After each update of The 2008 LBO-Backed Bankruptcy List, I get a few requests for the 2007 list for comparison’s sake. Until today, that list didn’t exist, but I’ve spent the morning compiling as comprehensive of a record as possible. That effort resulted in a humbling number: Two. After narrowing down data from Thomson Reuters and Bankruptcy Research Database, I have concluded that only two buyout-backed companies filed for Chapter 11 in 2007.*
Compare that total with the 39 companies to date this year. It seems silly to make a chart for just two companies, but, for consistencies sake, here it is: Lbo-backed-bankruptcies-2007.
Interesting to note, one of the ’07 bankruptcies that was not buyout-backed at the time of filing, might be ripe to file Chapter 22. Tweeter Home Entertainment, which was taken public by Advent International ten years ago, filed for bankruptcy in May of 2007. The high end electronics retailer sold to hedge fund Schultze Asset Management for $38 million the next month. Just last week, rumors of a second go-around in the bankruptcy cycle emerged online. Whether the company goes under or not, it’s a pretty good lesson for firms sniffing around 363 auctions: Companies that failed in a good economy face that much more of a struggle in a recession.
It also makes me wonder how the rest of the Class of ’07 Chapter 11s will fare. For all you vultures, the non-LBO backed bankruptcies include familiar faces like Bally Fitness, Delta Financial, Hancock Fabrics, HomeBanc Corp, Movie Gallery, Netbank, Pope & Talbot, eMerge Interactive, Alliance Bankcorp and Tripath Technology.
Tweeter isn’t the only buyout portfolio alum to make the list. Homebanc Corp., one of several mortgage companies to go bankrupt, was taken public by GTCR Golder Rauner in 2004. This might support the argument that LBOs leave companies weak and withering under debt, but with just two examples, it’s a bad argument to begin with. That argument will surely strengthen once we see a final tally of the Class of 2008. You may remember the S&P report stating that 70% of all companies in default had some history of LBO activity.
*This chart, like the 2008 chart, does not include VC-backed bankruptcies. I do that because there’s no comprehensive way to know if VC interests have exited. Furthermore, I might get lambasted for saying this, but it seems less disastrous if a VC company goes down, since the firms often have diverse, well-populated portfolios with smaller commitments and seem to expect that a few picks will end up failing.