Bankruptcy Reader

–By Priya Jestin, Staff Writer

Would you like to take on someone else’s debts and help them work their way out of bankruptcy? I doubt any sane person would want to do it — excepting of course near and dear relatives and friends. That’s why initially, I was quite confused when I heard about USAirways wish to merge with the now bankrupt Delta Air Lines. What does USAirways CEO Doug Parker stand to gain by buying bankrupt Delta?

Quite a bit it would seem. Parker, who is well versed in this game of merging with bankrupt airlines, knows the benefits he can garner from such a deal. USAirways was a bankrupt airline until Parker came along with America West Airlines and merged the two. Now USAirways is one of the most profitable in the airline industry.

With Delta under his belt, Parker will be able to create one of the world’s biggest carriers, with 350 destinations. Still wondering what bankruptcy’s got to do with all this? Well, I’m coming to it. Bankruptcy is quite advantageous to companies and helps them enter into deals they may not have been able to negotiate if they were solvent. For instance, you can work your way through the company’s assets and discard things that may seem useless and a drain on the resources. In the case of Delta, this may mean cutting back on or stopping unprofitable routes. This would also help to make the fleet more efficient. Another benefit of bankruptcy is that you can return unnecessary assets like gas-guzzling planes or jets that are too huge to the lessors.

Back office operations also become easier because information systems, airport and maintenance facilities and vendor networks can be consolidated. With all this benefit, will it be any surprise if shareholders and creditors too prefer merger over going it alone?

If you are a self-employed person, then you very well realize the importance of credit– it helps you get your business started, and also to expand it. But taking loans means there is a repayment factor and sometimes, the numerous loans are not easy to tackle. In the past year, consumer credit, or non-mortgage loans to individuals rose $4.4 billion, or 2.5 percent at an annual rate, to $2.174 trillion. While these figures may seem just that — figures — they hide the story of a growing number of people who are deep in debt and find it difficult to repay their loans. When your loans become larger than your repayment capacity, it could create a dangerous situation for any business because as every small businessman knows, cashflow problems have sounded the death knell for many a small business.

Some simple methods of improving cashflow include meeting your own debtors. If you need to repay your creditors, your debtors must pay you first. Meet people who are using your services on credit. Discuss with them modes of repayment, including installments and deadlines. This exercise will also help you weed out the bad debts. It will also give you an idea of how much of your finances you can expect to get back.

One very important thing is to keep paying for services like utility bills, water rates, rent. This will help you convince your creditors that you mean business and that you plan to honor your debts and repay all the loans. And if necessary, go in for some expert help and, possibly, even counseling.

Winn-Dixie Stores Inc. recently took a big step toward coming out of bankruptcy, as a good majority of its creditors, including landlords and vendors, voted to approve the supermarket chain’s reorganization plan. Now, there will be a hearing on Friday in which the bankruptcy judge will be asked to approve the plan. The company hopes to emerge from bankruptcy by mid-November with a new board of directors. Chron.com reports:

Fifteen objections to the plan were filed in court, with about half coming from current shareholders who will lose their money. In a Chapter 11 case, shareholders are the last to be paid and get nothing if there is not enough money to pay off creditors. Winn-Dixie’s plan calls for it to issue new stock to creditors to pay off debt.

Read more: Creditors back Winn-Dixie reorg plan

Owens Corning recently gained bankruptcy court approval for its reorganization plan. Judge Judith Fitzgerald accepted their plan, paving the way for Owens Corning to emerge from bankruptcy by the end of next month. Monstersandcritics.com reports:

The agreement assumes a total distributable value of $8.627 billion, consisting of the total enterprise value of $5.858 billion, assumed excess cash of $1.432 billion and Fibreboard trust and asbestos trust assets of $1.491 billion, less existing debt of $55 million and $99 million in assumed value of new shares reserved for employee incentive programs.

Read more:Owens Corning nearly out of bankruptcy

It is heartening to note that quite a few firms are trying to make a break for freedom from bankruptcy. Though bankruptcy is an option when you are down and out, it definitely isn’t good in the long-term interests of any company and the sooner you are out of bankruptcy, the better. Computer maker Silicon Graphics Inc or SGI as it is known today, was one of the market leaders for high-powered graphics systems, which conducted tasks such as visualizing 3D automobile models or underground oil reserves. However, not only did it lose its position, SGI was forced into bankruptcy due to many causes.

