By Mark Glassman May 19, 2014
A group of entrepreneurs and investors form a company to do something – make a product, offer a service, help a community – but their well-laid plans go horribly wrong, and their investments disappear, almost overnight. A mid-sized company borrows to launch a new product or crack open a new market, but conditions change, and the banks call in their loans. A large and seemingly stable company suddenly reveals hidden losses and its suppliers and customers flee. What business stories like this have in common is drama: People are forced out of work. Dreams wither, and often die – except in the cases where the dream is resurrected, sometimes stronger than before, and yesterday’s loser becomes tomorrow’s champion. If you’re interested in writing stories like these, I’ve got good news for you: There are thousands of them every year.
Corporate bankruptcy may not be the beat you’ve always dreamed about, but if you approach it the right way, it can yield gripping stories and put you on the map. It can allow you to speak truth to power and give victims a voice. It can pull in readers and help affect change.
Bankruptcy is inherently interesting. A company files for bankruptcy protection in the federal court system when it has exhausted its credit and resources and can no longer afford to operate and pay its debts. Last year, more than 33,000 companies filed for bankruptcy, according to the federal judiciary. Although filings are down sharply from their recent peak in 2009, when there were more than 60,000 corporate cases in the wake of the 2007-2009 recession, bankruptcy is not going away any time soon.
The majority of cases are filed under two chapters of the Bankruptcy Code: Chapters 7 and 11. When an unprofitable company’s board throws up its arms with no hope for a comeback, it goes out of business and liquidates its assets by filing under Chapter 7. These liquidations account for most corporate bankruptcies. Recent Chapter 7 filings include the regional air carrier Aloha Airlines, college apparel retailer Steve & Barry’s, and the first iteration of the Arena Football League.
When a company’s board believes the firm can be rehabilitated with some help, it files under Chapter 11. This option, which is favored by large, publicly traded companies, allows the firm to restructure and remain in business with third-party oversight. Some of the most interesting stories tend to come from Chapter 11 bankruptcies because they often affect the most people. The largest Chapter 11 filing to date is Lehman Brothers’ 2008 bankruptcy, which helped incite a global financial crisis and culminated in a the break-up and sale of the investment bank – then the fourth largest in the U.S. – to several other institutions.
When a company announces that it’s filing for bankruptcy, a reporter should try to answer the following questions: What happened? Could it have been avoided? Who is being blamed? Who was really to blame? Who will be most hurt? And who will come out ahead? Here are a few story ideas that can help address those questions and bring out the drama of a corporate bankruptcy.
Any time a large company files for bankruptcy, it’s news, and it demands a straight-forward account of what happened. A same-day or first-day story should describe the scope of the fall, including the size of the company, how much debt it carried when it last reported earnings, how many people the company employs and a look at what’s next.
A smart news story can also offer some context. Use data from the judiciary to put the filing in perspective. How does this bankruptcy rank among others this year or within the company’s industry? Is this is an unusually big year for bankruptcies in the industry?
In many cases, the story of how a company arrived at bankruptcy is more interesting than the filing itself. There are two ways to approach this. The first is a tick-tock, a moment-by-moment narrative account of the events leading up to the decision to file for bankruptcy. One of the most beautifully executed and thoroughly reported of these is James Stewart’s account of the days before Lehman Brothers’ collapse and the rescue of the other major U.S. financial institutions. This style requires unusually good access to key decision makers and a publication willing to wait for thorough reporting. Social media can helpful here, too, because it can offer live color from activist investors, management and employees.
Another approach is to give readers a broader sense of the institutional failures that led to the company’s demise. (In The New York Times, these are the stories with headlines like, “At [BANKRUPT COMPANY], a Culture of [TYPE OF COST-CUTTING, NEGLIGENCE OR MALFEASANCE].”) Look over the firm’s financial statements to learn when the tide turned (e.g. when margins shrank; when the company started posting regular losses). Was there a change in management or strategy that affected profits? How about a jump in capital spending or a pullback in research and development?
There are plenty of characters in any bankruptcy story. For many of the key players – the board of directors, the chief executive and financial officers, the U.S. trustee guiding the company through the process – the decisions they make will wield considerable influence over other people’s lives, not to mention their own. Their values, personal histories and life experiences are suddenly important, or at least interesting to the public.
For example, if an activist investor was behind a board’s decision to file for bankruptcy, readers would want to know whether he had pushed other companies to do the same – and whether the outcomes eventually benefited shareholders. If a new chief executive is appointed to signify a break from the company’s old ways, readers would want to know how their leadership style differs from that of their predecessor, and how it’s the same.
When a company files for bankruptcy, its workforce is almost always affected. In a full liquidation, sweeping layoffs are unavoidable. In a Chapter 11 restructuring, at least some contraction is likely, as is some scaling back of benefits.
For towns that rely on one or two companies to provide jobs for a significant portion of the population, the economic effects of the layoffs that often follow a bankruptcy can be disastrous. A story about how the workforce and the community are coping could make for a powerful read.
In some cases, a single bankruptcy can set a precedent for future labor negotiations. When Delphi filed in 2005, The New York Times ran a story about the negative impact on the bargaining power of autoworkers’ unions.
If a major industry player goes bankrupt, it may have significant repercussions for the broader sector. Reporters should seek to explain to readers which companies stand to benefit most and how.
In the short term, rivals’ stock prices may get a bump in the market. In the longer term, rivals may gain market share by either scooping up the bankrupt firm’s customers or assets, or simply acquiring the whole company at a discount, as JPMorgan Chase did with Washington Mutual during the financial crisis.
Bankruptcy can also trigger management changes across an industry. At the firm itself, high-ranking executives may be fired as shareholders search for a scapegoat. Rivals may also poach talent from a bankrupt firm as its executives worry about their future compensation or look for brighter opportunities.
A bankruptcy that leaves the marketplace less competitive can also have a negative impact on consumers, who may see prices rise.
When a company goes bankrupt, its stakeholders suffer losses. Exactly how much everyone loses is of interest to readers, particularly when pensions or well-known investors are involved.
Secured creditors like banks are addressed first, followed by unsecured creditors, such as bondholders. The least likely investors to be repaid are the stockholders because they assumed the greatest risk. To find out who lost the most, just use a service like Yahoo Finance or the Bloomberg terminal to find the company’s top holders.
Bankruptcies can be difficult for a lot of people, but journalists are not among them (unless it’s a media company that’s gone bankrupt). One filing can lead to a great story, or many great stories, and the reporting is fairly straightforward. There’s always public information available that can provide data for analysis and sources with whom to follow up. There’s usually a lot of blame to go around, and the people involved often want to tell their side of the story. The hardest part may be coping with the guilt that comes with capitalizing off such spectacular failures.
Mark Glassman (MS, 2005), is a Data Visualization Producer at Bloomberg, and a former teaching assistant at the Columbia Journalism School.
This entry was posted on Monday, May 19th, 2014 at 8:00 pm. It is filed under Featured, On the Beat and tagged with bankruptcy beat, business journalism, corporate bankruptcy, skills & tradecraft. You can follow any responses to this entry through the RSS 2.0 feed.
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