Friday, April 11, 2008

This Day in Bankruptcies - Another Airline and Our First Major Retailer

I am debating whether I need to start a new blog keyword "bankruptcies" for the coming era....

We've just nailed our fourth airliner in over a week (one in Italy), out with Frontier Airlines, and our first major retailer (I don't consider Sharper Image to be a major name but they filed last month). As for airlines, filing Chapter 11 is simply part of their business plan - it happens every 4-5 years - so *yawn* - but really 4 airlines in just over a week even wakes me up a bit. (I guess my headline is a bit misleading as "bankruptcy" is a bit different than "filing Chapter 11") As for Linens 'n Things? Just the first of many in retail in my eyes... thankfully this all shall pass in 6 months or I'd be worried about the economy...
  • Frontier Airlines Holdings Inc. Friday said it and its subsidiaries filed for protection under Chapter 11 after an "unexpected attempt" by its principal credit-card processor to substantially increase a "holdback" of customer receipts threatened to severely impact Frontier's liquidity.
  • The Denver holding company for Frontier Airlines said it intends to continue normal business operations Friday and throughout its reorganization process.
  • Frontier said its principal credit-card processor very recently and unexpectedly informed the company that beginning April 11 it intended to start withholding significant proceeds received from the sale of Frontier tickets.
  • The news comes after two other discount carriers, ATA Airlines Inc. and Aloha Airgroup Inc., recently filed for bankruptcy and discontinued operations, squeezed by soaring fuel prices and a slowing economy.
  • Frontier in December said it would lay off 10% of its work force not directly related to flight operations and has restructured its route map to eliminate unprofitable routes.
  • Frontier's Chapter 11 cases were filed Friday in U.S. Bankruptcy Court for the Southern District of New York.
  • Linens 'n Things Inc., a home-furnishings retailer caught by an increasing debt load and shrinking housing market, is expected to file for Chapter 11 bankruptcy-court protection by Tuesday, several people familiar with the matter said.
  • A Linens 'n Things filing would mark one of the first major retailers to seek bankruptcy protection in this economic downturn. The New Jersey retailer, which sells home products like towels, bath rugs and kitchen appliances, has about 590 stores in 46 states and employs 17,000 people.
  • Linens would be one of the largest buyouts to go bust since the credit crisis took hold last summer. In February 2006, Apollo Management LP acquired Linens for $1.3 billion. The housing crisis made the home-furnishings space ultracompetitive, and the debt on the company's balance sheet gave it diminished flexibility to ride out the downturn. (I wonder if the bonds for the leveraged buyouts are part of that package Lehman packaged to the Federal Reserve?) :)
  • In a recent letter to investors, Apollo founder Leon Black acknowledged that the company was troubled, explaining that while it had made operational improvements, its financial results "remain challenged." Apollo filed to go public in a share offering this week. (isn't that ironic??)
  • Linens also is working to avoid or delay filing for bankruptcy protection by meeting Monday with its lenders and largest vendors to work out an agreement, but a deal is unlikely.
  • "This is probably the first major shoe to drop in this retail sector, and we aren't at the bottom," said Mohsin Y. Meghji, principal of Loughlin Meghji + Co., a bankruptcy and restructuring advisory firm.
I see Mr Meghji does not work on Wall Street or else he'd realize this IS the bottom; this is not a problem; and everything will be fine "in 6 months". Did he not drink his Kool Aid today?

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