If you want to know if this "trend" is a portent of very bad things to come, just ask yourself if the bankruptcies have increased as a percentage of the population. Oh gee, the article didn't touch on that, did it?!
Posted on 07/12/2002 3:32:38 PM PDT by BlackJack
Breaking Records--For Bankruptcies /Grim and Bear It
Enron. Adelphia. Global Crossing. Kmart. Names we know all too well. These are just a few of the biggie companies that have slid into bankruptcy over the past 12 months. And I'll bet you your last dollar that between the time I write this article and the time you read it, we can add another big name to the list. (Kind of reminds me of that old Booker T & the MG's tune, "Time Is Tight," if you know what I mean.)
"It's been growing since October two years ago," says Ray Warner, a professor at the University of Missouri at Kansas City Law School. "You're now seeing some very large examples, which is different than in the past. What we're really seeing is bankruptcies that are being caused by accounting issues. The real trigger for these companies is the loss of financial confidence."
If you're guessing that bankruptcies are going through the roof--or falling through the floor--right now, you're dead right. The scariest, most visible wave, of course, is telecom. Besides Global, we have FLAG, Century, Clariti, Metrocall, Metrofiber, Mpower, Network Plus, NTL, Pinnacle, Rhythms NetConnections, Star, (which is not to be confused with) StarBand, Teleglobe, Western Integrated, Williams Communications, World Access, XO, and my favorites: Yipes Communications and ZeroPlus.com. (The latter two seem almost destined, don't you think?)
But it's not just phone companies. Houlihan's (yup--the restaurant chain) went bankrupt in January. Anchor Glass filed in April. Birmingham Steel in June. Florsheim (I've always been partial to their wingtips) kicked in March. Batterymaker Exide also went down in April. Guilford Mills, Kaiser Aluminum, Polaroid, State Line Casino, and Wisconsin Color Press all threw in the towel. And then--surprise, surprise--there was Beliefnet, "a spirituality-based Internet site," which passed on in April.
It's terrible. Unless, of course, you happen to be Wilbur Ross, CEO of W.L. Ross & Co., who is a dean of distressed investing. "The numbers are really big, and there's no end in sight," Ross says. "We keep track of companies with $100 million or more of liabilities when they file. Last year was the all-time world's record. Companies worth $230 billion filed for bankruptcy. That's up 80% from 2000, and up 11.5 times from the last peak, in 1990." Last year some 172 large companies filed for bankruptcy, says Ross. That's one every two days!
And the beat goes on. "If we don't break the record this year, we'll be within spitting distance of it," says Ross. "If you add up the two years cumulatively, there will be some $500 billion of liabilities in bankruptcies by the end of the year. That's 5% of GDP."
And that's just corporate bankruptcies. The action on the personal side is even faster and more furious. Be it under Chapter 7 (liquidation), Chapter 11 (reorganization), Chapter 12 (family farms), or Chapter 13 (low-income insolvencies), Americans are raising the white flag as never before. In the first three months of 2002, bankruptcy trade group ABI reports, total bankruptcy filings climbed to 379,012, the highest first-quarter tally ever. The overwhelming majority, 369,237, were personal bankruptcies. In other words, 97% of the bankruptcies in this country are personal. That's up from 81% 20 years ago.
A disturbing trend, to be sure. And of course there's much clamor to stiffen personal bankruptcy laws. But at the risk of being callous, I say it's part of the cycle we must endure. I'm not sure what the opposite of bankrupt is--I suppose "incredibly solvent"--but we certainly enjoyed that trend for several years previous. Now the pendulum has swung back with a vengeance, and bankruptcy is in its own boom. I met a new neighbor the other day who told me that he was a lawyer by training who had been working as an executive at a shoe company. "But I'm going back to law," he said. "Bankruptcy law. This is a once-in-a-lifetime opportunity." Sadly, he's right.
If you want to know if this "trend" is a portent of very bad things to come, just ask yourself if the bankruptcies have increased as a percentage of the population. Oh gee, the article didn't touch on that, did it?!
Still way under 1% per year for personal bankruptcies. What was it during the Great Depression? 3%? It's got to get much worse before we're in that kind of trouble.
Might not be the best planning to be up to the eyebrows in loan payments and other credit at this time. For those who used to watch Ruff and Robertson on TV in the early 80s, they were always saying to get out of debt. It doesn't appear that everyone tried real hard to do that.
In the bankruptcy petition, filed at U.S. Bankruptcy Court for the Western District of Missouri, the Kansas City-based restaurant chain said it owed at least 1,000 creditors. It estimated its debts and its assets at more than $100 million each.
Lozoff said Houlihan's is re-examining its entire concept.
"We're really looking at everything on our menu and every piece of our customer's experience, starting outside the restaurant," Lozoff said. "We want to develop really compelling signature items. Our goal is to restore Houlihan's to its former status in the restaurant community as an innovator in casual dining."
Paul Strasen, Houlihan's vice president and general counsel, said the company owns 52 restaurants: 34 under the Houlihan's banner; nine Darryl's Restaurant & Bar locations; four J. Gilbert's Wood-Fired Steaks; and five assorted seafood restaurants, including the Bristol Bar & Grill in Leawood.
The filing does not include Houlihan's 21 franchise partners, who operate about 50 more Houlihan's restaurants. The franchise operations are not expected to be affected by the filing.
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