However, the company is firmly on the route to exiting bankruptcy. With this view in mind, SGI recently created a reorganization plan, which has been accepted by a bankruptcy judge recently. This will set the stage for the company to emerge from Chapter 11 bankruptcy protection in October.

This new plan envisages an entire relaunch of the company with new top management and an entirely new board of directors. The company aims to return to profitability in fiscal 2007. Another new feature will be the leaner, fitter look of the company. Before restructuring, SGI had an employee base of over 2000. Now, only 1,600 remain — this contributes to a cut of around $150 million in annual expenses. As the market expands, the company aims to grow from high-end systems with Intel Itanium processors to lower-end models using Intel’s Xeon.

For its restructuring plan, SGI has managed to obtain financing to exit bankruptcy. According to SGI officials, Morgan Stanley has provided the firm with a loan of $85 million, while General Electric Capital has given them a $30 million line of credit.

One year after they put themselves under Chapter 11 protection, Delta Air Lines and Northwest Airlines are still searching for the means to exit bankruptcy. These airlines have been cutting all kinds of costs including labor costs and other expenses and are even trying to cut capacity to get out of bankruptcy. Reuters.com reports:

Now, with the industry enjoying early signs of a turnaround — as rising ticket prices start to offset higher fuel costs — the airlines are eager to resume normal operations. Delta plans to file its reorganization plan later this year and emerge from bankruptcy in the first half of 2007.

Read more:Delta, Northwest eye exit on bankruptcy anniversary

Lawrence Dwain Hoover, the final defendant in the Baptist Foundation of Arizona case, pleaded guilty Tuesday to one count of fraud. The foundation, a nonprofit religious entity, collapsed in 1999 in what was then the largest nonprofit bankruptcy filing in U.S. history and about 11,000 mostly elderly investors lost almost $600 million as a result. Tucsoncitizen.com reports:

In a plea agreement, Hoover admitted to knowingly participating in a series of year-end transactions for the purpose of inflating BFA’s financial statements.

Read more: Hoover enters plea for role in Baptist bankruptcy case

Northwest Airlines recently asked the court overseeing its bankruptcy reorganization to block a possible strike by its flight attendants. Airline authorities feared that the Association of Flight Attendants (AFA) might call for a strike or job action against it. Problems arose when the airline terminated its contract with the AFA and imposed new terms. In response, the union threatened to strike as early as August 15.

Northwest, which filed for bankruptcy protection last September, stated that a strike by the AFA could threaten the continued viability of Northwest’s reorganization. This would also cause disruption to Northwest’s customers, the airline claimed. Problems between Northwest and the union began around the time the airline filed for bankruptcy on the grounds that it needed $1.4 billion in total labor savings. Nytimes.com reports:

Judge Gropper said in June that Northwest could void the contract if the two sides failed to reach a deal the members would ratify. The flight attendants’ vote on Monday rejecting the tentative deal was the second defeat of an agreement that union leaders had negotiated.

Read more: U.S. Bankruptcy Court Asked to Block a Northwest Strike

Are large corporations using bankruptcy as a tool to cheat workers and cut down on costs? At least that’s what the Soldiers of Solidarity and activist group that is trying to highlight the problems of the workforce. Mlive.com reports:

Members of the activist group say large corporations, such as Delphi Corp., feel encouraged because of the "success of the bankruptcy." Their new goal is to stop companies from using bankruptcy as a tool to cheat workers and cut down on costs, they said.

Read more: Bankruptcy an attack on workers — group

Visa and MasterCard are feeling the heat and how! They were on a roll until now as an increasing number of consumers resorted to plastic to beat the rise in costs. As gasoline rates increase, more customers are opting to use their credit cards to pay. So, what could be the problem?

Well, retailers are not too happy with how events are shaping up. They have gone to the extreme of asking Congress to step in and control certain procedures in credit card companies. Their main grouse relates to how much and in what way credit-card companies and issuing banks charge retailers for processing transactions. Retailers are asking for more regulation on interchange rates — the fee charged to retailers for processing a credit-card transaction. Washingtontimes.com reports:

Visa this week announced that it would make interchange rate factors available to participating retailers online, but only to those that sign a non-disclosure agreement.

Read more: Retailers seek fee rules for credit cards