Capital Commerce: Chapter 11 boomlet?
The new bankruptcy law passed by Congress in April has already produced a surge in personal bankruptcy filings, as consumers try to file before the new rules, which will make it harder to write off debts and start over, go into effect October 17. But a number of corporations may rush to get in ahead of the deadline, too.
"Over the course of a bankruptcy, managements have substantially more control under the old law than under the new law," says Mark Oline of Fitch Ratings, a debt-rating agency. "That provides an incentive to file prior to the new law taking effect."
Under the new law, the "exclusivity period" during which company executives are allowed to try turning the company around on their own, without interference from courts or debtors, will be limited to 18 months. Now it is essentially unlimited, allowing extra breathing room for turnaround efforts at companies like United Airlines, which has been operating under Chapter 11 for almost three years. The new law will also impose limits on pay for managers and make it easier for debtors to stake a claim to company assets.
One 11th-hour filer could be Delphi Corp., the big automotive parts supplier to General Motors and other automakers. Delphi, which lost more than $700 million in the first half of this year, has been threatening to declare bankruptcy to accelerate a major restructuring. By sometime next year the company may have no other choice, so filing by the October 17 deadline could actually buy CEO Steve Miller some extra time.
Delta Air Lines, which announced last week that it will slash 1,000 jobs and sell 11 jets to help forestall bankruptcy, is another company that could sneak in before the deadline if bankruptcy seems inevitable–which Oline and other analysts think is. Then there's Northwest Airlines, which is in better shape than Delta but might still decide to head for Chapter 11 now rather than later.
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