Tag: bankruptcy

Today’s irony in taxation

This just in via the Los Angeles Times: the second largest tax preparer in the U.S., Jackson Hewitt, has filed for Chapter 11 bankruptcy protection. A tax preparer having trouble? Will they blame their problems on Turbo Tax (like the Secretary of the Treasury did)?

Meanwhile, in completely unrelated news, the General Accounting Office reports that more than $24 billion in stimulus funds (the distribution point for being the U.S. Treasury) went to recipients that owe the government $757 million in…back taxes.

MG signing off (to ponder the irony)

Coming soon to a theatre near you: General Motors bankruptcy #2

They just never learn…via the WSJ:

General Motors Co. said Thursday it will acquire auto-finance company AmeriCredit Corp. in a $3.5 billion deal aimed at increasing availability of vehicle loans and leases.

Good idea!

GM sees the acquisition as a way to drive up sales, which is critical as the company plans a return to the public stock markets as soon as this fall.

Starting to smell funny. Pump and dump?

Auto companies use finance arms to make credit available to boost sales of cars and trucks. Without a finance arm, GM has said it hasn’t been able to reach as many customers with subpar credit scores with lease deals and financing.

There we go…more subprime loans!

In summary the plan is to close the AmeriCredit deal, lend a bunch of money for auto purchases to people who really can’t pay the money back, then shove the resulting shit pile into the public markets.

Can you say Fannie and Freddie?

Why the US Government should bail out BP

Let me start by saying I was opposed to the bailouts. In particular I think the rescues of both General Motors and several financial institutions were completely unnecessary to the stabilization of the economy. They were purely political maneuvers, and the repercussions have yet to fully materialize.

Nevertheless, the nation is now dealing with a debacle that could very well eclipse the financial crisis. Oil spews from the Gulf of Mexico in incalculable amounts. Neither BP, their supporters, nor independent scientific study can put a precise figure on it. Plumes of crude meander at depths the public will only ever see via National Geographic specials, and samples are now being found hundreds of miles away from the well. How far will the oil be spread another month from now? And where will it land? Nobody knows, and that uncertainty cannot be hedged against.

Aquatic life, gone. Bird life, gone. Beaches ruined. Property values plummet (further). Nobody has even thought about untold brackish and freshwater interiors, many of which support life that migrates from sea to river and back. Mixing and churning. Eventually pouring through faucets.

Matt Simmons of energy investment bank Simmons & Co surmises BP doesn’t have enough cash to clean up the mess, and will soon file for bankruptcy. It’s not an unlikely scenario, and if it comes to fruition I believe the US Government should be ready to step in. The reasoning is simple.

If BP files and creditors scoop up what’s left, they won’t be taking BP’s cleanup obligations with them. In other words, a cleanup might not happen. Assuming that, the government would then take over the effort. Disregarding how well that might go, it means taxpayer dollars and/or additional debt, and there is zero hope of recovering the cost. But if the government were to step in, either providing new equity after Chapter 11 proceedings begin or buying BP debt as it tanks (which it is already doing) and converting thereafter, the new owner stands a chance of recovering their investment somewhere down the road.

Further, the US owning an oil company might not be such a bad thing. The government could use BP (aptly renamed “USP”) to develop model policies and procedures for future operation of all such companies doing business in America. Strategic petroleum reserves could be managed from within, accounting and bureaucracy whittled away. I’m not a foreign policy expert, but I suspect having a hand in BP may have some additional advantages when dealing with entities such as OPEC too.

It’s just a thought, but I am curious how others feel about the concept. In other words, if you’ve got an idea, let’s hear it.

MG signing off (to quit looking at pictures of dying pelicans)

If you’re going to be a secured creditor, be a little one

One of my nuggets of wisdom to bankruptcy/reorganization clients is if you’re going to get stuck with a secured position in bankruptcy, try and make sure you’re one of the little guys. The reason is smaller creditors in an existing secured class are often in the best position to cause trouble when a [somewhat] agreed-upon restructuring plan is taking shape. The bigger creditors (assuming they’re not legally ahead of you in line) don’t usually like trouble – they’re more apt to cave to various demands. I’ve seen a lot of small creditors get paid off (i.e. paid out in full) because the folks running the creditors’ committee just didn’t want to deal with their contentiousness.

