New Bankruptcies

So Murray Energy has filed a Chapter 11.  A few points here.  First, anyone connected to the Crandall Canyon Mine Disaster knows that Robert Murray shouldn't be in bankruptcy court, he should be in prison.  That place was one, big, deliberate safety violation, and nine people died.  Second, for anyone who has a lick of sense, this ought to put the lie once and for all to Trump's promise to bring the coal industry back, which is no surprise at all to those of us who have spent the last four decades or so following how well Trump has kept his "promises".  Third, watch out for another big load dumped on taxpayers.  Perhaps the biggest reason corporations file Chapter 11 is to shed pension plans and foist them on the Pension Benefit Guarantee Corporation.  Ordinarily, PBGC can refuse to take over an underfunded pension, but that authority is overcome by a confirmed Chapter 11 plan.  So the PBGC ends up with yet another underfunded pension, and one of two things happens: 1) PBGC cuts benefits down to the funds available, leaving the pensioners impoverished and compelled to seek public assistance, or 2) PBGC gets a special bail-out from Congress.  Either way, the bankrupt company shifts its private debt onto the general public.

Also filing Chapter 11 is EP Energy, one of the biggest players in the Eagle Ford Shale (Full disclosure: I represented EP Energy in the III Exploration II, LP bankruptcy.).  I think it is apparent that everyone in the oil shale play is hurting and the hot money that has been propping it up is cooling.  So is this why gas prices just bumped up?  Doubt it.  EP filed a month ago, and it was already common knowledge then there was trouble in Oil Shale City, so all that should have been factored into prices some time ago.  No, I think it's far more likely, as I've commented before, that gas prices just jumped for no other reason than that they can.  Don't expect gas prices to be affected by anything that happens in that place called Reality.

But Retail's Fine, Just Read Forbes

So in spite of the original notice that indicated it would stay open, the Radio Shack at 700 South and State here in SLC is closing (i.e. it's worse than they originally announced).  2017 retail bankruptcies already outnumber 2016.  The distressed retailer list is growing rapidly.  But Forbes thinks things are fine.  There are good reasons for this.  First, Paula Rosenblum is the sort of member of my age group that gives my age group a bad name.  The way she poo-poos the effect of on-line shopping is both condescending and absurd.  A nonscientific sampling consisting of my four kids finds a unanimous preference for shopping online, and one of them is in retail.  Nonscientific, but they're also among the least tech-oriented of their peers.  That's Trouble with a capital T, and Forbes gets a capital F for ignoring it.  Then Rosenblum doubles down with all the glorious things retailers are doing to bring shoppers back, including the mall redesigns.  Earth to Paula: First tell me how this fits the financing models for these enterprises (It doesn't.), then tell me how it gets past the fact that it is aimed at a clientele that is dying (It doesn't.).

There is an even bigger reason Forbes is taking this position: Steve Forbes is taking this position.  Why?  Well, he's part of that dying off generation that thinks mall shopping is cool (or in his case that sending a servant to do mall shopping for you is cool).  But also, he can't see any of it.  As fewer people are able to consume, retail becomes increasingly dominated by custom-made products sold in controlled-access locations or even privately.  This is the world Steve Forbes knows, it's working just fine for him, and so no problem.  But if you consider dead real estate and vanishing jobs a problem, then you might have to differ with him.  I do.

New Comments

Several new comments.  First, over at Credit Slips, I commented on how Chapter 11 is a fail train for small business reorganization because of the hammerlock lenders force on small businesses.  Next, a pair over over at Naked Capitalism.  First, a reply to Calgacus's claim that Right historically wins over Might (My experience is that Right has won a few battles, but Might keeps winning the wars.).  Then a comment on Lambert Strether's article on deflation noting the historic uses of deflation to protect the 1%.

Lehi Roller Mills Not Footloose

Lehi Roller Mills, Inc., owner of the iconic mills at the north end of Utah County featured in the movie Footloose, has filed Chapter 11.  Whether it can accomplish a reorganization or not is a very open question.  It has issues flying at it from all over, a couple of them governmental.  Personally, my Magic 8-Ball sees a conversion to Chapter 7.  And if you're wondering why I don't have a local media link to a story on the bankruptcy filing, it's because there aren't any.  Our glorious local media are too busy writing puff pieces at the direction of the Tourism Board to cover this.

Speaking of glaring omissions, does anyone else notice a total lack of comment by the city?  Lehi frankly doesn't have many historic sites left, and nothing to compare with this, yet no one from the city is even shedding crocodile tears.  What's the deal?  I think rantnraven and Gentler_Reader may be on to something in their comments in the Tribune article I linked to.  The mills are prime development ground, and I've often figured major developers have been drooling over the site but that the Robinsons wouldn't play ball.  Perhaps the Williamsons are willing to play ball, and their notes are the leverage the developers need to boot the Robinsons out.  And if that's so, no one with any sense would be surprised if the developers had already approached the city to grease the skids for the whole process.  So the city is keeping its head down, waiting for applications for a demolition permit and a brand new strip mall, and counting its projected tax revenue.  Provided the developers can lease the new site out without making a bunch of other places in town go dark.  And provided anyone stops in Lehi when they can no longer tell the town is there after the mills have been torn down.

Normandie Cafe Chapter 11

In another display of the fine business reporting one gets here, Paul Toscano took Mezzanine, Inc., which operates the Normandie Cafe in Holladay, into Chapter 11 yesterday (Case No. 12-34490), and there has been NO local coverage.  Great job, people.  If the case gets converted to a Chapter 7 and yet another small business goes dark, do you think our fearless newscritters will bother to notice.  Probably not, and they'd view it as a gain if Olive Garden or Sonny Bryan's moves in.

Block Busted

I was driving down the street yesterday and saw the neighborhood Blockbuster was closing down.  This weekend.  Everything had to go.  Now, while I picked up some very nice deals, long-term this stinks.  I am one of those dinosaurs who does not stream movies on line.  Oh, I will, but it isn't the way I like to do it.  I'll have more of this, particular rant later, but for now I'll just say that I like having the hard copy in my own hands.  I don't like depending on someone else's servers and someone else's connections.


Anyway.  A little digging told me what was going on at Blockbuster.  Back in July, Blockbuster was trumpeting the successful conclusion of a Chapter 11 liquidation, having sold the farm to Dish Network.  90% of the stores would remain open, jobs would be saved, landlords would not be facing yet more dark space, blah, blah blah.  The sun was bright, and all was right with the world.
A happy ending is a story that hasn't finished yet.


Digging through Dish Network's latest 10-K yields the following on page 31:

In addition, our Blockbuster retail store operations face increasing competition from video rental kiosk, streaming and mail order businesses. These competitive pressures have contributed to weak store-level financial performance at many of our Blockbuster retail stores. We expect to close over 500 domestic stores during the first half of 2012 as a result of weak store-level financial performance.

We continue to evaluate the impact of certain factors, including, among other things, competitive pressures, the scale of our Blockbuster retail operations and other issues impacting the store-level financial performance of our Blockbuster retail stores. These factors, or other reasons, could lead us to close additional Blockbuster retail stores. There is no assurance that we will achieve the expected benefits from the Blockbuster Acquisition.

That's 1/3 of the stores Dish bought being shut down now, with more coming.  So much for saving the stores, the jobs, etc.

And that's the dirty, little secret of Chapter 11.  You can negotiate and strategize for months.  You can force a plan through.  You can even walk in with a pre-pack and all your ducks in a row and be out in a month.  And a year later, it can still all be gone.

Red Ink by the Barrel

Lee Enterprises has filed a pre-pack Chapter 11, basically to force some dissenting creditors to go along with restructuring the company's massive debt load.  For months now this hasn't been a matter of "whether" but "when".  Lee, frankly, is a mess, and while it is pretending to be singing "Kum-Ba-Ya" with its largest creditors now, this looks like nothing more than a game of kick the can.


Full disclosure: I used to be in newspapers, and Lee publishes a lot of them.  Locally, it publishes the Provo Herald.  Back in my old, home territories, it publishes the Quad City Times and the Muscatine Journal (in Iowa) and the Lincoln Journal-Star (in Nebraska).  I worked for the Des Moines Register, and the Times was our chief rival in Eastern Iowa.  On the other hand, when I was in high school, the Star ran a feature article on me, complete with a picture of my not-so-smiling face, on the front page.  I guess that makes me neutral.



In all seriousness, you have to wonder who is driving the bus at Lee.  You can trace this train wreck to 2005, when the company acquired Pulitzer, Inc. (owner of the St. Louis Post-Dispatch) for a cool $1.5 billion.  Newspapers folding left and right and the industry in a general state of free-fall, and Lee decides to drop a bill and a half on acquisition.  Of course it was 2005, credit was cheap and loose, and the economy could only go up, just ask The Blessed St. Greenspan.  You can imagine the dollar signs in Goldman Sachs's eyes when it heard Lee was looking for financing.  You can imagine the pitchers glossing over the 1.5 billion things wrong with the deal, including the complete lack of supporting cash flow and acquisition value and the requirement for unanimous creditor approval for refinancing (which is what forced the Chapter 11).  Anybody who greenlighted this checked both brain and spine at the boardroom door.



