The business of covering bankruptcy court: Knowing sources

By Josh Mills

Get familiar with the concepts of and potential sources bankruptcy coverage, because you’re likely to see a lot more of it in coming months, a panel of experts on bankruptcy told dozens of SABEW members in a conference call Wednesday.

"We haven’t yet seen the second wave of insolvencies” stemming from the real estate-mortgage-credit issues of the last year, said Henry F. Owsley, (right) a founding partner of the Gordian Group in New York City, which specializes in restructuring financially distressed businesses. Calling his practice a leading indicator of bankruptcy activity, he said “our business picked up significantly in the first quarter of this year.”

Owsley added, “With the inflation in crude oil, natural gas and other commodities and the inability to pass price increases onto consumers, this will lead to more financial distress for companies, and more down the road.”

That view was seconded by Vikas Bajaj, a business reporter at The New York Times. "It should be a fascinating couple of years,” he said. “I’m skeptical that we’re getting back to normal quickly.”

Bajaj and Owsley were joined by Samuel J. Gerdano, executive director of the American Bankruptcy Institute, and Sandra Block, a personal finance reporter at USA Today, in a SABEW tele-training session on “Boning Up on Bankruptcy,” moderated by professor Chris Roush of the University of North Carolina at Chapel Hill.

More than six dozen SABEW members participated in the call.

Bankruptcy can be a complex process, and good reporting requires good sources. For help in understanding the process and all the different parties – and potential sources – check www.sabew.org/training, where you will find two backgrounders: Better Bankruptcy Coverage, by Gail deGeorge of the South Florida Sun-Sentinel, and “Covering Bankruptcy Court,” a PowerPoint presentation from Roush.

"I spend a lot of time talking to lawyers, and many of them are very helpful in explaining things and also in identifying trends,” said Block. She also said she was pleasantly surprised that lawyers were willing to direct her to clients who were filing for bankruptcy protection. “Debt has become such a pervasive part of our society that people are willing to talk to it,” she said.

Bajaj noted that not just lawyers, “but clerks and paralegals at the bankruptcy courts can be very helpful, also.”

The panelists suggested the journalists pay particular attention to how less affluent consumers and businesses with fewer resources are faring.

"The most vulnerable, those who need the most help, may not have the resources to open the courthouse door," Gerdano said.

And Block said she had seen many Latinos and immigrants “run into a lot of language problems -- a double-barreled problem, not that many attorneys, and not that many with the language skills.”

Among the other suggestions for story ideas and better bankruptcy coverage:

• Many companies and their legal counsel employ “case placers” to help decide in which court to file. “Companies do play the system – the southern district of New York and Delaware are often popular,” said Gerdano. “What parties and case placers care about most is predictability. Those courts have a reputation for being sophisticated with complex matters and they have an infrastructure in place.” Owsley added: “In busy ties, some courts jam up, and you might find you’ll get a continuous place on the docket somewhere else. If you have a case that has to move quickly, you’ll find you have a better chance in a less-jammed venue.”
• Watch for red flags of imminent bankruptcy filings (see the backgrounders mentioned above for details) and cover how companies maneuver and examine their options. “These people have a lot more tools in their toolbox than Chapter 11,” said Gerdano, “and we’ll see a lot more arrangements that maximize value without resorting to Chapter 11 filings.”
• Pay particular attention to “trade creditors,” like suppliers of goods to retailers. “Trade creditors can provide the lifeline for a company to go forward, through their credits,” said Owlsey, “and that liquidity can be the difference between a company going forward and surviving, or not. If the trade abandons the debtor, it can lead to a Chapter 7 liquidation.”
• Never take a company or an individual’s solvency or insolvency for granted. “Solvency can be litigated,” Owsley said. “Solvency is a state law term, and the definition varies state by state.” Companies may claim insolvency as a strategic move, and “any type of asset transfer – a collateral deal, a dividend to shareholders – can be the basis for a lot of negotiations,” he added.
• Acknowledge and report on the organized labor perspective. “Organized labor has a growing beef with how the bankruptcy code is being interpreted,” Gerdano said, particularly the ability of companies to abrogate collective bargaining agreements and to terminate retiree health plans. Yes, it’s a big concern for labor, definitely an issue worth covering down the road.”

Posted June 25, 2008