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Prepackaged Chapter 11 Bankruptcy Filings Spike but Fall Short of Historic Levels

March 5, 2008

February 2008 witnessed four prepackaged Chapter 11 bankruptcy filings by publicly-traded companies. Those four Debtors alone hold total pre-petition assets greater than $2 billion, according to BankruptcyData.com, a Boston-based website that tracks business bankruptcies.

The Bankruptcy Yearbook & Almanac defines a prepackaged bankruptcy, also known as a “prepack,” as a situation in which a company meets with its creditors to agree on the terms of a reorganization plan prior to filing the Chapter 11 Petition. In a standard filing, such negotiations are made after the bankruptcy filing. This prepackaged approach offers the potential benefit of a speedier, more cost-effective bankruptcy reorganization.

February started off with a bang when relocation and moving goliath SIRVA, Inc. (SIRV)–of Allied, Global and north American fame–filed its $1.4 billion prepack on February 5th. SIRVA’s filing, made in Manhattan, is the second largest public bankruptcy of the year (as determined by total pre-petition assets).

Less than one week later, automotive products’ manufacturer Holley Performance Products Inc. filed its own prepackaged bankruptcy with the Court in Wilmington. Then, U.S. military food supplier The Wornick Company joined the mix by filing a $290 million prepack with the Court in Cincinnati.

Finally, Dominican Republic-based telecommunications provider TRICOM, S.A. made its February 29th prepackaged filing. The TRICOM bankruptcy, filed in Manhattan, brings an additional $350 million to the mix.

This recent rush of prepackaged Chapter 11 bankruptcies is of particular interest since such filings have been a relatively rare commodity in recent years. According to BankruptcyData.com, there were only four prepackaged Chapter 11 bankruptcies initiated in all of 2007, and the U.S. Bankruptcy Court confirmed just six prepackaged Plans of Reorganization in last year: Bally Total Fitness Holding Corporation (BFTH); Citation Corporation; Granite Broadcasting Corporation (GBTVK); InSight Health Services Holdings Corp.; Portrait Corporation of America, Inc. and Remy International, Inc.

2006 saw a total of ten prepackaged bankruptcies initiated; and 2005, 2004 and 2003 figures were 7, 14 and 21, respectively.

Some industry pundits have speculated that current market conditions might trigger a return to the glory days of prepackaged bankruptcy filings–which peaked in 2002. In that one year alone, there were a total of 40 prepackaged Chapter 11 filings made. While prepacks–and filings in general–are on the rise, we are nowhere near the levels witnessed in 2002. In fact, by late February 2002, there had already been ten such filings listing total pre-petition assets of nearly $8 billion: nearly quadruple the 2008 figure. The total asset figure for 2002 prepackaged bankruptcies reached a staggering $118 billion.

Chris McHugh, an Analyst with New Generation Research, points out that a return to an increase in the percentage of prepacks is a good possibility in the current credit market–asserting, “Prepacks are a better way for lenders to keep control.” In addition to prepacks, McHugh anticipates an annual rise in public bankruptcy filings but not to record-breaking levels: “The economy is not strong, and credit is not as easily obtainable as it was a couple of years ago. Credit is tight, but rates are relatively low.”

Whether 2002 prepackaged bankruptcy statistics will be beat remains doubtful; however, it does appear certain that the total number of 2007 prepack Chapter 11 filings will be easily surpassed in 2008. Just two months into the year, we’ve already had four such filings and remain just one short of passing the 2007 total.

The list below indicates the five largest prepackaged Plan confirmations of all time. Also indicated is the time span between the filing of a Chapter 11 Petition and U.S. Bankruptcy Court confirmation of the prepackaged Plan of Reorganization. Each of these companies confirmed a Plan in well under a year. It should be noted that this historic presentation of prepackaged filings includes only those companies for whom the Court has already confirmed the company’s prepackaged Plan.

Five Largest Court-Confirmed Prepackaged Filings:

Company

Chapter 11

Bankruptcy Date

Assets (a)

Confirm Date

Days to Confirm

Industry

Conseco, Inc. (CNO)

12/18/02

$61,392

09/09/03

265

Insurance

NTL Incorporated (NTLI)

05/08/02

$16,834

09/06/02

121

Tele-communications

FINOVA Group, Inc. (FNVG)

03/07/01

$12,089

08/10/01

156

Banking & Finance

NRG Energy, Inc. (NGR)

05/14/03

$10,884

11/24/03

194

Energy

XO Communications, Inc. (XOHO)

06/17/02

$7,930

11/15/02

151

Tele-communications

(a) $ mils

BankruptcyData.com–published by New Generation Research, Inc.–provides news, financial history, creditor information, reorganization details and more for over 2000 publicly-traded companies that have filed for bankruptcy protection since 1980. The extensive database, which tracks all publicly-traded bankruptcies, can be searched by assets, industry, filing date or company name. BankruptcyData.com also provides instant access to information on thousands of business bankruptcy filings from federal bankruptcy districts. Currently there are over 400,000 business bankruptcies in the database. We are available to consult on the bankruptcy process and comment on the bankruptcy proceedings of any of the public prepackaged cases listed above.




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