There are rumors on investment sites of an "inevitable bankruptcy" and something called FILO- First in , Last Out, in terms of the $375 million loan. . What this may mean is that the company that gave BBBY the lifeline would be the first paid if loan is in default, followed by all the rest of the creditors and vendors. The speculation is that some of the earlier creditors and vendors would try to get the FILO loan terms removed by a judge, which may be a free for all in courts. Where would this leave the employees who stayed for liquidation in terms of reimbursement?
3 replies (most recent on top)
Thanks for the answers! Just reckoned those still with BBBY would like to know.
Financing creditors fall into two categories:
- Secured creditors, and
- Unsecured creditors
Secured creditors can take as much of the designated collateral as needed to pay off the loan. If there is extra collateral left over, that is available for unsecured creditors, else, if the secured creditors are still owed some money they then become unsecured creditors for the remainder.
Note that a creditor's status as secured, and how much the collateral is worth, depends precisely on the terms of the financing, and what the lien is. Note also that liens can happen without the debtor necessarily agreeing to it (tax liens and judgments). Tax liens are usually public record.
Bottom line, the facts on each particular financing note are important. Do not rely on idle conjecture on an Internet message board to have any insight here. Very often Internet heroes can and will completely overstate (or understate) the situation with secured creditors. They do not know what they are talking about.
Unsecured creditors try to get the money left over (and this can, again, included secured creditors who are still owed money even after seizing the collateral). Priority among unsecured creditors is as follows. The gory details are in https://www.law.cornell.edu/uscode/text/11/507. Pertinent to a corporate bankruptcy (that doesn't presumably owe child support or alimony):
- Bankruptcy administrative expenses, and the Federal Reserve (if it is an unsecured creditor somehow),
- Some oddball lease or damages claims issues,
- Claims for wages, salaries, commissions, including vacation, severance, and sick pay leave (but only up to $10,000 per individual),
- Claims for contributions to employee benefit plans, but only to the extent of $10,000 multiplied by the number of employees, for each benefit plan, less the claims paid in item 3
- All other claims. This is the broad catch-all category because I don't feel like typing everything up. It runs the gamut and includes tax obligations (to the extent that they weren't fulfilled by a lien, if any), other bills to be paid, etc. The absolute last to be paid are shareholders.
This is not something a judge can just change. A judge has to go through this order of precedence. The good news is unpaid wages are fairly high up in the pecking order -- you get paid before the IRS gets paid, for pete's sakes -- and even any unvested 401(k) match is relatively safe.
Bottom line, unless BBY is well and truly penniless by the time the secured creditors yeet their collateral, or you are owed a lot of pay, you will get your money. It may very well be delayed, but you will get it.
Important to keep in mind is you don't want to ever be in a situation where a company owes you more than $10,000 in pay (well, unless each pay check really is north of $10,000, in which case you need to start saving your cash for a rainy day). Consequently if your pay is in any way delayed, you need to take action to protect yourself on day 1 of the delay.
Ordinarily, when BB&B declares Chapter 11 and gets bankruptcy financing, included in this financing will be money set aside for employee wages and hopefully severance. No bankruptcy judge wants to be known as the judge who denied employees their wages.