Thursday, September 26, 2013

Turnarounds in the News

·         San Bernardino Becomes 3rd California City to Get Bankruptcy Protection (see article here): Facing an unfunded pension liability of $143 million, San Bernardino, a city of 240,000, recently followed in the wake of California cities Vallejo and Stockton by filing for chapter 9 bankruptcy.   

·         Furniture Brands International Files for Chapter 11 (see article here): In another example of the increased pace of restructuring situations, Furniture Brands filed chapter 11 bankruptcy with a plan to sell its assets via a 363 sale to Oaktree Capital Management, which is also providing a $50 million DIP loan.   

·         Fiat rethinks alliance with Chrysler after IPO filing (see article here): Fiat has found negotiating with the UAW trust that holds a 41.5% stake in Chrysler, to be challenging.  Sergio Marchionne, Fiat CEO, has methodically increased his company’s stake in Chrysler since 2009, but with the recent UAW action putting in motion an IPO, and as a result slowing down Fiat’s bid for full ownership of Chrysler, tempers on all sides are flaring.    

·         KKR to TPG Stakes Seen Cut Down in Energy Future Workout (see article here): The current owners of Energy Future Holdings, acquired in a $48 billion leveraged buyout in 2007, have acknowledged that they are out of good options, and are merely selecting from the set of least bad options available.  Plummeting natural gas prices have severely hindered cash flow, making the company’s more than $40 billion in debt unmanageable.  The company’s private equity owners now are struggling to find some way to maintain an economic interest in the company in the face of what will likely be the largest chapter 11 filing of 2013.      

·         Shaken Like a Polaroid Picture (see article here): An interesting article recently drew parallels between the decline of Polaroid and the challenges facing Apple.  Author Christopher Bonanos offers readers a valuable look at the ways in which even the strongest companies can slide into irrelevance if they lose sight of the traits that led to their success. 

 If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Tuesday, September 10, 2013

Turnarounds in the News

·         An Outlook on Turnaround and Restructuring in Asia-Pacific 2013 (see article here): In this market outlook AlixPartners examines the drivers of a forecast increase in distress among companies in the Asia-Pacific region, and identifies some of the challenges those companies will face in executing a successful restructuring.   

·         This year’s multi-billion dollar write-downs in mining (see article here): In the global commodity boom few companies benefited as much as mining companies.  Recent write-downs by these companies suggest that too many allowed temporary macroeconomic trends to influence their investment decisions, and now those same companies are marking down the value of new projects by billions of dollars.    

·         Rotech Announces Confirmation of Plan of Reorganization (see article here): Rotech Healthcare, a provider of home medical equipment and related products and services, recently announced the approval of its plan of reorganization.  The company filed chapter 11 bankruptcy in April 2013, with the stated intention of emerging within 150 days, highlighting the increasing importance of speed in bankruptcy proceedings.     

·         Detroit DIP Loan Breaks New Ground (see article here): The chapter 9 bankruptcy filing of Detroit continues to break new ground.  Recently the troubled city, led by emergency manager Kevin Orr, announced that it would seek $350 million in DIP funding.  This development could potentially clear the path for smoother chapter 9 proceedings for other troubled municipalities. 

 ·        LightSquared Shouldn’t Run Its Own Auction, Lenders Say (see article here): Lenders to bankrupt telecommunications provider LightSquared have objected to the company’s desire to manage its own auction of its wireless spectrum assets.  

 If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Wednesday, August 28, 2013

Turnaround Stories in the News

·         Belt tightening powers Best Buy’s best quarterly profit in two years (see article here): Retailer Best Buy has seen a considerable profit improvement recently on the strength of management’s focus on costs.  While focusing on stabilizing sales and controlling expenses might not be sexy, it has generated impressive returns for shareholders, with a 52-week change in share price of more than 92%.   

·         Cenveo to Purchase National Envelope (see article here): Cenveo, a global provider of print and related resources, has reached an agreement to purchase National Envelope, currently in chapter 11, for $20 million in cash and $5 million in common stock.  With anticipated incremental EBITDA of $30 million, this transaction highlights the returns available to opportunistic strategic acquirers in distressed situations. 

·         Sometimes the best that a company can hope for is death (see article here): British economist John Kay illustrates a key point too often ignored in the turnaround and restructuring arena: that in some cases organizational failure is the best option.  

·         Erickson Acquires $176 Million of Foreclosed CCRC’s Senior Debt (see article here): In what appears to be an aggressive first step in a loan-to-own strategy, Erickson Living has purchased all of the senior debt of retirement community Devonshire at PGA National.  

·         What Detroit can learn from cities that fell (and survived) (see article here): While Detroit does represent the largest chapter 9 bankruptcy filing to date, it is certainly not the first U.S. municipality to face severe challenges.  This article assesses lessons learned from other troubled municipalities that enjoyed a turnaround and looks for lessons applicable to Detroit.  

