Bankruptcy Lawyer Blog

One week ago I wrote here that with the economy slowing down, crime would be on an upswing. Two days ago my house suffered a break in and they took computer equipment, jewelry, quite a bit of stuff. It’s very unnerving to know that someone has been threw your house and rifled through your stuff. Even more frustrating is that it took the police more than 6 hours to show up at our house, very unfortunate. The burglars broke in at around 10am and it’s easy to track where they were as they used a credit card at 8 different locations from noon to 1. Here’s to hoping the robbery was random and not targeted as that would be quite a sinking feeling if that were the case.

Post excerpted from Bankruptcydata.com:

Privately-held Metromedia Steakhouses Company and certain of its affiliates filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware. The Company will reorganize around its franchise operations and a profitable core of Company-operated restaurants. In connection with the filing, the Company announced that it has received a commitment of secured debtor-in-possession financing from an affiliate, Metromedia Company, the Company’s existing secured creditor. Upon receipt of Court approval, the Company will use the D.I.P. financing and cash from operations to fund operating expenses. Metromedia Steakhouses Company owns S&A Restaurant Corp., which is the parent company of Steak & Ale and Bennigans Grill & Tavern restaurants. S&A Restaurant Corp. filed for Chapter 7 protection in July 2008.

I would think that some restaurants once in bankruptcy should probably not bother to come out. If I were the owner of a failed bankruptcy chain saddled with debt (though much of it probably relieved or restructured in bankruptcy) I would strongly consider liquidating everything. It’s a tough market out there and with a Chili’s, Applebees and Outback Steakhouse in every mall who really another Americana chain restaurant?

The fundamentals of running a chain restaurant seem very dangerous to me. You need a ton of debt to open new stores and now is not the time to be taking on high debt loads. If I were a chain store owner I would be cutting back underperforming stores, slashing overhead and focusing intensely on the profitable stores in case this downturn takes a couple years to come out of.

U.S. Representative William Delahunt says that bankrutpcy courts should get more power to modify the terms of “predatory loans”. With housing prices falling throughout the US, many people everywhere are struggling with high mortgage payments that now exceed the value of their house. Delahunt acknowledged that volunatry measures so far have been unable to slow down the onslaught of foreclosures popping up everywhere from Detroit to Orange County.

Bankruptcy judges may soon get a lot of latitude in restructuring primary mortgages during bankruptcy proceedings. Banks are faced with a tough choice, let the home go into foreclosure and find a new owner or negotiate with the existing owner. Often banks are fine letting the house go into foreclosure because they can quickly get a new tenant that will pay market rates on the loan. Lately banks have been more willing to work out a deal with existing homeowners because demand for purchasing new homes has been so low that it’s harder to finder someone to buy foreclosed properties.

I assume we will continue to see a concerted push to allow people who are filing for bankruptcy to negotiate the terms of their loan with the bank. In most cases it’s in their best interest to work something out, we’ll see if this starts to happen on a larger scale.

One more retailer that is having a hard time is in bankruptcy proceedings. Retailers that were already on shaky ground are having an almost impossible time getting credit these days, so there will be more where this came from. Personally I think that large ticket consumer items like appliances, furniture and electronics will be savaged fiercely over the next few months as consumers cut way back on large purchases and stick to the small stuff.

In fairness Levitz was having problems long before September/October when the credit problems magnified, but I’m sure the overall economy only exacerbated their problems. From a consumer’s standpoint there will be a ton of good deals so if you are in the market for furniture, there’s never been a better time to buy.

Goody’s was able to leverage bankruptcy to liquidate 69 stores after entering bankruptcy with 287. I liked the quote from the article where they talk about eliminating “excessive corporate spending”. That’s quite a vague line, were the Executives spending too much money on failed marketing programs? Was there money wasted on R&D (not sure what R&D a retail store would do in the first place)? Was there too much overhead? A little elaboration on this point would be useful for any future investors.

Here is part of the story excerpted from MarketWatch (click here for the original):

KNOXVILLE, Tenn., Oct 20, 2008 /PRNewswire via COMTEX/ — KNOXVILLE, Tenn., Oct. 20 /PRNewswire/ — Goody’s Family Clothing, Inc. (Goody’s), a moderately priced family apparel retailer operating in small to midsize markets primarily throughout the Southeast, announced that the Company’s Second Amended Plan of Reorganization proposed by Goody’s Family Clothing, Inc., its Subsidiary Debtors and the Official Committee of Unsecured Creditors (the “Plan”) became effective today, marking the Company’s emergence from Chapter 11 bankruptcy. The Plan was confirmed by order of the United States Bankruptcy Court for the District of Delaware on October 7, 2008.

During the Chapter 11 bankruptcy, Goody’s streamlined and reorganized its operations to improve the business model, significantly reduced operating costs, and maximized the value of core assets. This included the closure and liquidation of 69 underperforming retail locations in 18 states, the closing of a distribution center in Arkansas and a corporate office in New York, and the elimination of excessive corporate spending. In addition, Goody’s eliminated the Company’s e-commerce business, as well as an associated distribution center in Tennessee.

Paul White, Goody’s Chief Executive Officer, stated, “We believe we have significantly strengthened both our business and capital structure and this will allow Goody’s to continue to build on its 55-year heritage. Our Plan has enabled us to eliminate considerable costs from our business and we now have a profitable store base that is more efficient and productive. Importantly, this was all done while continuing to manage our stores without interruption and successfully serve our customers.

Reports are coming out today that Circuit City may consider shutting at least 150 stores and cut jobs to avoid filing for bankrutpcy. This move by Circuit City is not surprising as retail sales fell 1.2% in September and I bet that when October numbers come out retail sales willl probably be off closer to 2%. Retailers all over (except maybe WalMart & Costco) are going to have an extremely tough stretch coming up over the next 6 months as consumers ratchet back their spending and focus on the bare essentials.

Here is part of the story excerpted from MarketWatch (click here for the original):

Circuit City has hired Skadden, Arps, Slate, Meagher & Flom LLP, which oversaw Kmart’s Chapter 11 reorganization, as its bankruptcy counsel. The company also has retained FTI Consulting Inc. to develop a turnaround plan and investment bank Rothschild Inc. to guide talks with banks and secure emergency financing, the Journal reported. See related MarketWatch First Take commentary.

“While we would appreciate [Circuit City] for its attempt to stay solvent, we remain highly pessimistic on holiday sales and on consumer spending in 2009,” said Standard & Poor’s analyst Michael Souers.
A filing from Circuit City would make it the largest retailer to enter bankruptcy protection in several years, the paper reported. Retailers that have filed for bankruptcy protection this year include Linens ‘n Things, Mervyn’s and Sharper Image.

“We’re not going to speculate on rumors and comment beyond our original statement,” said Circuit City spokesman Jim Babb in a response to emailed questions.