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Tuesday, September 6th, 2011

Solar Panel Producer Announces Bankruptcy Plans

Last week, Silicon Valley-based solar company Solyndra laid off more than 1,000 workers and announced plans to file for Chapter 11 bankruptcy. The move made waves in part because the company had appeared promising to many investors: Solyndra attracted more than $1 billion in venture capital and a $535 million loan guaranteed by the federal government.

The company appeared to have everything going for it: it had developed new technology to improve the design of existing solar panels and it emerged at a time (2008) when investors were eager to back “green” technology.

But a number of factors got in its way of success:

  • Changing solar equipment prices: Solyndra apparently entered the market at a time when materials to make solar panels were expensive and watched the value of its equipment decline over time.
  • Increased competition from China: When Solyndra was in its early stages, competition from China was reportedly shaky and not well established. Over the course of Solyndra’s growth, solar panels produced in China gained credibility on world markets. Plus, the Chinese government subsidizes production.
  • Oversupply: Globally, more solar panels have been produced than people have been interested in buying. Part of the diminished demand can be blamed on the recession.

Learning from Bigger Bankruptcy Filings

If nothing else, the fate that Solyndra is facing serves as a welcome reminder to individuals considering filing bankruptcy. Many factors that lead people to choose bankruptcy protection are beyond any individual’s control.

In fact, bankruptcy filing surveys consistently note that top reasons people file for bankruptcy include:

  • Divorce;
  • A birth or death in the family;
  • Job loss or reduction;
  • An unexpected illness or injury; and
  • Natural disasters.

As part of its Chapter 11 bankruptcy, Solyndra will likely sell off parts of itself (such as its thin-film solar technology) that are valuable, if not workable for the company at present. Individuals can learn from this, too, and consider some of the following cash-raising techniques before or during bankruptcy:

  • Get a part-time gig: Many people have talents from which they make no money. As part of a bankruptcy recovery, consider selling those services.
  • Lighten the load: In Chapter 7 bankruptcy, filers’ non-exempt assets are sold to raise money for creditors as part of the bankruptcy process. Chapter 13 filers could try something similar, by selling unneeded items online or via a yard sale.
  • Don’t be discouraged: A number of high-profile investors (including the federal government and the Walton family of Wal-Mart fame) supported and helped fund Solyndra. Sometimes, even the best-laid plans end badly. Bankruptcy gives individuals and businesses a chance to move forward.

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Friday, June 3rd, 2011

How Bankruptcy Saved Detroit

Presidential hopeful Mitt Romney says that the reason America's Big Three automakers have bounced back since the recession is due to bankruptcy, not bailouts.

In an interview Friday with the CBS Early Show, Romney repeated the stance he took in a 2008 op-ed piece in the New York Times at the height of the bailout talks - that filing bankruptcy is a responsible step to take when faced with financial hardship.

"The right process for an enterprise in trouble is not to be given free money from the taxpayers with a bailout, but instead go through a bankruptcy process, reorganize debts, and reduce costs and come out stronger," Romney told CBS's Erica Hill Friday.

Of the three major Detroit automakers, General Motors and Chrysler both filed Chapter 11 bankruptcies in 2009. Both also received bailouts from the U.S. Government, funded by tax payers. Only Ford survived the recession without turning to bankruptcy or receiving a bailout, and instead secured a line of credit to help them bridge the recession's gap in sales.

So how did bankruptcy help Detroit? While bankruptcy can be complex, especially for corporations, it offers a very clear benefit: a reorganization of debts into a more affordable plan. In the case of a Chapter 11, business can also renegotiate contracts, sell off unnecessary assets, receive some debt forgiveness, and reorganize as a new business entity. This is typically favored over Chapter 7 bankruptcy, as it allows the business to stay in operation during and after the bankruptcy.

Bankruptcy allowed GM and Chrysler to shed off the obligations that were keeping them from being truly innovative, and reorganize as a new entity that could focus on a successful future, Romney argues. And while the two automakers did receive bailout funds, having gone through bankruptcy first left them in a better position to capitalize on the investment by taxpayers. Both GM and Chrysler have repaid significant portions of the bailouts.

Romney also takes credit for the situation, saying that his 2008 New York Times piece convinced Obama to hold off on an immediate bailout.

