On September 21, 2010, Thompson Publishing Holding Co, Inc ("Thompson") and various related entities, filed petitions for bankruptcy in the United States Bankruptcy for the District of Delaware. (View a copy of Thompson's Petition for Bankruptcy here.) This post will look briefly at Thompson's business, why it filed for bankruptcy and what it hopes to achieve while in bankruptcy. Much of the information provided in this post comes from Thompson's Declaration in Support of Chapter 11 Petitions (the "Declaration"), a copy of which is available for review here.
Thompson provides various forms of publications and information on a subscriber basis to professionals in the health care, financial services, human resources, legal and environmental industries (among others). The company offers approximately 300 products and services that are delivered to customers in various formats, including newsletters, books, web subscriptions and email alerts. Thompson's customer base comprises over 70,000 subscribers that include industries such as financial institutions, law firms, hospitals and accounting firms. The vast majority of the company's revenues (74%) derive from subscription fees for Thompson's services. Declaration at *3.
Thompson offers its publications and services through several divisions, including AHC Media LLC, Sheshunoff Information Services and The Performance Institute, Inc.. Although these entities operate out of different headquarters throughout the U.S., Thompson concentrates its "back office" operations such that all billing, distribution and warehousing for its divisions are performed in centralized locations. Id. at *4.
Events Leading to Bankruptcy
It is no secret that the publishing industry as a whole has suffered during the last few years. Thompson cites the "global economic downturn" as one of the factors leading to its drop in revenue and profitability. Macroeconomics aside, the company's profitability has also suffered due to what it views as a "lack of new regulations" that would provide Thompson with subjects to write about, the growth of free on-line material and a drop in demand for Thompson's conference business. Id. at *8.
The Proposed Sale of Assets
In late 2009, the company defaulted on certain loan covenants. In February of this year, one of Thompson's lenders issued an acceleration notice on its loans. Id. at *9-10. By June, Thompson retained an investment banker to start the process under which Thompson would sell its businesses. Through the sale process, 152 potential buyers were contacted resulting in five bids to purchase Thompson's assets. Viewing the offers as below fair value, Thompson's lender decided to submit a "credit bid" for the business. Soon after, Thompson filed for bankruptcy in order to conduct a sale of assets under section 363 of the Bankruptcy Code. Id. at *11-12.
Section 363(b)(1) of the Bankruptcy Code authorizes the sale of a debtor's assets "other than in the ordinary course of business." Debtors commonly file for bankruptcy protection hoping to consummate a 363 sale of assets. Section 363 sales are attractive to debtors for many reasons, one being that the sale is "free and clear" of any interest in the subject property, provided certain conditions are met. See 11 U.S.C. Sec. 363(f). However, creditors are afforded various protections under the Bankruptcy Code. For example, courts have found that successor liability claims against an asset purchaser and debtor survive chapter 11 where the claimants did not receive proper notice. Western Auto Supply Co. v. Savage Arms, Inc. (In re Savage Indus.), 43 F.3d 714 (1st Cir. 1994).
Soon after filing for bankruptcy, Thompson filed a motion with the Bankruptcy Court seeking approval of bid procedures and related relief so that the company may proceed with the sale of assets. A copy of the motion is available here. As reflected in the motion, Thompson seeks approval of procedures that will govern the bidding and sale of its assets. The motion outlines what Thompson views as the highest and best offer, yet it proposes procedures that would allow for higher bids to come in through an auction.