Three Indiana state pension funds are now employing similar tactics in the Chrysler bankruptcy:

Three of Chrysler’s secured creditors are mounting a fresh attempt to thwart the carmaker’s Chapter 11 reorganisation on the grounds that it violates their legal rights and the US government’s authority under the Troubled Asset Relief Program.

The three – all Indiana state pension funds – are among a group of 46 creditors that had appeared to back away this month from efforts to derail the process under which a “new” Chrysler would emerge from bankruptcy protection by July 1. The new entity would be owned by a union healthcare trust, the US government and Italy’s Fiat.

Chrysler, with backing from the US Treasury, had offered its secured creditors just under 30 cents on the dollar to settle claims totalling $6.9bn. Four big banks, holding the bulk of the claims, accepted the offer following political pressure from Washington.

In the Chrysler case, being a big guy actually meant taking an equity position after subordinate claims, with aid from the government, bent them over a barrel and stepped in front. It doesn’t surprise me that a small creditor within the secured class is now kicking and screaming. And it won’t surprise me if we find out later the major holders put them up to it.

I’m just disappointed this tactic is now out in the open.

MG signing off (to figure out where my bankruptcy play book went)

News you probably can’t use – 4/30/09


  • Apple to introduce more affordable Macs – it’s always those pesky ‘sources’ you have to wonder about. Unless Apple drops their prices by 50% or more (and without handicapping existing systems), I don’t think they are going to make any significant market share gains in this economic environment.
  • Another phishing scam hit Facebook – I’d like to worry about the phishing issue, but I’m not on Facebook. No…I’m more worried about the catfish noodlers depicted in the news encroaching on my territory.
  • Twitter’s reach is limited – It’s part of the meme that Twitter can’t keep users on board. Part of this may result from Twitter syntax (i.e. direct message versus replies versus retweets) being a little tough to grasp, or it may just be that Oprah hasn’t started pumping the service full of feel-good self-helpedness yet.
  • Finance

  • Comcast is cranking up the cash flow – And I’ll tell you how. My Comcast internet is down today, and when I called tech support they offered to send support out. Great…except they also said it’ll cost me $27, unless I want to pay money for ‘service assurance.’ So I’m supposed to a monthly rate for broadband, and pay extra to keep the service up? The moment I mentioned pro-rating my bill for all the time service is down, the tone changed.
  • Chrysler is headed for bankruptcy – Last minute negotiations with creditors don’t pan out, but thankfully the government sweetener (i.e. more taxpayer dollars) doesn’t pan out either.
  • Continuing US jobless claims at fresh record high – The meme tossed around here is that things are turning around because new claims for unemployment have slowed. Can’t go into the numerous factors that may have caused that, because I hardly trust the government estimates to begin with. What I can say is that the powers that be have a lot of motivation to convince you to spend, even if it does mean stretching the truth.
  • Fly Fishing

  • California Legislator Wants Striped Bass Eradicated – The striped bass are always in trouble, particular on the East Coast. But hearing that a Californian doesn’t give a damn about protecting wildlife is just too much.
  • If you teach a man to bonefish – Well he might still go a little hungry (I’m not sure how tasty bonefish are but I have heard they’re edible). But he will have a hell of a lot of fun.
  • What…three tidbits on technology and finance, and only two on fly fishing? Yep, I think you’ve had enough this month already.

MG signing off (to find some news you can actually use)

High finance deserves the middle finger

The bird is the word…

  • In a ‘who drew up the f-ing covenants’ moment, GM just received bailout money but is [insert still, perpetually, or if you feel like being witty, surprisingly] having problems getting labour costs in line. Bankruptcy filing, a certain middle finger to the public, is still on the table.
  • Long ring fingers as compared to index fingers may point to more success amongst traders. And a longer middle finger on the hands of bank CEOs gets the banks more bailout money too…
  • The same goes for the politicians when it comes to selling more US Treasury securities to unsuspecting investors, before sending out the default notices.
  • As for tech, analysts are giving the middle finger to Sony, and Apple probably isn’t far behind.
  • And on an unrelated note, today in People

  • Paris Hilton’s website is infected with malware. Information Week is actually telling the story instead of the tabloids, so if you’re a ‘Hollywood-type’ you can assume the headline isn’t just some codespeak for Ms. Hilton giving you the middle finger.


