Go For Broke in Bankruptcy Coverage

My first day on the tech and telecom beat in southeastern Virginia was the second day of a bankruptcy filing by a once high-flying local telecom player.

My first story was to examine the company's journey from crest to collapse -- at a time when Chapter 7 (total liquidation) read no differently from Chapter 11 (reorganization of a company's finances so they can keep doors open) in my book.

But I quickly learned one major point. Bankruptcy cases may signal a company's shortage of cash or customers, but there's one thing never lacking with these stories -- sources.

The key is knowing who to approach and what to ask.

Make the first stop at creditor committees. Companies in bankruptcy must release their names -- nothing short of a birthday gift for reporters covering the case. Few sources talk more than those owed thousands of dollars.

"They can, a lot of times, offer perspective into what went wrong in the company," says Chris Roush, an assistant business journalism professor at the University of North Carolina at Chapel Hill. "They're there in the trenches and know what went wrong."

Hunt down attorneys who represent these creditors. They can be just as chatty as their clients. In my case, the lawyer was my best source, pointing out questionable sales the bankrupt company tried to slip by in the footnotes to their filings.

Keep in mind the chain of command. Secured creditors get some collateral for debts they dole out. Unsecured creditors don't. The former stands first in line, arms outstretched, when bankrupt companies sell assets and pass out profits. The latter often returns home empty-handed. That often offers more reason to talk.

Shareholders bring up the rear. They get the least and often say the most about the company. The upshot is usually stories on blindsided widows or misled seniors who lost their life savings. Unfortunately, to some point, such are the side effects of staking dollars on company stocks.

"People don't understand that," says Jeff Morris, the Robert M. Zinman scholar in residence at the American Bankruptcy Institute, a nonprofit group of bankruptcy professionals based in Alexandria, Va. "It's the risk coming home to roost."

He suggests stories on shareholders instead focus on lessons from the loss. How can average investors better do their homework on companies?

Beyond the collectors, search for internal company sources. Many times, the bankruptcy court will appoint a trustee to oversee the company's spending. Or the company will usher in a turnaround expert to lift the company back to solid ground.

"That management doesn't have the stigma of bankruptcy on their back," Roush says. "In my experience, they're very willing to talk."

Finally, there's the "Ex-factor," as Morris calls it. Ex-partners. Ex-spouses. Ex-employees. Ex-board members. "People who were on the inside," he says. "Take it with a grain of salt, but it's a heck of a place to find information."

The best, though, may come not from people, but from paperwork they file with the bankruptcy court. These filings reveal company balances and bottom lines, customer counts, attorney memos, reorganization plans and dates of hearings that let reporters glimpse the drama behind the bureaucracy.

Read each and every filing, no matter how mind-numbing. You'll be more informed. Attend each and every hearing, no matter how trivial. You'll be more trusted. Both should result in more sources.

Plus, hearings are a way to snag company executives who don't return calls, as was the case with my bankrupt company. The embattled CEO had nowhere to escape whenever the judge called for a break.

Peruse one filing, in particular, says Morris. It's called the fee application, and can run anywhere from 10 to hundreds of pages long. There, attorneys detail how many hours they've spent on which tasks, what expenses they've incurred and how much they're paid. Perhaps, some of those hours have been spent on preparing a yet-to-be-filed lawsuit. Suddenly, you've got a breaking bankruptcy story.

But bankruptcy reporting shouldn't start at the docket, or even the initial announcement. Most companies, Roush says, aren't like Winn Dixie Stores Inc., which used a press release as a bullhorn to announce its Chapter 11 filing last week.

Instead, reporters should make regular calls to bankruptcy court clerks and regular stops at the courthouse on the way home. It's a well-known fact companies have unanimously voted the day's end a favorite time to drop bad news.

"You never know when a company, particularly a private company, is going to file," Roush says. "I've even heard of companies dropping off their initial filing at a judge's house at 10 o'clock at night."

Look at Secretary of State incorporation records and county register of deeds to ensure one company isn't filing for bankruptcy under a second operating name. Check your area's newest executives for past personal bankruptcies. And keep an eye on Circuit Court lawsuits against your company for late bills.

"If there were one or two of those, I wouldn't worry so much," Roush says. "But if there is a dozen in the last month, that may mean the company is having some cash problems."

And that means the hunt for more sources is on.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism