- 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.
-
- States v. Oracle?
-
- Oracle is taking heat--and Larry Ellison can't be happy
about it. The QT: Last year Oracle was awarded a $95 million software contract
intended to save the state of California more than $100 million in operating
expenses. That's fine, as far it goes, except that it actually goes a lot
further.
-
- For starters, the contract was given without competitive
bids. Meanwhile, a lobbyist hired by Oracle, Ravi Mehta, gave a state official
a $25,000 check for Governor Gray Davis' reelection campaign. Yikes. Then
a state report charged that Oracle's software would actually waste as much
as $41 million of state money. Oracle disputes the study and denies any
impropriety.
-
- Now all hell has broken loose. Davis returned the $25,000
and fired the official who accepted it. Mehta no longer works for Oracle
and took the Fifth during contentious state hearings. Worse, other municipalities
are said to be looking at their contracts with Oracle, which gets 25% of
its sales from governments.
-
-
- http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=208698
|