Bankruptcy headline required a second take

National Wholesale Liquidators Files for Bankruptcy

When I first saw it, I said to myself “damn things must be bad when even the liquidators are filing.” After clicking through I found out National Wholesale Liquidators was actually a discount retail chain, not a pack of cowboys running around shutting down companies and hocking the assets at auctions.

Personally speaking, I think the latter business is a lot more fun.

Thought walking away from underwater homes was a problem?

In China, folks are walking away from entire factories

LA Times:

First, Tao Shoulong burned his company’s financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan.

And then he was gone.

And just like that, China’s biggest textile dye operation — with four factories, a campus the size of 31 football fields, 4,000 workers and debts of at least $200 million — was history.

Some of my fly fishing pals have noticed an increased number of solicitations for the white-label manufacture of rods and reels, mostly from China. The deals seem good compared to equipment prices in the US, but it’s the credit risk I recommend they dig into first.

At one time, dealing with foreign suppliers meant paying in cash or securing letters of credit – the overseas entity was uncomfortable with US bankruptcy laws and wouldn’t ship product without some protection. You still have to do business this way, only now you have to worry that the supplier will simply take your money and run.

I’d be wary of doing business on pay-in-advance terms with anyone right now (and particularly so if they are ten thousand plus miles away). If that’s the only way to get samples, ask if they have a domestic distribution point first and/or request some references. Don’t come out of the gate with custom orders either – specifically request sample stock or factory seconds.

And no matter the initial order size, always keep your fingers crossed. (h/t Calculated Risk)

SIDE NOTE: CR noted that Chinese contraction could result in higher intermediate/long term interest rates in the US, but called the notion “speculative.” I believe the concept is anything but speculative – shrinking capital flow into US Treasuries is impending reality. And “decoupling” isn’t really dead at all – instead it has changed stripes, with the Fed Funds target about to decouple from actual rates.

Chapter 11 reorganization transfers risk to the willing

Jeffrey Miron opines that instead of accepting a bailout, banks facing failure should opt for bankruptcy filing instead:

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

Further, Chapter 11 passes restructuring risk to willing participants – those motivated and capable of adding new value to the business, whether it be capital, brainpower, or in most cases both. As banks go, I am not sure who understands the credit derivatives transaction chain well enough to take on such contingencies (but I’m am certain they exist), and court-supervised reorganization does allow for due diligence time if the entity can hold out (often assuming debtor-in-possession financing is available too, which could be questionable in this credit environment).

Outside of the banking crisis, Forbes notes it is never a bad idea to be prepared:

If you feel your business may be facing financial distress, meet with a work-out attorney now, before it is too late and your business becomes another statistic.

What Forbes doesn’t tell you is that once in Chapter 11, you’ll be faced with a myriad of financial and operational decisions that can become, to put it mildly, emotionally overwhelming. Add that in a reorganization you will be required to prove the business is worth more alive than dead, meaning get ready for a ton of strategy shifting and number crunching.

Editor’s Note: If you need someone who can stay alert during the trauma, priming objective decision making and spreadsheet mashing during trying times, contact me. I’m not only capable – I actually enjoy the stress. And I have plenty of references, both professional and personal, that can attest to the effectiveness of my candor and elbow grease.

Barclays purchase decision set for Friday

Barclays has a sweet deal in hand – all it takes is a bankruptcy judge to give final approval. Hearing set for Friday.

Editor’s note: Start reading the linked article at paragraph three – the bit at the beginning about Chelsea Clinton being at today’s hearing not only doesn’t add anything to the real story, but it makes the whole process sound like some kind of circus side show.