Bankruptcy can happen to anyone, or any company, it seems. Oreck Vacuum the latest well known name to file for bankruptcy protection.
I am trying to remember the tag line in the ads, but I remember the former owner, David Oreck, making some kind of guarantee.
The 50 year old company’s Chapter 11 filing blames, competition! Pretty much everyone has that, unless you are a utility or insurance company or some other special interest industry that owns enough of the political class.
What is the first thing many companies do upon filing bankruptcy? Why, borrow more money, of course!
In Chapter 11 bankruptcy cases, it is called D.I.P. financing, for debtor-in-possession. That means the debtor is still running the company, as opposed to some kind of trustee.
Oreck is borrowing $11 million dollars, right off the bat.
Who would lend to a newly bankrupt company?
There is an entire industry of DIP financing, companies which specialize in lending to these entities. The do it with court orders protecting their position, usually giving them first rights to collateral, including future earnings of the company in Chapter 11 bankruptcy.
Which don’t look so hot in this case, with the company’s own forecast calling for $3.2 million in losses over just the first three months.
Although, it may convert to Chapter 7 before that.
The company said in filings that it could reach an agreement to sell “substantially all” of its assets in the next several days, but that the deal was not a certainty. “If a deal is not reached,” a filing says, “it is possible that a liquidation and wind down of the Debtors may ensue.” (from USA Today article linked to above)
Now, when you see that a sale may be worked out in a matter of days, you can be sure there was pre-bankruptcy planning. And negotiation with potential buyers.
It is actually easier, in some ways, to buy assets, or even a company, out of bankruptcy, because you get a court order spelling everything out. You can buy stuff free and clear of liens, and the creditors can fight over the proceeds later, while the buyers are running the new business.