The Wreckage in Constellation’s Orbit The ever unfolding financial disaster is like the US and Russian satellites that recently collided in outer space. Their wreckage is expected to orbit the earth for thousands of years, posing a hazard to other satellites that we have come to rely on.

Like the detritus from these satellites, the current financial wreckage is going to cause long term damage to the economy. As if the short term hasn't been bad enough.

One of Baltimore’s most prominent companies, Constellation Energy narrowly avoided disaster but still gets most of the heat from the press. The press loves it because it’s a story that combines all key attributes of an exciting drama: a stodgy business is turned into a high flying company by a charismatic youthful king with a sexy cheerleader wife. The company narrowly avoids disaster when it is rescued by a famous financial knight. But the knight wants control of the kingdom so the youthful king finds another less demanding suitor and pays a tribute to make the financial knight go away. Chastened, the youthful king vows to mend his ways. The people (or at least Jay Hancock of the Baltimore Sun) want the king’s head but the king’s knights of the rectangular table believe the guy who almost killed the company also saved it.

Compared to what has happened to some of Baltimore’s other famous companies, they may be right.

For all the drama, at least Constellation has solid assets that create real heat and light; and its shares, while down substantially from their high, still have value.

Barely visible in Constellation’s penumbra are far bigger corporate disasters in Baltimore. Like MuniMae, which has become a black hole that has sucked out almost all of its shareholder’s equity.

At the beginning of February, MuniMae announced that it had finally completed its 2006 financial audit. That audit showed shareholder equity of about $668 million. Today, the company is in default under its loan agreements; its stock price is 25 cents a share and its market capitalization is less than $10 million. MuniMae’s liquidity problems resulted in its auditors issuing a “going concern” opinion that casts substantial doubt on the company’s ability to survive.

It is likely that MuniMae’s failures are a result of the financial and real estate vortex that has mercilessly sucked otherwise good companies into near oblivion. Like Constellation, management took risks with leverage that have now come home to roost. But unlike Constellation, management hasn’t yet found a way to salvage the company. It is trying to sell assets to raise cash, but its assets are hard to value since many are securities that are collateralized by real estate. In this market, whatever they are able to sell may be too little and too late to save the company.

Another company that has been orbiting in never never land is NexCen Brands. NexCen has become very adept at reincarnation, so much so that it is unrecognizable from what it was at birth. For those with a short memory, NexCen used to be Aether Systems, which became a dotcom disaster (but not before that private equity that fueled its rocket stock price got a great return). With not so exquisite timing, it then transmogrified into a mortgage company before jettisoning that identity and acquiring a variety of lesser known retail brands that include ice cream, pretzels, cookies and shoes. NexCen’s stock is currently 7 cents a share, down from its 52 week high of $4.31 and light years from Aether’s stock price that was inflated to several hundred dollars a share in the dotcom craziness.

Others have tried to make these individual brands work in far less challenging economic climate and have failed. The track record of companies that own multiple, disparate brands has not been good especially ones as different as shoes and pretzels.

If nothing else, NextCen has demonstrated an instinct for survival. But at its current stock price, it would take about 1500 shares to buy a pair of Nike’s and a pretzel.

Stockholders might want to take that deal.  8:37 PM •