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Eric Terry in the San Antonio Business Journal: Quicker Resolutions: Prepackaged bankruptcies help companies get back on their feet fast
05/21/2010
Eric Terry

Beleaguered companies no longer take years to work out their financial troubles in bankruptcy court. Instead, arrangements are negotiated with major lenders beforehand. Bankruptcies now come prepackaged.  

Prepackaged bankruptcies work best for companies with financial problems rather than operational breakdowns, says Eric Terry of the San Antonio office of Haynes and Boone.

“A lot of companies have sound business plans, but they’re over-leveraged,” Terry says. “They borrowed too much when money was flowing, and now they’re finding that the easy credit has been cut off. Changes made to the federal bankruptcy laws in 2005 tightened deadlines so bankruptcies no longer take so long to settle. With a prepack, a company can cut down on the time and expense of going to court as well as reducing the PR damage of a bankruptcy because it’s not in the news for so long.”

Terry says one of the country’s largest bankruptcies was filed in San Antonio last year by Atlanta-based Spectrum Brands Inc., maker of Rayovac batteries and Remington shavers. Spectrum reported $4.44 billion in debt and $10.07 billion in assets. According to msnbc.com, Spectrum negotiated with its bondholders to reduce the amount of debt by about a third, or $840 million, and it eliminated $95 million in interest payments for the next two years.

“Naturally, Dallas and Houston are likely to have more prepackaged bankruptcies because they are home to more larger companies than San Antonio,” Terry says. “But we may see more prepacks like Spectrum’s being filed in the U.S. Bankruptcy Court for the Western District of Texas in San Antonio because bankruptcy courts are so backed up all over the country. Why file in Delaware or New York where there’s such a backlog when it’s probably going to be a lot quicker to file in San Antonio?”

Excerpted from the San Antonio Business Journal. To read the full article, click here.