1/04/2011 Bankruptcies are now listed under "tsunami of BANKRUPTCIES and CLOSINGS" in our daily updates on our homepage and its archives as they make the front pages of (mostly) the Wall Street Journal and the New York Times - with outstanding exceptions that we copy here, such as this -
- Personal bankruptcies in the U.S. topped 1.5 million last year, rising 9% from 2009 as more households buckled under debt loads, Wall Street Journal, A1 pointer to A2.
1/05/2010 NYT & WSJ bankruptcies are now listed in our daily updates on our homepage and its archives, with occasional discursive exceptions like the following -
- The quickie bankruptcy - More companies enter court, and exit, in a flash, by Mike Spector, WSJ, C1.
[Businesses seem to think that they can prosper by making things easier for themselves while making things harder for employees and consumers, regardless of efficiency or merit or any of that old-fashioned stuff.]
For executives at lender CIT Group Inc., filing for bankruptcy seemed like a death sentence. No financial firm had survived a Chapter 11 process.
But after cajoling from advisers, CIT filed a "prepackaged" bankruptcy-restructuring plan supported by an overwhelming number of bondholders. The firm entered court Nov. 1 and sped through Chapter 11 in 40 days, emerging Dec. 10 after eliminating $10.5 billion in debt.
CIT's case capped a year that rewrote the playbook on long-established bankruptcy practices, as cases moved through court in record times.Unlike traditional bankruptcy filings, which can plod on for years, the restructurings have aimed to get lenders' consent ahead of time or bypass creditor scrutiny altogether.
[ Less and less accountability for decision-makers and producers, more and more costs for consumers. Result? More mistakes and deeper, harder-to-hide recession.]
In 2009, the number of prearranged bankruptcies, in which many creditors approve a reorganization plan ahead of a filing, tripled to 30 among public companies, according to BankruptcyData.com. In other cases, most notably the government-brokered restructurings of Detroit auto makers General Motors Corp. and Chrysler LLC, companies quickly sold assets out of bankruptcy to restart businesses with new owners. The deals are called "363 sales," named after the relevant part of the bankruptcy code.
Not all bankruptcies have shunned the traditional process. Some in the field worry that the speedy bankruptcies have amounted to short-term fixes of balance sheets without addressing core operational issues.
Many wonder whether companies such as Chrysler Group LLC, as the company now is called, will survive. Steven Rattner, who headed President Barack Obama's auto task force, recently wrote that the decision to save Chrysler was a close call.
Yet with 2009 as precedent, these quicker restructurings are poised to become the preferred method to fix debt-laden companies.
The strategies of quick sales and prearranged bankruptcy deals are "being used more creatively and more expansively to accomplish restructurings faster than ever before," said Richard Levin, a bankruptcy lawyer at Cravath, Swaine & Moore LLP who helped write the modern bankruptcy code in 1978.
A "prearranged" plan secures most, if not all, creditor support before a bankruptcy filing. Bankruptcy professionals call these plans "prepackaged" if enough creditors support the deal ahead of time to meet the legal threshold for a court's approval. Quick 363 sales, by contrast, can move nearly all key assets to a new buyer in lieu of a formal reorganization plan.
Such 363 sales were used to restructure retailer Eddie Bauer Holdings Inc., while prearranged deals sped other firms from every corner of the economy through Chapter 11, including door maker Masonite International Corp., auto-parts maker Lear Corp. and Lazy Days RV Center. The restructurings took only weeks or a few months.
In December, Citadel Broadcasting Corp. filed for bankruptcy protection in a prearranged deal with lenders and said it hopes for an "expeditious" restructuring.
The ability of companies to speed through Chapter 11 could hit roadblocks this year. Improving markets embolden junior creditors to fight for better value for their claims, which can complicate negotiations ahead of a filing or prompt litigation in court that slows down cases.
For firms in dire financial straits, the quick, surgical bankruptcy process has become the preferred way to stay alive. In the GM and Chrysler cases, creditors complained that quick sales were disguised reorganization plans that dodged requirements for creditors' scrutiny.
And many on Wall Street groaned that rules requiring that secured lenders get paid ahead of unsecured creditors were trampled. In Chrysler, holders of secured bank debt received 29 cents on the dollar for claims, while the United Auto Workers union, an unsecured creditor, received a 55% stake in the reorganized Chrysler.
