The new bankruptcy law
We've become used to seeing the shadow of George Orwell, shaking his head ruefully, behind the names of new laws. The Clear Skies Act that allows more pollution. The Patriot Act that suggests anyone who doesn't support it is a traitor, and so on. Now we have the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Not quite as bad, perhaps, but still the "consumer protection" is a bit ironic in view of the new provisions giving major new status to credit card issuers in consumer bankruptcies.
There's an interesting article, though, on the consequences for business bankruptcies:
http://www.cfo.com/printable/article.cfm/3936429?f=options
You can see the Wall St lobby behind this legislation, salivating. It used to be that an investment bank that issued bonds for a company that subsequently went bankrupt couldn't then become the advisor to the deadbeats. So the big banks were shut out of a lot of lucrative advisory work, much of which was handled by smaller banks and by specialist advisors like Chanin & Co and Houlihan Lokey. The numbers are pretty decent. These boutiques can easily take $150K a month for a couple of years working on a Chapter 11. (Take a look at Eagle Picher, for instance, which filed back in April. Houlihan Lokey just submitted their first bill: over $530,000 in fees and over $80,000 in expenses). Under the new law, that "conflict" has been waived. If you work for Houlihan Lokey or Chanin, you might consider getting a headhunter and seeing if you can get yourself heading up a reorg department at one of the big banks.
The hedge funds are probably pretty happy, too. Management's "exclusivity period" has been shortened. Previously, the existing management could pretty much delay as long as it wanted putting together a reorganization plan. Interested parties (like the creditors) couldn't do very much about it. Now any interested party can come in a file a competing plan after 18 months.
On the other hand, it's probably going to have a negative effect on distressed bonds. New rules on trade claims (guys who did business with the bankrupt company) will put vendors and suppliers in a better position, shoving the "general unsecured" creditors, which usually includes unsecured bondholders, down the ladder a bit.
As for small businesses, well, what do you expect from this administration? Although they get some breaks, they now have much more onerous reporting requirements and -- nice boon for law firms -- have to have an attestation that they have complied with the bk laws. That'll make it a lot more expensive to survive the whole process.
Down And Out In The USA?
There's an interesting article, though, on the consequences for business bankruptcies:
http://www.cfo.com/printable/article.cfm/3936429?f=options
You can see the Wall St lobby behind this legislation, salivating. It used to be that an investment bank that issued bonds for a company that subsequently went bankrupt couldn't then become the advisor to the deadbeats. So the big banks were shut out of a lot of lucrative advisory work, much of which was handled by smaller banks and by specialist advisors like Chanin & Co and Houlihan Lokey. The numbers are pretty decent. These boutiques can easily take $150K a month for a couple of years working on a Chapter 11. (Take a look at Eagle Picher, for instance, which filed back in April. Houlihan Lokey just submitted their first bill: over $530,000 in fees and over $80,000 in expenses). Under the new law, that "conflict" has been waived. If you work for Houlihan Lokey or Chanin, you might consider getting a headhunter and seeing if you can get yourself heading up a reorg department at one of the big banks.
The hedge funds are probably pretty happy, too. Management's "exclusivity period" has been shortened. Previously, the existing management could pretty much delay as long as it wanted putting together a reorganization plan. Interested parties (like the creditors) couldn't do very much about it. Now any interested party can come in a file a competing plan after 18 months.
On the other hand, it's probably going to have a negative effect on distressed bonds. New rules on trade claims (guys who did business with the bankrupt company) will put vendors and suppliers in a better position, shoving the "general unsecured" creditors, which usually includes unsecured bondholders, down the ladder a bit.
As for small businesses, well, what do you expect from this administration? Although they get some breaks, they now have much more onerous reporting requirements and -- nice boon for law firms -- have to have an attestation that they have complied with the bk laws. That'll make it a lot more expensive to survive the whole process.
Down And Out In The USA?
posted by econoclast at 11:47 AM
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