Word: bankrupting
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...switch reflects the growing peril of runaway borrowing. Last year 68,112 U.S. firms filed for bankruptcy vs. 10,622 in 1981. And the failures are getting larger. The assets of bankrupt companies totaled $67 billion in 1989, up 52% from the previous year. The 1990 pace could be even quicker. Since January the Wall Street firm Drexel Burnham Lambert (assets: $3.6 billion) and , the U.S. retailing arm of Canada's Campeau Corp. ($9 billion) have sought protection from creditors. They joined such major companies as Eastern Air Lines and LTV Corp., the third largest U.S. steel company, which...
...companies do not have to file for Chapter 11 to lure the new vultures. "There are many shades of failure," says Sanford Sigoloff, a turnaround specialist who runs the bankrupt U.S. operations of Australia-based Hooker Corp., which owns the B. Altman and Bonwit Teller department-store chains. Such troubled but solvent corporations as Wang Laboratories, the Lowell, Mass., computer maker that laid off more than 1,500 workers last year, have hired "workout" advisers to help pare down their debt. By pursuing a workout instead of bankruptcy, management can maintain control of the company and generally reorganize faster. "There...
...harder for turnaround artists to profit from troubled companies. One call for reform came from James Queenan Jr., a U.S. bankruptcy judge for Massachusetts, who termed the wave of 1980s buyouts "the greatest demonstration of greed that I have seen in my lifetime." Queenan testified that tougher restrictions on bankrupt companies "would present a major deterrent to abuses" by discouraging firms from irresponsibly loading up on debt and then enjoying court protection...
Today's turnaround boom is rooted not only in overleveraging but also in a 1978 overhaul of the bankruptcy laws that strengthened the hand of ailing companies in negotiations with their creditors. The changes permitted bankrupt firms to restructure their finances and return to business without struggling through pitched court battles over every asset. Explains David Post, executive director of the Turnaround Management Association, a North Carolina-based trade group: "1978 said that if you can achieve an agreement with a majority of your creditors, the court will allow you to reorganize" without satisfying all of them...
Among turnaround artists, the competition to advise the creditors of bankrupt companies has grown fiercer by the week. To gain the confidence of prospective clients, even the best-known advisers must often work for months without being formally hired. The day after Drexel declared bankruptcy in February, some of its major creditors sought help from Wilbur Ross, a senior managing director at Rothschild Inc., a top workout firm. Ross agreed to represent half a dozen large bondholders, who held a total of $100 million in Drexel notes, without a retainer in order to win their business. Says...