"So I'm very proud of the fact that, in fact, we called it like it was, and that is these companies needed to go through a bankruptcy process, come out through bankruptcy, go back to work, get jobs for the people who had would otherwise have lost jobs if these companies just trailed on down," he told CBS.

"And by the way, we could have saved billions of dollars had we moved to bankruptcy from the very beginning."

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Monday, October 18th, 2010

Bankruptcy Woes for Liverpool Football Club?

There has been considerable buzz in the news lately about the financial woes of one of the world’s best-known soccer teams, England’s Liverpool Football Club. The trouble involves loan defaults, ownership issues and lots of other juicy bankruptcy-related news – of course, Liverpool’s fans probably aren’t too thrilled.

Loan Defaults and Contract Breaches

According to Bloomberg news, Liverpool Football Club’s money problems are somewhat thorny:

  • Parent company behind on its loan: It seems that Kop Holdings, the parent company of Liverpool FC, has fallen behind on a loan agreement with Wells Fargo bank. In fact, sources note that the loan is in default (more than 30 days past due).
  • Potential buyout by an American company: According to reports, the American company New England Sports Ventures LLC has proposed a buyout plan that would let England’s most successful soccer team avoid bankruptcy.
  • Contract breach might prevent the sale: But, news outlets report, the current owners of the team made eleventh-hour changes to the board to ensure that its members voted against the buyout. Royal Bank of Scotland, however, has challenged the board member change in court, apparently calling it a breach of contract.

So what might happen to the celebrated soccer team from across the pond?

Business Bankruptcy and Its Effects

When businesses file for bankruptcy, the court’s protection tends to work slightly differently than when individuals seek such protection. For example:

  • Chapter 11 reorganization: In a Chapter 11 bankruptcy filing, businesses get the opportunity to reorganize their finances and agree to pay off creditors from future earnings. In rare cases, individuals can file for Chapter 11 bankruptcy, but it’s a more common move for corporations. When businesses are in Chapter 11 protection, they can still operate, selling their goods and services as usual.
  • Chapter 7 liquidation: When businesses file under Chapter 7 of the U.S. Bankruptcy Code, a bankruptcy trustee generally sells off their assets and uses the money to repay creditors (much like a Chapter 7 filing for individuals). If a company files for Chapter 7 bankruptcy, it cannot continue operations.
  • Automatic stay: As in personal bankruptcy filings, businesses that seek bankruptcy protection are protected by the automatic stay for the duration of their case. This legal stay prohibits all collection action against the filing company.

According to Bloomberg, the Royal Bank of Scotland (RBS) is not looking forward to actually enforcing any sanctions against the soccer team itself because of potential negative effects such sanctions might have.

While this story may not resonate with American readers quite the same way it would with those more familiar with England’s soccer leagues, it is a big deal. Consider the same thing happened to the Chicago Cubs last year when its parent company, The Tribune, filed bankruptcy.

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Tuesday, November 17th, 2009

Florida Residents Join to Keep Island Resort Afloat in Bankruptcy

On Amelia Island, a coastal community off of Florida's Atlantic coast, a group of local investors have joined up to save a prominent resort from going under.

Amelia Island Plantation is a 30-year-old destination resort for vacationers and conference-goers. Recently, the resort fell on hard financial times, as many businesses have during the recession.

Wages for employees were cut, and other local businesses who depended on resort customers saw their business dwindle.

But rather than watch a local landmark and business stimulant disappear, a group of 22 local investors signed an agreement to keep Amelia Island Plantation financially viable. The investor group is called Red Maple Investors. Every member of the group is also a homeowner on the island.

Structured Bankruptcy Protection

The agreement states that the Plantation resort will seek Chapter 11 bankruptcy protection, and restructure its debts and liabilities. During this process, the resort will continue to operate normally.

Red Maple Investors will provide financial and strategic support to help Amelia Island Plantation through this Chapter 11 restructuring process.

The group's members are hardly amateur investors, however. John Griswold, for example, is the president of Harbor Hotels, and has accrued more than 30 years of experience operating high-class hotels.

"Our investors believe in the potential for the long-term success of Amelia Island Plantation," Red Maple Investors founding member Robert C. Smith told First Coast News. "All of us in RMI want to protect this little paradise we have come to love. And, we are willing to put up our own money to assure its success far into the future."

