An obscene story

Back in 2001, the company that owned the plant where I work was forced into bankruptcy.

You’re thinking bad management, right? Depends on your definition. Our parent corporation had $120 million of borrowed capital. The lender was a group of eight East Coast banks, led by PNC (formerly Pittsburgh National Bank).

A number of events took place within a short time span which strained the company’s ability to make scheduled payments. We never fell behind on our interest payments; but we stopped paying anything off on the principle. After a few months, the banks pressured us to make up the missed payments. Meanwhile we were petitioning the banks for a little leeway.

Their answer? No dice! Make up all back principle payments now or we’ll foreclose.

You’d think with $120 million at risk that they’d work with us a while, right? I mean, we were paying their interest! They were making money on their loan. But no, certain of their inviolable covenants had not been satisfied, so they “forced us” to declare bankruptcy to get “protection” from our creditors.

We had a “white knight” buyer waiting in the wings. He offered the banks $85 million for their loans, or about 71 cents on the dollar. We were sure they’d take the deal.

We were wrong. They said, “No, we can do better.” They put the company up for sale through Smith Barney, the investment firm. A few months later they had an offer to buy us for $50 million. Hmmm. “We can do better,” they proclaimed again.

A few months later a different firm offered them $35 million.

Bankruptcy protected us from them for about 9 months. During that time we continued to make all interest payments, but nothing more. We were servicing the debt, but delaying paying it down. At that point their lead attorney told us we had been placed on their list of “under-performing loans,” and they were going to close us.

“How?” we asked. We were protected by the bankruptcy laws! They just laughed. They handled all of our financial accounts, including checking accounts that took care of paying our suppliers and our payroll. Without access to those, we were out of business instantly.

We shut down all processes and laid off all employees except a small “custodial” staff to keep the property in good condition for possible sale.

Okay, now guess how much the banks received when they finally sold off the four plants and all inventories and assets at a bankruptcy auction sale.

Remember, they had been offered $85 million just nine months earlier.

Go ahead and take a guess.

Okay, the amount they received was just over nine million dollars.

Because some loan committee had decided to place us on this list of “under-performing loans,” we were turned over to their liquidation group to be sold for any price just to get this bad loan off their books. They turned down $85 million, then $50 million, then $35 million, all to get just $9 million.

Said differently, they just waved away $76 million (85 minus 9) from their bottom line because some attorney in Pittsburgh said, “We can do better.” And nobody at the banks lost his job. The attorney wasn’t fired. Nobody cared.

The “under performing loan” had been dealt with and liquidated, so the board of directors was happy. Managers (at the banks) got their performance bonuses for doing a good job. And the shareholders (the ones whose potential share value was $76 million less than it should have been that year, never knew.

Obscene, right? Told you!

Tomorrow I’ll tell “The Rest Of The Story.”