Now GoldSacks and its cronies are getting a 13% piece of the action, and you can bet they won't put up with any management shenanigans.  And I expect the shenanigan attempts to commence soon.  Lee's plan defers the due dates on all those bonds, but the bonds are still there, ticking away, and its revenue stream is so poor it must have been handing out Swisher Sweets to celebrate the deal.  Lee certainly couldn't cover Montecristo A's.  On top of that, a big chunk of the debt isn't really deferred.  It's currently at 10.55% (Can Mary Junck say "Junk"?), and in a year the escalator clause kicks in.  There is no way Lee can cover that.  I figure that in perhaps two years, the creditors will pull the plug, part Lee out, and hold fire sales for the papers that are still standing.  And there will go a big chunk of what's left of this country's news media straight down the drain.

Chapter 11 Airport

Well, it was just a matter of time.  Every other major, U.S. airline had taken a trip through bankruptcy court in the last 10 years, and now American Airlines, via its parent AMR Corp., has gone in.  AMR cites two, big causes: fuel costs and labor costs.  Ignore the former; it's all about the latter.  AMR will use 1113 to reject the current collective bargaining agreements, 1114 to severely curtail retirement benefits, and 29 USC 1341 to do a distress termination of the pension plans and foist them on the Pension Benefit Guaranty Corporation (i.e. we taxpayers).  No word about a pre-pack plan, but you can bet there has been a bunch of negotiating going on.  Watch the first-day motions to see who is pulling the levers.  You can be sure it isn't the unions, who haven't even been invited to a side table.


It's easy to feel sorry for retirees losing pensions, but these tended to be real Rolls Royce models, while the rest of us muddle along with Yugos (Actually, mine is more of a skateboard.), so it isn't hard to see how companies can't keep funding them.  There are two things that gripe me, though.  First, it's apparently OK for a multinational corporation to walk away from obligations like these, but morally reprehensible for poor schlubs to bail on economically absurd mortgages.  Sorry, that's hypocritical horse hockey.  Second, AMR entered into these contracts with its eyes wide open and led by the managerial geniuses who will be running the reorganization and who are unlikely to take any kind of meaningful haircut for putting the airline in this position.  If you want to talk about rewarding failure, start right there.

Ice Cream Cools Off

Dippin' Dots, which makes the ice cream equivalent of little chocolate doughnuts (You just keep popping them in until you 'splode.) has filed Chapter 11.  According to its filing, it has a decent shot at reorganizing, but we'll see if the filing is reality.  The bigger question is, if ice cream companies are going down (And they are.  Goodbye Snelgroves!), just what sort of civilization are we creating here?


BTW, it's absurd that the spell checker here thinks "doughnut" is misspelled.  But then again, it thinks "blog" is misspelled.

Capmark Craps Out

Capmark Financial Group, formerly GMAC's commercial real estate finance arm spun off to a consortium of KKR, Goldman Sachs Capital Partners, and Five Mile Capital Partners three years ago for a cool $2.1 billion, has filed Chapter 11 bankruptcy in Delaware. Word is that KKR had all ready written off its investment in toto. Gee, someone knows how to mark to market after all. A Warren Buffett entity had an offer on the table to buy every asset that mattered for $490 million (Over 75% hair cut! Love them green shoots!), but the bankruptcy will require more of the deal to be cash, so we'll see if The Sage walks away. If he does, the only "reorganization" coming out of this Chapter 11 will be moving the chairs around at the auction of everything that can be characterized as an asset.

Note that Capmark Bank, Capmark's wholly-owned industrial bank based here in Utah to take advantage of our nonexistent banking laws, is not part of this bankruptcy. Now before all you jingos start going, "Hoowah Utah!" be aware that earlier this month the FDIC forced Capmark and Capmark Bank into a series of cease and desist orders that: 1) required Capmark to pony up an additional $600 million in capitalization for Bank, 2) requires Bank to file a new cap plan by Thanksgiving, and 3) effectively precludes Bank from even breaking a roll of quarters without prior FDIC approval. With Capmark in BK, that cap plan is about as likely as my winning the Mr. Universe title. Worse, the US Trustee in Delaware may well say, "That $600 million needs coughed up and put in the bankruptcy estate." Which means that Capmark Bank and its $10-11 billion in "assets" (not marked to market) is circling the drain as we speak.

On top of all this, a 4 September article from Bloomberg said that regulators ranked Capmark Bank as "well-capitalized." The C&D orders were entered less than a month later. Is there anyone driving this bus? Do I really need to ask that question?