The economic recession has taken its toll on yet another high flyer, the publisher of the National Enquirer. Because of rising printing costs and its customers reluctance to purchase the scandal focused newspaper the publisher filed a Chapter 11 in November accompanied by what is known as a pre-packaged plan.
A pre-packaged plan usually is filed in a case where the negotiations between creditors and equity security holders (shareholders) has already taken place. The effect of the approval in bankruptcy court of the Plan is to establish with certainty the position of the creditors and owners of the enterprise.
Here, the secured creditors are expected to be repaid 100% of their claims while unsecured creditors will receive approximately 50% by the issuance of stock in the reorganized company. This was a pretty significant case in which the debt was scheduled at just over $1.2 Billion with assets under $700 Million.
It is likely that the company will emerge from Chapter 11 by the end of 2010. That’s pretty fast in anybody’s book. Again, the fact that there was a pre-packaged plan illustrates that the negotiations had already take place prior to the case being filed.
Chapter 11 bankruptcy is often used by businesses who are experiencing operating shortfalls or have had a significant loss in income. The goal is to maintain the “going concern” value of the business and allow it to restructure its debt and get creditors much more than they would receive in a straight liquidation of its assets.