Neither management nor the creditors expressed much enthusiasm for the deal

Neither management nor the creditors expressed much

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on the dollar. Neither management nor the creditors expressed much enthusiasm for the deal. There were rumors that the Acadia/Bass plan did not include Revco s management team. 24 And Schulte indicated that noteholders were disappointed both with the 22. Comment from Bankruptcies, Workouts and Turnarounds: A Roundtable Discussion, Journal of Applied Corporate Finance , this issue. 23. See Frederick, James, The future for Revco hinges on creditors, Drugstore News , August 28. 1989; Vaczek, David, Revco s bondholders battle for control, Drugstore News , September 25, 1989; and Frederick, James, Revco reorganization battle heats up: Court rules bondholders can query chain s board, Drugstore News , October 23, 1989. 24. Acadia owns Reliable Drugs whose CEO, Roger Grass, formerly an executive of Rite Aid, has years of industry experience. Observers speculated that he would run Revco. Stating that too much leverage was the fundamental cause of Revco s problems does not offer much insight into what went wrong. Management disarray, a weak and inexperienced LBO sponsor, a fee structure almost guaranteed to produce overpayment, and a disastrous midstream shift in strategy all conspired with the use of debt financing to put Revco into Chapter 11.
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90 JOURNAL OF APPLIED CORPORATE FINANCE price and the minority equity stake they would receive, although he felt the offer should be recog- nized. In the face of such resistance, this plan did not progress farther. 25 On June 12, 1990, Revco s bankruptcy took a long and expensive detour when the court ap- pointed an examiner, law professor Barry Zaretsky, to assess the validity of fraudulent conveyance claims against Revco s pre-LBO shareholders and advisors. Zaretsky determined that there were grounds for these claims, and the resolution of this issue is progressing slowly. 26 As Schulte commented, We wound up in the Revco case with an examiner even though no party of interest wanted it, and the examiner added a year to the case. 27 From Revco s filing date, July 28, 1988, until October 31, 1990, management was granted the exclusive right to file a reorganization plan. Finally, the court refused to grant management an extension. Creditors petitioned the court for the right to propose their own plan, but still progress is slow. As Schulte remarked, We ended exclusivity in the Revco case last November. And here it is April, and the world doesn t feel any better to me. We are the creditors and we have a plan on the table, but we re still in the swamp. 28 WHAT REALLY WENT WRONG AT REVCO? As the analysis above suggests, stating that too much leverage was the fundamental cause of Revco s problems does not offer much insight into what went wrong. Management disarray, a weak and inexpe- rienced LBO sponsor, a fee structure almost guaran- teed to produce overpayment, and a disastrous midstream shift in strategy all conspired with the use of debt financing to put Revco into Chapter 11.
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