Community Finances Tied Together

As would be expected on an island of that size, the financial impact of the resort extends to other community businesses as well. The 700 employees and the 240,000 yearly visitors to the resort help many area businesses.

One such business, Dub Mullis’s fruit stand up the road from the resort, struggled along with Amelia Island Plantation.

"My customers are a lot of people from the resort. A lot of workers, people who live there and also visitors to the island," Mullis said.

A decline in corporate bookings at the resort were one of the main reasons for its struggles. The drop in large-scale events meant millions of dollars in lost revenue as companies tightened their belts.

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Tuesday, October 20th, 2009

Catholic Diocese Files Bankruptcy to Stay Abuse Trial

A bankruptcy filing by the Catholic Diocese of Wilmington, Delaware, may give plaintiffs in a sex abuse trial fair compensation, according to Bishop W. Francis Malooly.

The Chapter 11 filing came late Sunday, after settlement negotiations broke down and just hours before a civil trial was set to begin, according to The Associated Press.

More than 140 individuals have filed suit against the dioceses, its parishes and priests.

The diocese has spent $6.2 million to settle sex abuse cases since 2002, according to the AP. In the bankruptcy petition, the Diocese of Wilmington listed liabilities of $100 million to $500 million related to the lawsuits.

Delaware passed a "look-back" law in 2007, allowing victims previously excluded by the statute of limitations to file suits.

The Wilmington Diocese is the seventh Catholic Diocese to file bankruptcy in recent years, following dioceses in Davenport, Iowa; Portland, Ore.; Fairbanks, Alaska; San Diego, Calif.; Spokane, Wash.; and Tucson, Ariz.

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Wednesday, September 23rd, 2009

10 Companies that Could Face Bankruptcy

Last week, Yahoo Finance had an interesting article about 10 big companies with troubled finances.

Citing a report by Audit Integrity, an independent corporate accounting researcher, these 10 publicly traded companies had the highest probability of declaring bankruptcy. Like many of their American customers, these companies may be seeing less income coming in and debts that just won't shrink. On the list:

  • Hertz: financing a fleet of new models while consumers cut travel and spending.
  • Sprint Nextel: phone customers are fleeing for rival carriers with more popular "smart phone" models.
  • Macy's: customers are shying away from higher-end department stores in favor of more affordable shopping.
  • CBS: TV advertising dollars aren't what they used to be, and CBS's difficulty may be a sign that other broadcasters could lose their footing as well.

Whether or not any of these companies end up filing bankruptcy remains to be seen. Signs of economic recovery could find investors sighing with relief.

Corporate Bankruptcy Chapters

Like consumers, businesses typically have two options when filing bankruptcy: Chapter 7 bankruptcy and Chapter 11 bankruptcy.

Chapter 7 bankruptcy for corporations works like chapter 7 personal bankruptcy, in which assets are sold, or liquidated, to repay creditors.

Chapter 11 bankruptcy is similar to chapter 13 for consumers, in which corporation enter a structured plan to repay creditors over time.

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Thursday, September 10th, 2009

Kennedy Fought to Keep Corporate Bonuses Out of Bankruptcy Protection

Senator Edward M. Kennedy will be remembered for his contributions to a wide variety of issues, including his tireless advocacy for health-care reform, but the late Senator from Massachusetts also played a crucial role in the bankruptcy reform law of 2005, an infamous piece of legislation that made it more difficult to abuse the benefits of filing bankruptcy.

Peter Edmondston of The New York Times says that Kennedy’s contribution to the bill was typical of his populist philosophy.

As the passage of the bankruptcy “reform” plan became inevitable, Senator Kennedy inserted a provision on the bigger bill that was designed to stop large corporations in bankruptcy from handing out big bonuses to employees.

Bankruptcy in the Corporate World

The provision has withstood several court cases so far, and more can be expected as more corporations find themselves filing for Chapter 11 bankruptcy.

During his 18-minute speech in support of the change, Kennedy said that the Senate as a whole was “blatantly ignoring the real abuses in our bankruptcy laws: the corporate abuses that have become epidemic in recent years.”

