian raider Robert Campeau. The problems of retailers were underscored last week when Ames Department Stores, which entered bankruptcy in April as a result of an ill-fated $800 million takeover of the Zayre chain, said it would shut 221 stores and lay off 17,500 employees, or nearly one-third of its work force.

Hard times will aggravate the problem. Economists fear that the sluggish U.S. economy, which grew at a meager 1.3% pace in the first quarter, could help put an increasing number of debt-laden firms into bankruptcy court.

With reporting by Tom Curry/Atlanta and William McWhirter/Chicago