If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Wednesday, August 21, 2013

Turnarounds in the News

·         Canada lets Quebec rail disaster company operate through Oct. 1 (see article here): A Canadian judge reversed course on a prior ruling that would have ceased the operations of the Canadian subsidiary of Montreal, Maine and Atlantic Railway by late August after the company provided evidence adequate third party insurance.  

·         Before Detroit’s Bankruptcy Proceeds, a Question of Eligibility (see article here): The historic chapter 9 bankruptcy filing of Detroit is being challenged on multiple grounds, setting the stage for a contentious restructuring of the city’s over $18 billion in debt.

·         Spanish Bad Loans Re-Spike To 50-Year High (see article here): The economy of Spain continues to be mired in a depression, underscored by the recent news that bad debt has now reached a 50-year high of 11.61% of outstanding loans.  

·         Middle Market Profitability Signals Higher Default Rate (see article here): A recent analysis of LTM profitability of U.S. and European middle market companies indicates that the U.S. default rate could spike from its current level of 2.8% to 6.0%.

·         Gauging the Benefits of Airline Mergers (see article here): The success or failure of American Airlines parent AMR Corp’s challenge to the recent Department of Justice ruling blocking its merger with US Airways will depend in large part on the approach used to assess the benefits of the proposed merger.  

If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Sunday, August 11, 2013

Turnaround Stories in the News


·         Silicon Valley’s Turnaround Pro (see article here): Steve Hogan has carved out a niche for himself as a turnaround professional focused on the startup world.  With his new company, Tech-Rx, Hogan is bringing a hybrid advisory approach to a segment of the market that has long been accustomed to the extremes of wild success or crushing failure.

·         Harrisburg Sees Path to Restructuring Debts Without Bankruptcy Filing (see article here): William Lynch, the state appointed receiver for the troubled Pennsylvania city of Harrisburg, has expressed confidence that a solution to the municipality’s crippling debt, mostly due to a failed incinerator project, can be negotiated outside of a chapter 9 bankruptcy. 

·         Cengage Learning Files for Chapter 11 Bankruptcy (see article here): Textbook publisher Cengage Learning recently illustrated the point that the failed buyouts of the last decade continue to weigh down the portfolios of private equity firms when it announced a chapter 11 filing in an attempt to restructure the company’s nearly $6 billion in debt.  

·         Turnaround at Yahoo More Evident to Investors than Advertisers (see article here): Investors have benefited from the first year of CEO Marissa Mayer’s tenure at Yahoo, but the company has yet to demonstrate improvements in operations.  For the company’s fifth CEO in four years, long-term success will only come with a rationalization of the company’s product portfolio. 

·         Boston Globe Sale Offers Buyer Considerable Upside (see article here): John Henry, owner of the Boston Red Sox, has purchased the Boston Globe from The New York Times Company in a deal that combines downside protection with upside potential.  

If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Thursday, August 1, 2013

What You May Not Know About a Collection Agency … and Why

Chris Cappuccilli, Brown & Joseph, Ltd.

Did you know that most good collectors at a commercial collection agency rely on commission checks that typically make up to 40% of their annual base pay? Compare that to consumer collectors, which is around 10%. 

When selecting a collection agency, it is imperative that, whomever you choose, you select one that pays at this scale.  The good collectors will always demand a higher commission structure versus a higher base pay because they know they can make more money in the long run, thus, benefiting you, the client.  Collectors are paid bonuses on a monthly basis for fees generated, not gross dollars collected. 

If you were to watch the flow of money that is collected during the course of the month like I do, you would notice that around 30% is usually collected during the last week, as the collectors push the hardest to get a bigger bonus check by month end.  Also, it is important to understand that collectors know the contingency fee that is charged to the client and tend to work the clients with the higher contingency fees harder than the lower ones. 

The biggest challenge with a collection staff is the balancing of the collection desks by collector.  You must have the optimum number of accounts in a desk that will give you the highest recovery for the clients. If a collector has too many accounts, the collectors will “skim.” 

The biggest challenge for operating a collection agency is that the contingency rate has dropped over the years to an average of 12-15% of dollars collected where it used to be 20-25%.  Technology and software has helped push the rates down over the years, as a collector can handle two to three times more accounts today than in 1980, justifying the lower rates we see today.

But, do you ever wonder why your small balance accounts seem to be less collectable than the large balance accounts?

Most commercial collection agencies split accounts into three desk sizes: large, medium and small balance desks.  Your large balance desks are always handled by the most experienced collectors and the medium and small balance desks are handled by less experienced and newly hired collectors. 

