Kinder, Gentler, Bankruptcy

The automakers’ ordeal offers some lessons for executives who manage companies in distress.

Sarchio

RICHMAN “Many of these [distressed]
companies are well worth saving.”

Business leaders should keep a close eye on the travails faced by the Big Three automakers—and not only because the fate of a major American industry lies in the balance. The process could also provide lessons for the thousands of American businesses that are under stress during this recession.

Over the past couple of decades, many distressed businesses have realized the potential value of Chapter 11 as a financial restructuring tool. But in today’s credit-constrained environment, many banks are reluctant to provide the so-called debtor-in-possession (or DIP) financing that is typically needed to help companies remain in operation during reorganization.

As a result, businesses that would normally have been able to successfully navigate reorganization are in a standoff with their lenders or facing liquidation. Many of these companies are well worth saving—they are profitable firms with sustainable business models that erred by gorging on debt in the easy credit environment of recent years. A Chapter 11 filing could well allow them to fix their balance sheets.

One way to break the bankruptcy credit logjam and assist deserving companies would be for the government to become a DIP lender. (There have been suggestions that it might do so with the auto industry, though nothing definitive has yet emerged.) DIP financing is relatively low-risk because it ordinarily has the highest priority for repayment over all other secured and unsecured creditors in a bankruptcy case. Where companies have sufficient value beyond the amount of pre-petition secured loans, the DIP loan can “prime” those loans be repaid ahead of them.

Patience Has Its Rewards

Air travelers will have access to broadband thanks to one company’s years-long campaign with the FCC.

By Jack Blumenstein, Aircell

BLUMENSTEIN (with Aircell General Counsel Margee Elias)

It was 40 years ago that the Federal Communications Commission cracked open the door to competition in the telecommunications market by approving MCI’s petition to attach its radio service to AT&T’s network of microwave relay towers between Chicago and St. Louis. It took MCI six years to get the commission’s go-ahead, but when it did, it set off a revolution that reshaped the communications industry forever.

Today, the FCC is again the referee in a revolution, this time in broadband communications. And while the commission still may move as slowly as a dial-up Internet connection, it’s also still willing to give young upstarts a shot to compete against corporate giants in the name of innovation.

Not the Last Word, Really

Just because your insurance company has said “no” doesn’t mean you don’t have a case. Three recent judgments prove the point.

By John W. Schryber, Patton Boggs

SCHRYBER “Insurance companies will often resort to confusing tactics to escape their contractual obligations.”

Every year, major

corporations forgo millions of dollars in insurance recoveries because they accept their carriers’ denial of coverage without ever putting up a fight. Although insurers have taken money to protect against many varieties of risk, too often they will disclaim coverage when such a risk arises for reasons that may not stand up in court.

Three recent cases in which we represented a corporate policyholder against its insurer demonstrate how an aggressive litigation strategy—combined with a refusal to take no for an answer—can produce a positive outcome for the client. In each instance, the insurer attempted to restrict or deny coverage through a variety of captious tactics.