ORANGE COUNTY IN BANKRUPTCY : Bankruptcy Survivors Warn of Trials to Come : Administration: County leaders urged to be straightforward with vendors, lenders, public.
Executives who have survived carefully planned, voluntary corporate bankruptcies warn Orange County administrators that they are in for a rough ride as they enter the unfamiliar waters of municipal bankruptcy.
Even as county leaders untangle the intricate web of esoteric investments that led to Bankruptcy Court, they’ll face the tough task of calming vendors and suppliers fearful of being burned by the county.
On Wednesday, for example, the county was actively bidding for everything from foam mattresses and 40-gallon kettles to processed pork and fire engines. But as events unfold in Bankruptcy Court, county administrators will probably be besieged by vendors demanding assurances that they will indeed be paid for goods and services.
“It’s going to be devastating for the county,” predicted Mike Casey, chief financial officer at Irvine-based Family Restaurants Inc., which earlier this year left Chapter 11 bankruptcy proceedings after successfully restructuring millions of dollars in debt left over from a 1980s leveraged buyout. “It will make it difficult for the county to do business.
“Not one vendor got burned during our reorganization. Not one was delayed a penny on payments. But even in our case, it was still very disruptive to our business. There were lots of questions to answer, and we had people who wanted us to go COD or put cash deposits down.”
Casey and other business executives advised the county to be as straightforward as possible with their vendors, lenders and the public.
“They need to be open and to communicate,” said Paul Hitzelberger, vice president of Del Taco Inc. in Orange, which also used Bankruptcy Court to restructure millions in leveraged buyout debt.
Del Taco emphasized that its restaurants were profitable and that the company intended to expand operations after exiting bankruptcy. “I was talking constantly with vendors,” Hitzelberger said. “The phone was growing out of my ear. We communicated as best as we could up front.”
A Los Angeles-based credit association that represents 2,600 Southern California companies is already advising its members to treat Orange County as if it were a large corporate bankruptcy.
Because of the uncertain nature of the still-evolving Chapter 9 proceeding, “there may be no impact to the tradespeople directly, or they may have to wait for nine or 10 years and get paid out through court,” said Geoff Berman, an executive with the Credit Managers Assn. of California, which helps craft out-of-court settlements in credit disputes. “I don’t think that it’s going to be business as usual in Orange County for a number of years.”