Most collection agencies, even with the advances of software, have a hard time making money on small balance accounts because of the lower contingency fees charged, thus, less recovery overall.  On accounts below $1,000.00, the financial point of no return is reached in half the time of a larger balance account.

Have your litigation costs gone up, but your litigation recoveries declined? 

With the contingency fees being so low and the US economy still flat, a lot more collection agencies have pushed files, more than ever, to litigation simply because they cannot afford to hold them open any longer at the rates they are charging their clients.  The problem with litigating is that non-contingent suit fees have increased by the attorneys that work the files because the collectability has declined, so, they are trying to make up for the shortfall somewhere.  Adding to the problem is that the states and counties are out of money, so filing fees and court costs have gone up. 

The greatest mistake made is collection agencies constantly litigate on accounts that simply do not have the ability to pay and the uncollectable judgments just pile up, as well as the additional money you advance to litigate.

So, are you wondering how long a file should be worked before going to litigation?

That is determined different on a case by case basis.  There are few do’s and don’ts to follow if you are considering when to litigate. 

First, only litigate accounts that are in business and have the ability to pay.  I know sometimes this is hard to determine, but a good collection agency with a good asset locating department is always your best bet. 

Time and total number of contacts are the other factors.  An account that has been open for over four months, being called by two different collectors for a total of 10 times between them, should go to litigation.  I have always asked myself, what do you say to a debtor on the 11th call that you did not already say on the first 10 calls? The answer is, not much more.

About the Author

Chris Cappuccilli played a key role in the founding of Brown & Joseph, Ltd. in 1996.  Chris Cappuccilli, having worked in Business Development for several commercial debt recovery agencies, consistently received requests for help from his clients that were outside of the normal company service offerings. Having the solutions but denied the opportunity to respond, Chris Cappuccilli quickly assembled a group of subject matter experts with extensive expertise in finance, credit and collections, quality process control, and IT. Together, the team founded Brown & Joseph, Ltd.

If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Monday, July 29, 2013

Turnaround Stories in the News

·         Wealth Products Threaten China Banks on Ponzi-Scheme Risk (see article here): Financial experts are becoming increasingly worried at the importance of wealth-management products (WMPs) in China’s economy. 

·         Growing out of Business (see article here): As much as the financial strains of growth can damage companies, growth also places considerable strain on the ability of a company to maintain its culture.

·         Summer of the Mega-Flop (see article here): A recent string of big budget disappointments could signal a shift in Hollywood’s business model, which has in recent years been focusing on a smaller number of increasingly expensive films to generate profits. 

·         KKR Group’s TXU Stake Hanging on $1.48 Billion of Bonds (see article here): Private equity firms KKR and TPG are looking into purchasing certain tranches of the debt of their troubled portfolio company TXU as a means to preserve an ownership stake after the heavily indebted company pursues a long-awaited restructuring.

·         The Blip (see article here): A provocative line of research from Robert Gordon of Northwestern University suggests that the circumstances that gave rise to U.S. prosperity were an aberration, and that future economic growth will be considerably below the levels seen in prior decades.   

If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Tuesday, July 23, 2013

Turnaround Stories in the News

·         Pepsi Must Find Compelling Answer to Activist Investor (see article here): Activist investor Nelson Peltz has shaken the management team at multinational beverage and snack food company PepsiCo with his insistence that a radical ($60 billion) restructuring is necessary to unlock shareholder value. 

·         Detroit and the importance of failure (see article here): In the wake of Detroit’s historic chapter 9 bankruptcy filing, and the inevitable rush of all stakeholders to assess their potential losses, Reuters columnist James Saft makes a compelling argument for the value of bankruptcy and the ability of organizations to acknowledge untenable financial situations.

·         Communication is Key in a Turnaround (see article here): Despite the centrality of managing dwindling financial resources and correcting flawed operations, communications holds a central role in any successful turnaround.

·         Fashion Retailer Nicole Farhi Finds New Home (see article here): The struggling boutique fashion retailer, originally founded in 1982 and sold to investment firm Kelso Place Asset Management in 2012, was advised by turnaround firm Zolfo Cooper.

·         The Last Days of Big Law (see article here): Noam Schreiber explores ongoing changes, as well as the wrenching changes still to come, as the legal industry continues to adjust to shifting demand. 

If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Sunday, July 14, 2013

Manufacturing Trends (Video)

Recently Sue Ducket and Robert Myers of Bibby Financial Services shared their view of current and emerging manufacturing trends.

See the clip here.

If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at:

Entrepreneurial Spirit (Video)

Recently Sue Ducket and Robert Myers of Bibby Financial Services shared their experience and insight gleaned from supporting entrepreneurs. 

See the clip here.

If you have a case, article, or other item that you would like to see appear in the TMA/Chicago Midwest blog, please contact David Johnson at: