Prepackaged bankruptcies tripled in past year

NEW YORK Mon Nov 9, 2009 6:22pm EST

NEW YORK (Reuters) - The number of so-called "prepackaged" bankruptcy filings has tripled this year, as troubled companies increasingly try to work out issues with creditors before bankruptcy, a study showed on Monday.

The number of prepackaged bankruptcies has risen to 30 so far in 2009, compared with just 10 in the same period in 2008, according to an analysis from BankruptcyData.com.

"The days of long, protracted 'traditional' chapter 11 filings seemed to have gone the way of more out-of-court or pre-negotiated filings, Jeffery Stegenga, a managing director at turnaround advisory firm Alvarez & Marsal said in a statement. "The costs under Chapter 11 protection are simply too great and, in many cases, the overall process is too disruptive."

In a prepackaged bankruptcy, companies and their creditors agree on a reorganization plan prior to the bankruptcy filing and creditors have even voted on the plan. In a pre-negotiated bankruptcy creditors are able to agree on some aspects of a plan, but it is not as formal as a "prepack." The multi-year traditional bankruptcy is now often referred to as a "free fall."

Led by companies such as CIT Group Inc, Charter Communications Inc, Lear Corp and Six Flags Inc, the 30 prepackaged bankruptcies in 2009 represent some $124 billion in assets, BankruptcyData.com said.

The 30 prepackaged bankruptcies represent about 18 percent of the 164 companies with public equity or debt that have filed for Chapter 11 bankruptcy so far in 2009, the research firm said.

Companies often gravitate toward prepackaged bankruptcies because they feel like there is more certainty in the outcome, less interruption to their business and that they will be able to move swiftly through court, exiting bankruptcy protection in 30 to 90 days from the date of filing.

Auto parts maker Lear said on Monday it had emerged from bankruptcy after seeking bankruptcy protection just a few months ago on July 7, saying a majority of its creditors supported a prepackaged bankruptcy plan to cut its debt.

CIT, with more than $80 billion in assets, filed the largest prepackaged bankruptcy filing in history, according to BankruptcyData.com. It is scheduled to ask the bankruptcy court to approve its reorganization plan in December, just about a month after it's bankruptcy filing.

(Reporting by Emily Chasan; editing by Andre Grenon)