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For those who read The Wall Street Journal's story Wednesday on the bankruptcy of S&A Restaurant Corp., the parent of the Bennigan's and Steak & Ale Restaurant chains, there was a particularly curious sentence at the end regarding how bankruptcy financing -- more properly known as postpetition or debtor-in-possession financing -- was unavailable. The WSJ cited "some bankruptcy lawyers" as its sources. Without question, there exists a major credit crunch for nonbankrupt companies. But for bankrupt companies? The numbers, at least, don't bear it out.
According to BankruptcyInsider.com, there have been 169 DIPs totaling $12.4 billion provided through July 31, up from 124 DIPs totaling $12.2 billion for the same period last year. And when you back out the $10 billion DIP given to Calpine Corp. early in 2007, the volume figures are stark ($12.4 billion in 2008 versus. $2.2 billion in 2007 through July 31). That doesn't seem to be much of a credit crunch to us. While it's true that there are many more bankruptcy filings today than a year ago and some companies have had a hard time finding financing (Steve & Barry's LLC, S&A Restaurant among others), there is hardly a dearth of postpetition funding available. In fact, volume of DIP financings today are larger than they were in the entire year in 2006 (217 DIPs worth $9.4 billion) and 2005 (164 DIPs worth $13.9 billion), two pretty good years when it came to the availability of capital. Just this week we have seen Mervyn's Holdings LLC get a $465 million DIP and SemGroup LP get a $250 million DIP, for example. Mervyn's was in talks with nine different lenders regarding DIP financing, but settled upon their prepetition lender, Wachovia Capital Finance Corp., because they needed the financing quickly. Wachovia provided a DIP that was mostly rolled over from its prepetition debt because it was familiar with the company and its operations. A more nuanced view of today's DIP market does show postpetition financings that are more restrictive, more expensive, more defensive and more likely to require debtors to sell assets. But the WSJ didn't mention any of that in that throwaway line. Nor did the newspaper note that factors other than postpetition financing are leading companies such as S&A to liquidate rather than reorganize. For retailers with huge numbers of stores, especially (and S&A fits that mold), there are more complexities now to deal with under the bankruptcy code: less time to decide on what to do with leases, less time to conjure a reorganization plan without interference from creditors and others. We're surprised "some bankruptcy lawyers" didn't mention them. - Jamie Mason CategoriesComments Deal Video
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Really