January 2010 Archives

With the idea that consumer habits are changing, coupled with the fact that the current economic conditions have reduced advertising revenue, the holding company for a major print-media organization declared that it plans to file for Chapter 11 bankruptcy.

Affiliated Media Group, the holding company of Media News Group, announced in a press release dated January 15 that the company planned to restructure.  In their press release, Affiliated Media announced that they had obtained approval of their lenders to a financial structuring of the company.

They stated in their press release that the structuring would reduce sharply their debt, boost their cash flow and allow for greater financial flexibility. Although Affiliated Media operates several newspapers throughout the state of California, it focuses largely on the Los Angeles and San Francisco areas, with no prominent publications in the greater San Diego area.    

It's unfortunate news for Greek-food connoisseurs in San Diego but Daphne's Greek Cafe might be headed for insolvency.  The cafe filed for Chapter 11bankruptcy earlier this month.  Despite the bankruptcy petition, Daphne's will continue to operate its 16 San Diego area locations. 

For over a year, Daphne's parent company, Fili Enterprises, owned by former pro-soccer player George Katakalidis, has been working unsuccessfully on debt negotiation with the prospect of restructuring some of their obligations. Due to a specific term in the loan contract, however, Daphne's was in violation of their loan rules and thus, was found by the lender to be in breach of the terms. 

Although this might be an aggressive move by Daphne's to negotiate their debt, it may be the smartest move in these desolate economic times, especially since Daphne's petition to the U.S. Bankruptcy Court in San Diego estimates the company's creditors between 1,000 and 5,000. 

Although San Diego-area default notices dropped last month, foreclosures jumped in the San Diego region, giving mixed signals to struggling homeowners. 

Translation: Foreclosures happen at the end of the game, usually several months after default notices have been issued. The banks' first step is to send default notices to homeowners.  

The fact that default notices are slowing down could indicate that lenders may be more open to debt negotiation. Or, it could simply mean that the housing market is improving. More foreclosures can lead to greater activity in the housing market, where bargain-seekers scoop up lower-priced homes. 

It certainly appears that way. The number of homes listed for sale in San Diego is down sharply, according to a survey conducted by John Burns Real Estate Consulting. The current San Diego housing supply would last four months or less, according to the survey. A six-month supply is considered equilibrium between the buyers and sellers.

It looks like San Diego is not the only city in America contemplating bankruptcy. The Pennsylvania city of Harrisburg may be next on the list.

On Monday, Harrisburg Mayor Linda Thompson, told reporters at a City Hall news conference that the city has a budgetary gap of $3.8 million, which is expected to grow to $164 million in the next five years. The city of Harrisburg currently owes $68.7 million in guaranteed debt-service payments this year, according to a report by the city's consulting firm, Management Partners. The management firm has implemented an emergency financial plan to nurse the city back to financial health, but such hopes may be somewhat too optimistic, given the city's massive debt.  

Although not mentioned in the press conference, the issues report mentions several defecit-reducing strategies the city could implement, including increasing taxes, increasing water rates, doubling sanitation fees, selling assets and increasing parking fines. 

Changes in consumer needs can often propell a business into bankruptcy, whether a product of the sour economy or due to shifting ideologies.

Air America, the liberal talk-radio station that first introduced us to Rachel Maddow, announced earlier this month that it plans to file for Chapter 7 bankruptcy. 

Although many business bankruptcy cases involve reorganization under Chapter 11 of the Bankruptcy Code, Chapter 7 is a last resort in bankruptcy and is usually referred to as a "liquidation" bankruptcy. 

Is the city of San Diego heading towards insolvency? Or is it simply headed for a reorganization of its finances? San Diego City Attorney Jan Goldsmith certainly doesn't think bankruptcy is in the cards.  With San Diego's growing pension obligations, however, the city may be running out of possible solutions.

Although a Chapter 13 bankruptcy would only serve to re-organize a debtor's obligations, a Chapter 9 is generally the bankruptcy of choice for municipalities. In fact, in 1994, Orange County declared Chapter 9 bankruptcy after making several faulty financial decisions.   

Of course, not all debt can be wiped out. There remain certain categories of debt which are nondischargable in bankruptcy. Unfortunately for the City of San Diego, one of those categories is debts owed to certain tax-advantaged retirement plans. 

Translation: The vested pension benefits that the City of San Diego currently owes its employees might not be eliminated simply through filing for bankruptcy.    

And those benefits are essentially a major factor in San Diego's insolvency problems. 

And to make matters worse, bankruptcy could cost the city of San Diego $100 million to $300 million, without much of a return on that investment.