He went on to call corporate bankruptcy law in the United States “grossly inadequate,” and criticizes the fact that the proposed 500-page bill did nothing to address this deficiency.

Key Employee Retention Plans

Kennedy’s amendment banned a common type of bankruptcy bonus program known as the “key employee retention plan,” or KERP.

So far, the KERP restriction program has gotten mixed reviews. Some believe that bankruptcy attorneys can sidestep KERP limitations by simply renaming the pay packages or making them available for those who meet very “low-bar” performance options or goals.

Rep. John Conyers of Michigan said in 2007 that despite Senator Kennedy’s “laudable efforts, creative practitioners have developed ways around the code’s restrictions.”

Others say that KERP has done a good job of requiring many corporate bonus programs to be based on real performance-related achievements. In 2006, a bankruptcy judge overseeing a Chapter 11 bankruptcy case rejected an initial bonus plan for top executives.

When explaining his decision, the judge cited the Kennedy amendment. That judge later approved bonuses for the same executives after a “modification” of the terms involved in the program.

Business Bankruptcy's Effects

Kennedy believed that rewarding individuals who have driven a company to a costly financial reorganization cost taxpayers’ money, pushed many workers out of jobs, and represented an unsupportable position in the face of the worst economy since the Great Depression.

As more such cases make their way through the courts and executives again feel bold enough to offer retention packages designed to keep their “best employees,” the true durability of Senator Kennedy’s contribution to the Bankruptcy Reform Act of 2005 will be put to the test.

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Friday, June 19th, 2009

One Wild Ride: Six Flags Filing Bankruptcy

Weighed down by old debt, Six Flags, owner of amusement parks across the country, has filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Wilmington, Delaware.

The company listed assets of $3 billion and debt of $2.4 billion as of the end of 2008, according to Forbes.com. Thirty-six affiliates also sought protection.

The company had a market value of $26 million on June 12, and investors did not seem confident that the company could refinance a large amount of debt coming due later in the summer.

Nonetheless, Six Flags president and CEO Mark Shapiro is optimistic.

In a letter to employees, Shapiro states that “[the] brand and [its] operations are on solid ground. This process is strictly a financial restructuring of our debt.”

Shapiro describes the current debt as “an unsustainable 2.4 billion debt load from the previous management team.”

The company released a statement saying that it will seek court approval of a predetermined reorganization plan to cut its debt by $1.8 billion and eliminate more than $300 million worth of preferred stock options.

Making the Filing Bankruptcy Decision

The filing illustrates how the current state of an entity and its overall health are not always the same thing.

Six Flags says it had a record year in 2008, making around $275 million.

The decision to file bankruptcy, Shapiro says, came because the company was paying out $175 million in interest on its debt load and $100 million in operating costs.

“That’s a balancing act you just can’t risk year in and year out,” he says. The additional $400 million of debt coming due this year “could not be refinanced in these financial markets.”

The company attempted to reorganize out of court with creditors, but these efforts proved fruitless. The principal investor in Six Flags is Daniel Snyder, who also owns the Washington Redskins football team.

He owns 6% of Six Flags and became company chairman in 2005.

Snyder installed a new management team to right the company, which had not posted an annual profit since 1998. Since Snyder became chairman, the company had losses of $558.8 million.

Six Flags operates 20 theme parks in the United States, Canada and Mexico.

Will Six Flags Close Because of the Bankruptcy?

None will close as a result of the Chapter 11 bankruptcy filing. Shapiro says that all of the parks are profitable, and none will lose employees, including, perhaps unfortunately, “Mr. Six,” the bald, dancing pitchman featured in many of the company’s advertising campaigns.

Jeff Speed, the Chief Financial Officer for Six Flags, indicated that some challenging circumstances had contributed to the filing, including the closure of Six Flags Mexico City for a week during the height of the Mexican outbreak of H1N1 influenza, commonly called swine flu.

At Six Flags Over Texas, president Steve Martindale reports business as usual. “We’ve received very few calls about the bankruptcy,” he said. “I am surprised, but not surprised. People have heard about so many companies involved in bankruptcies that they see it as a survivable incident. It really doesn’t affect the consumer.”

That may be true, but Six Flags is hoping for a swift ride through filing bankruptcy, with no loops or corkscrews on the way.

