Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
Gold & Silver Prices in

Unwilling to Stump Up

IMG Auteur
Published : January 26th, 2009
513 words - Reading time : 1 - 2 minutes
( 0 vote, 0/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Crisis Watch

 

 

 

 

Some might describe it as paradoxical, Daliesque, or poetic justice when a company whose liabilities far outweigh its assets can't get the financing it needs to declare Chapter 11 bankruptcy.

 

Regardless, it says something about the alleged recovery in credit and other markets that some optimistic analysts claim is on the horizon (as well as the overall state of the economy) when lenders who have top priority in such proceedings are unwilling (or unable) to stump up the cash.

 

In "Liquidation Risk Grows as Finance Dries Up," the Financial Times reports on the latest developments.

 

US companies face a greater risk of liquidation because sources of finance to let them reorganise under the country’s bankruptcy code are drying up in the global financial crisis.

 

In the US, companies on the verge of insolvency can restructure themselves under a Chapter 11 bankruptcy protection process, sometimes taking years.

 

But the credit crunch has severely limited the availability of so-called ‘debtor in possession’ financing that is vital to give them this second chance.

 

With previous big providers of DIP financing, such as GE Capital, shying away from the market, companies may have to rely on their existing lenders, says Standard & Poor’s, the rating agency.

 

It said on Friday there had been no substantial increase in DIP volumes in 2008, in spite of a jump in the number of bankruptcies, highlighting the reluctance of banks and investors to finance companies in bankruptcy.

 

Steven Smith, global head of leveraged finance and restructuring at UBS in New York, said this cycle was likely to see more liquidations than in the last three combined.

 

He said: “The lack of DIP financing available is an issue for the American economy because of the potential job destruction that could result.”

 

Lenders, even those with priority claims, face big losses, if a company cannot reorganise and liquidates. 

 

Senior lenders to retail companies would recover less than half of what they would if the company reorganised under Chapter 11, according to S&P.

 

Debtors also face the highest rates yet for DIP financing. The risk premium a debtor has to pay on the loan has more than doubled since 2001-2002, the height of the last downturn, according to Dealogic.

 

In 2001 the spread over Libor was 429bp versus 900bp now.

 

Most companies are trying to delay Chapter 11 as long as they can, said Mr Smith. Once in Chapter 11 it was not certain they would get financing.

 

Other companies have been contemplating pre-emptive bankruptcies while they still have cash, to improve their chances of an organised restructuring. Analysts speculated this was the case with Nortel Networks, the Canadian telecoms equipment maker which filed for Chapter 11 earlier this month.

 

Companies have also been looking to avoid Chapter 11 by using a debt exchange, where creditors are asked to accept concessions to reorganise debt outside the courts.

 

Michael J. Panzner
Editor,
Financialarmageddon.com

 

Michael J. Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes, published by Kaplan Publishing.

 

 

 

 

 

<< Previous article
Rate : Average :0 (0 vote)
>> Next article
Michael J. Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes, published by Kaplan Publishing.
WebsiteSubscribe to his services
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
Goldcorp(Cu-Le-Zn)G.TO
Foreign Exchange and Fuel Tailwinds Could Help Newmont in 1Q15
CA$ 23.20+0.26%Trend Power :
Corporate news
Kinross Gold(Cu-Le-Ni)K.TO
Foreign Exchange and Fuel Tailwinds Could Help Newmont in 1Q15
CA$ 2.78-0.36%Trend Power :
Corporate news
Newmont(Cu-Le-Ni)NEM
Foreign Exchange and Fuel Tailwinds Could Help Newmont in 1Q15
US$ 25.59+2.44%Trend Power :
Corporate news
Barrick Gold(Cu-Le-Ni)ABX.TO
Foreign Exchange and Fuel Tailwinds Could Help Newmont in 1Q15
CA$ 15.52+1.77%Trend Power :
Corporate news
Coeur d'Alène(Cu-Le-Zn)CDE
Coeur Reports 89% Increase in Silver Reserves and 76% Increase in Gold Reserves at Palmarejo Post-Paramount Acquisition
US$ 5.70+10.25%Trend Power :
Corporate news
Barrick Gold(Cu-Le-Ni)ABX.TO
Barrick Reports First Quarter 2015 Results
CA$ 15.52+1.77%Trend Power :
Corporate news
Silver Wheaton(Cu-Le-Zn)SLW.TO
Silver Wheaton Announces Filing of Preliminary Base Shelf Prospectus
CA$ 24.04+3.13%Trend Power :
Corporate news
Freeport McMoran(Cu-Mo-Au)FCX
Chilean Refined Copper Production Falls to 2-Year Low
US$ 21.82+4.80%Trend Power :
Corporate news
Teck(Ag-Au-Co)TCK
Chilean Refined Copper Production Falls to 2-Year Low
US$ 14.62+2.02%Trend Power :
Corporate news
Barrick Gold(Cu-Le-Ni)ABX.TO
Most active New York Stock Exchange-traded stocks
CA$ 15.52+1.77%Trend Power :
Corporate news
Comments closed