But a congressional oversight panel found that the president's auto task force used the bankruptcy code appropriately.
Matthew Feldman, the auto task force's bankruptcy lawyer, recalled that officials were enamored with the 363 sale strategy because it could allow the auto makers to shed more liabilities and get through Chapter 11 fast with fewer legal challenges.
"I don't think there was any question in any of our minds how this would work," said Mr. Feldman, who has since returned to law firm Willkie Farr & Gallagher.
Still, such quick restructurings worry some bankruptcy professionals.
"Because they're not taking the time to fix these companies and just reshuffling the deck in the capital structure, you're just poised to see these things back in bankruptcy," said William Snyder, a managing partner at CRG Partners who worked on the restructuring of chicken company Pilgrim's Pride. Pilgrim's fell into bankruptcy protection in December 2008 and spent the next year closing plants and rejecting contracts. It also used the time to develop a reorganization plan that resulted in Brazilian beef company JBS SA buying 64% of its stock. The plan paid off creditors in full and left some recovery for shareholders.
The debate over quick restructurings has prompted legal scholars to explore possible overhauls to the bankruptcy code. "Traditional reorganizations under Chapter 11 are in many ways a vestige of a bygone era," said Richard Chesley, a restructuring lawyer at Paul, Hastings, Janofsky & Walker LLP.
At CIT, executives were persuaded over a couple of months to gamble on the largest prepackaged bankruptcy in history.
As CIT neared collapse in July, bondholders stepped in with $3 billion in rescue financing. The bondholders, which included private investment firms Centerbridge Partners LP, Oaktree Capital Management LP and Capital Research & Management, pushed for a condition: CIT had to present them a suitable restructuring plan by Oct. 1.
Over the next two months, divisions formed over the best course. Some advisers pushed CIT to ask bondholders holding $31 billion in debt to participate in a debt exchange, trading debt for new secured debt maturing later with longer maturities.
But others, including Evercore Partners Inc.'s David Ying and Jeffrey Werbalowsky, a Houlihan Lokey banker representing the rescue lenders, warned that bondholders with near-term maturities would "hold out" in the hopes CIT would be able to pay them in full. That would prevent CIT from trimming enough debt from its balance sheet, prolonging its pain, advisers warned.
These advisers recommended that CIT try a prepackaged bankruptcy. One reason: Once in court, dissident bondholders could be forced to agree to the restructuring plan so long as CIT received enough support from other lenders.
That would allow CIT to eliminate about a third of its bond debt and push out maturities. And with enough creditors on board, a plan could be confirmed by a judge quickly. Mr. Ying and Gregg Galardi, a lawyer at Skadden, Arps, Slate, Meagher & Flom, helped convince regulators that CIT could survive a quick Chapter 11 case. It worked.
"Even I, who was one of the chief proponents of a bankruptcy process, was astonished we came out of bankruptcy so quickly and with so little contention," said Mr. Werbalowsky.
[So USA has evolved into a system that rewards inefficiency and corruption - a la banks and brokerages - and winks at incompetence and mistakes - a la quickie business bankruptcies - while raising costs for employees and customers - a la downsizing, wage & benefit cuts, pay-your-own-training, pension lootings, and tougher personal bankruptcy filing. Let's see, how else can the "have's" slit their own throats, everyone else first?]
11/09/2009 NYT & WSJ bankruptcies are now listed in our daily updates on our homepage and its archives, with occasional discursive exceptions like the following -
- Record insolvencies 'no surprise', say Individual Voluntary Arrangements specialists, Think Money press release via 11/09 MarketWire.com
LONDON, U.K. - The increase in the number of insolvencies in the third quarter of the year came as no surprise, according to financial solutions company Think Money.
"In six quarters of recession," said a spokesperson for Think Money, "the economy has shrunk by around 6%, businesses across the UK have been failing at a startling rate - and at an individual level, the consequences have simply proved too much for many thousands of households.
"The Q3 insolvencies figures, unfortunately, lived up to our negative expectations, with the quarterly total of individual insolvencies passing the 35,000 mark for the first time ever."
The figures showed that 35,242 people were declared insolvent in the third quarter of 2009. This was a significant rise on the 33,073 in the previous quarter, and over 28% higher than in the third quarter of 2008.
"Basically, the recession has meant that too many things have gone wrong for too many people," the spokesperson continued.
"In the three months to August, the official unemployment figure rose to 7.9%, and many of the people still in work are working shorter hours and/or for less money. Given the high levels of spending and borrowing we've seen over the last decade or so, any reduction in income was bound to cause problems, even among people who didn't particularly consider themselves over-indebted - as long as they had the income to cover their debt repayments.
"Yet clearly, the recession itself isn't the only factor here. The credit crunch and the problems in the housing market, while linked to the recession, should be regarded as issues in their own right, and have had distinct consequences on the options available to people struggling with debt problems.
"Thanks to the fall in house prices and the limited mortgage availability we've seen since mid-2007, many homeowners have been unable to find affordable new mortgages once the deal they were on came to an end. Not everyone has benefited from the low base rate, and many people have simply found it impossible to cope with higher mortgage payments at a time when their income has dropped.
To a lesser extent, the uncertainty in house prices has also restricted many homeowners' ability to keep their debts under control by drawing on the equity in their homes - remortgaging or taking out secured loans
to reduce the interest rate they're paying on their debts and slow down the rate at which they're repaying them, making their monthly payments more affordable.
"Finally, the problems in the housing market have prevented many people from selling their homes to clear their debts. Selling the family home is a drastic move, but is frequently seen as preferable to being declared insolvent - something which can, in certain cases, end up costing them their home anyway.
"As for the credit crunch, many people have found that the limited availability of credit has prevented them from accessing the debt consolidation loans that could have prevented relatively minor debt problems turning into the kind of financial crisis that can lead to insolvency."
Looking at the specific kinds of insolvency, the Q3 statistics show numbers of IVAs (Individual Voluntary Arrangements) and bankruptcies remained relatively flat in the third quarter, while the number of people entering DROs leapt from 1,978 in Q2 to 4,505 in Q3.
The Insolvency Service states that: 'Some of those who had a DRO approved would have been declared bankrupt had the DRO route not been an option, but it is not possible to quantify this proportion'.
It points out that the DRO figures also include 'individuals who, perhaps, could not have afforded the fee to enter into bankruptcy and who may have otherwise been in an informal debt management process, or been unable to access any form of debt resolution'.
Looking ahead, the Think Money spokesperson stressed that the end of the recession - when it arrives - won't necessarily herald an immediate turnaround in insolvency trends: "The majority of people who enter insolvency do so as the result of long-running financial problems. In other words, there's no clear reason to expect good news in the economy to translate into immediate good news in the insolvency statistics."
Notes to Editors
One of the UK's leading financial solutions providers, Think Money is based in Salford Quays, Manchester, and employs around 700 employees to deliver a comprehensive range of debt, loan, insurance and banking solutions.
Think Money defines its mission as 'To educate, rehabilitate and advise on all aspects of financial management'.
For more information, contact Melanie.Taylor@thinkmoney.com (0845 056 6480) or visit the Think Money website at http://www.thinkmoney.com/
11/18/2004 & later NYT & WSJ bankruptcies are now listed in our daily updates on our homepage and its archives, with occasional discursive exceptions like the following -
12/31/2003 1 bankruptcy mentioned in (WSJ) Wall Street Journal &/or (NYT) NY Times -
- Bankruptcy, overcapacity and the U.S. airline industry, by Seth Sandronsky, GoogleNewsSearch via Ken Ellis.
Do you recall the "new" economy hype of last decade? Its cheerleaders
claimed that the American business cycle was over.
[Is this true? We thought they just claimed that you didn't need return on investment.]
With the luxury of hindsight, we see the foolishness of that claim. On that note, consider the
U.S. airline industry today. Its revenues are down. Expenses are up, led by
rising oil prices. So domestic carriers are slashing their costs by any
means necessary. This process brings into clearer view the social conflict
between airline employers and employees.
Currently, there are too many airline flights for too few business and
leisure customers. The NY Times of Sept. 14 reported that airline
overcapacity "is plaguing the industry." Overcapacity is a condition in
which more goods are produced or services provided than can be sold to
buyers. Air transport is a service. Overcapacity is not a condition of
nature but a consequence of a certain social formation.
In the meantime to stem the red ink, U.S. carriers are cutting jobs and
employee costs for the present (wages) and the future (pensions). US Airways
and United Airlines are using bankruptcy protection law as a weapon against
their work forces. Delta Air Lines has chosen the threat of a potential
bankruptcy to convince its pilots (the only union employees with the
carrier) to accept lower pay and pensions.