Sources: Forbes.com, Ft. Worth Star-Telegram

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Tuesday, April 7th, 2009

When Businesses Are Filing Bankruptcy

As the economic tumult continues, news stories about businesses considering filing bankruptcy continue.

So what does it mean when a major company seeks the protection of the bankruptcy court?

Like personal bankruptcy, it depends what chapter the business files under.

Chapter 11 Bankruptcy

Chapter 11 is almost exclusively used by businesses in financial difficulty.

Like Chapter 13 bankruptcy for individuals, Chapter 11 allows businesses to reorganize their debts.

As with individual filings, the automatic stay protects companies during the process.

Notable differences between Chapter 11 and Chapter 13 bankruptcy include:

  • If a company is worth less than it owes - that is, its debts exceed its assets - ownership of the company reverts to the creditors after bankruptcy reorganization. This means that the company’s “owners” exit bankruptcy owning no part of their company.
  • A company can be in Chapter 11 for as little as a few months or as long as several years – it depends on the complexity of the plan agreed upon by interested parties.
  • Stocks for a company are generally delisted after a Chapter 11 bankruptcy filing. This means that shareholders are left with valueless stocks.

When a company is filing bankruptcy under Chapter 11, it can usually still conduct business, and, as a consumer, you may not notice too many differences in day-to-day operations.

Chapter 7 Bankruptcy

As with personal filings, Chapter 7 bankruptcy for companies take the form of liquidations. This means that the court-appointed bankruptcy trustee sells off a company’s assets to raise money to pay off creditors.

Unless the company’s trustee opts to continue daily operations, many companies shutter their doors after filing under Chapter 7.

Notable differences between Chapter 7 for individuals and Chapter 7 for businesses include:

  • Businesses do not receive a Chapter 7 discharge. Once the bankruptcy case is over, the businesses still owe any debts not satisfied by liquidation (until statutes of limitations expire).
  • After completing a Chapter 7 case, businesses are dissolved, meaning that they no longer exist as they did before filing.

Chapter 7 bankruptcy is typically used for companies with serious debt, but a company’s filing doesn’t necessarily mean that the company’s employees will all lose their jobs – in some cases, entire units of operation are sold as part of the liquidation sale.

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Tuesday, December 23rd, 2008

Tribune Bankruptcy: Rumors of Media Death Are Exaggerated

The Tribune Co. filed Chapter 11 bankruptcy. Although many people are not surprised to see another business bankruptcy, this is big news because the Tribune Co. is the news for many people around the country, including Los Angeles.

The Tribune Co. owns eight major daily newspapers, including the Chicago Tribune and the Los Angeles Times. It also owns many local television stations.

The recession is particularly hard on businesses that depend on advertisers for revenue.

Salon points out that in the wake of the dot com bust, consumers were left with a lot less printed business and technology magazines and online news Web sites.

However, we’ve never had a problem finding technology news. The nature of the Internet provides an abundance of all varieties of information and news from around the world.

In these hard times, it’s necessary for businesses that depend heavily on advertising to restructure themselves. Under Chapter 11 bankruptcy, the Tribune Co. will need to reorganize, rethink and restructure in order to survive.

When the Tribune Co. was bought by Sam Zell, he reportedly took on a tremendous amount of debt. This left the company in a precarious position in the ultra-competitive news business and the economic recession only compounded the danger.

In order for Zell's business model to work, he needed huge profits. In today's economy, that’s just not possible. Advertisers have scaled down and the news market has to make adjustments in order to survive.

No matter what happens, there will be no shortage of news.

There are plenty of newsworthy events happening around the world and plenty of writers willing to put it into words.

There’s also a genuine need for news, and hopefully (and eventually), there will be advertisers who are once again able to pay.

As consumers, we need not worry about having the news brought to us—it just many not come packaged in the same way as we are accustomed to seeing it.

However, the bad news may be for writers and others who make their living in the news industry.

There is no doubt that the news media landscape will change.

Writers will suffer layoffs, rather than reporting the mass layoffs around the country. The recession has brought lean times to every industry, and the news industry will not escape unscathed.

Not all hope is lost though. If the news media is anything, it is versatile.

Since news is a necessary component of the civilized world, we can be certain that the strong will weather the storm and thrive in the face of adversity. After all, that is the American way.

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