Some 110,000 airline workers at the major carriers have lost their jobs
since the East Coast terrorist attacks. At the same time, the federal
government (Air Transportation Stabilization Board) rushed in with financial
help for these carriers after Sept. 11, 2001. The federal government is also
helping airline owners to squeeze their work forces. Recently, a federal
bankruptcy judge ruled that US Airways can void the union contracts of its
employees. They get no vote in the matter.
[U.S. CEOs are launched on a major campaign that will return to bite them - they are introducing contract violation wherever it's not against their interests. The general effect is to weaken the consumer base and markets generally, since all markets ultimately depend on the consumer base.]
According to the NY Times of
Sept. 24: "Bankrupt companies are allowed to seek emergency cuts under
Section 1113 of the federal bankruptcy code. The code also allows a company
to ask the bankruptcy judge to set aside labor contracts and impose
permanent, less-generous terms." Such are the rights of unionized workers
under American democracy!
We turn from anti-labor actions by the federal government to private
capital markets. American Express has lent money to Delta, which may file
for bankruptcy, the carrier's CEO says. Tentatively, Delta's pilots have
agreed to wage cuts followed by a wage freeze through 2009. The carrier's
share price rose on this news. General Electric has lent to US Airways.
Presumably, GE is pressuring the carrier to lower its current and future
labor costs. When lenders and shareholders speak, *debtors listen and act.
Airline workers get downsized and outsourced. For instance, United just
announced plans to close a reservation call center in the U.S. and move that
work to India.
Crucially, overcapacity is not unique to the U.S. airline industry.
Currently, the domestic auto industry has a growing inventory of unsold
cars. Dealers are slashing new car prices to try and attract buyers. Last
decade, overcapacity hammered the U.S. telecommunications industry. Some 2.5%
of the underground fiber optic cables installed by companies in the
1990s were being used by early 2001. An example of overcapacity can also be
found in the rise of the U.S railroad industry. Wall Street fueled
over-investment that led to the build-up of rail capacity and bankruptcies
in the 19th century.
In brief, corporate over-production and under-utilization are built into a
capitalist economy. The "why" of this is due to the very nature of
investment itself. Capital investment increases the capacity of a company.
Investors expect their capital to grow. Yet the future demand for what a
company can sell can't be predicted. What people actually need to thrive at
work and in their daily lives is secondary. Investors' drive to realize a
return on their capital is primary.
The airline industry, like capitalist industry generally, exists for a
single purpose-to produce a surplus for a wealthy few. That surplus is
commonly called profits. A labor process that compels people on the pain of
starvation (unemployment) to produce a surplus that increasingly flows away
from them also creates conflict. Thus employers and employees face each
other antagonistically. We see these relations more clearly when the
business cycle turns sour. Today in the U.S. airline industry, lenders,
owners and shareholders are trying to protect their capital by breaking
unions, with a big hand from the judicial arm of the federal government.
As you read, the living and working standards of those who labor for
domestic carriers are being driven down. The effects of this may likely push
the nation one more step towards becoming a low-wage economy. If current
labor trends continue, the U.S. working majority will experience less
personal and social stability. This is something to ponder amid the
political rhetoric leading up to Election Day and beyond.
Seth Sandronsky is a member of Sacramento Area Peace Action and a co-editor
with Because People Matter, Sacramento's progressive paper. He can be
reached at: email@example.com
[Seth, cut the bleeding heart stuff and moral appeals and focus on the self-destructive nature of these policies for the top income bracket due to the erosion of the consumer base that sustains their investments.]
12/29/2003 1 bankruptcy mentioned in (WSJ) Wall Street Journal &/or (NYT) NY Times -
- Aqua-Novus Corp...Chapter 11 liquidation, legal notice, NYT, B3.
- Galey & Lord Inc. et al...Chapter 11...jointly, legal notice, NYT, C5.
For earlier bankruptcies from NYT or BG, click on the desired date -
Prior to July 31/99.
For more details, see our laypersons' guide Timesizing, Not Downsizing, which is available online from *Amazon.com and at bookstores in Harvard and Porter Squares, Cambridge, Mass.
Questions, comments, feedback? Phone 617-623-8080 (Boston) or email us.