Monthly Archives: July 2017

When attorneys for bankrupt Wordsworth Academy go before a judge Thursday in the cases first hearing, they will present a highly unusual proposal to fund the human-service agencys operations during the early stages of its bankruptcy: a $1.5 million loan from another nonprofit that leases space from it.

The lender, Play & Learn, an operator of preschools, was once affiliated with Wordsworth and had a member of its board, Gerald Schatz, in common with Wordsworth until Schatz resigned from the Wordsworth board shortly before the bankruptcy filing Friday. Wordsworth operated a residential treatment facility in West Philadelphia where a teenager died last fall in a struggle with staffers.

Lawrence G. McMichael, a Dilworth Paxson bankruptcy attorney representing Wordsworth, acknowledged that the proposed financing arrangement was unusual, but said it was appropriate.

Despite substantial efforts, the debtors have been unable tosecure alternative financing from any source other than Play and Learn in the time framerequired, Wordsworth said in a motion Friday asking U.S. Bankruptcy Judge Ashley M. Chan to approve the loan.

Play and Learn is obviously not a traditional lender, but has mobilized quickly to solvethe debtors immediate liquidity crisis. Without Play and Learn, the viability of debtorsChapter 11 cases would be jeopardized, the filing said.

A traditional financing package is in the works from Siena Lending Group that would supplement the proposed loan from Play & Learn. But the current arrangement illustrates the difficult financial position Wordsworthwas in before it resorted to bankruptcy, coupled with a plan to be acquired by Public Health Management Corp. (PHMC), a Philadelphia nonprofit that provides health and community services.

Its not as bad as it seems, McMichael said Saturday.

Like many businesses, Wordsworth faces a gap between when it has to pay its bills, such as payroll, and when it gets paid. That gap is typically covered by a line of credit, and Wordsworth had a $5 million line of credit with M&T Bank. A month ago, McMichael said, M&T froze the line of credit while it had a zero balance.

That was one of the reasons for this bankruptcy, McMichael said. Other reasons include numerous lawsuits after a decade of allegations and charges of sexual and physical abuse at what was Philadelphias only residential treatment center for troubled youth, as chronicled by the Inquirer and Daily News in April.

Wordsworth, which provides education, behavioral health, and child welfare services to children and youth and is now being managed by PHMC, still owes $4.7 million to M&T on a separate loan.

The board, including Schatz, approved the bankruptcy filing June 12.

Schatz and other representatives of Play & Learn, which was founded in 1981 by Wordsworth educators and psychiatrists, could not be reached for comment Saturday.

Until about a decade ago, Schatz was president of Wordsworth, which was founded in 1952. The website of Wyncote Academy, a private school in Elkins Park, describes Schatz as founder of Wordsworth Academy, Play &Learn Childrens Centers, and Wyncote Academy. The latest available 990 tax return for Play & Learn, for the year ended June 30, 2015, lists Schatz as president.

As part of the proposed loan agreement, PHMC will negotiate with Play & Learn on the possible sale of the property Play & Learn occupies on Wordsworths Fort Washington campus, which a bank appraised at $9.35 million in 2014.

We have aligned interests. Where they are getting the $1.5 million, I dont know, McMichael said.

The 990 shows that Play & Learn had $7.7 million in investments two years ago.

Laura Otten,executive director of the Nonprofit Center at La Salle University, said a nonprofit is permitted to make such a loan as long as it is from unrestricted money and the board approves it, though she wondered how Play & Learn has that level of liquid assets.

It is very unusual, she said.

Published: July 2, 2017 8:45 AM EDT

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Unusual loan in Wordsworth Academy bankruptcy case - Philly.com

If you heard fireworks July 1, it might not have been people overanxious for Independence Day. They might have been celebrating the fact that the county made its final debt service payment to bondholders stemming from the 1994 bankruptcy. This marks an important milestone, and should serve as a reminder of the pitfalls of unaccountable government spending.

The bankruptcy was a painful chapter in the countys history, and recovering from it has presented many challenges, Chairwoman Michelle Steel, Second District Supervisor, said in a statement. Through meeting our financial challenges and fulfilling our bankruptcy debt obligation, the county is well positioned to continue our mission of making Orange County a safe, healthy and fulfilling place to live, work and play.

But while Orange County is unlikely to repeat its risky investment-fueled downfall, the county is not without its financial challenges. Unfunded pension liabilities remain a major cause for concern not just for the county, but across the state. According to the State Controllers Office, the unfunded liability of Californias pension plans surpassed $234 billion in 2015, the most recent year available.

Yet, many still seem to think government debt doesnt matter until it does. Pension-fueled insolvency in the cities of Stockton, Vallejo and, closer to home, in San Bernardino, prove that spending and debt have consequences.

State Sen. John Moorlach, R-Costa Mesa, sounded that warning again in a recent Bond Buyer interview.

There is something brewing in the state, Moorlach told the trade newspaper. If we didnt have Silicon Valley, we would be toast. We have job growth, but not in high-paying jobs. And we have cities scrambling right now trying to figure out how they are going to pay next years pension contribution.

Moorlach sounded the alarm in 1994, too. It proved to be a politically unpopular prognosis that lost him the election for Orange County treasurer-tax collector, and earned him the nickname Chicken Little. But by the next year, the countys municipal bond portfolio was in ruins and Moorlach had been appointed to fill the vacated position he had sought. His license plate still reads: SKY FELL. We didnt believe him then; maybe we should believe him now.

See the article here:

Still learning lessons of 1994 bankruptcy - OCRegister

When it filed for Chapter 11 bankruptcy protection in February 2016, Indianapolis-based Republic Airways Holdings Inc. blamed a national pilot shortage as a major reason.

The regional airline didnt have enough pilots to fly its contracted routes for American Airlines Group Inc., Delta Air Lines Inc. or United Airlines Inc., putting it at odds with the carriers and reducing the revenue it earned from those contracts.

The shortage hasnt let upand observers expect it to continue for the foreseeable future. But Republic, which emerged from bankruptcy as a privately held company on April 30, said its a slimmer, more streamlined organization that is strongly positioned to tackle that challenge and others.

During bankruptcy reorganization, the airline renegotiated its airline contracts and reduced the size of its fleet. Its flying larger planes and boosting its training and facilities.

At the same time, it worked to strengthen its ties to the nations aviation schools.

We dont believe that the solution to pilot supply is a single

solution, said Matt Koscal, Republics chief administrative officer.

The pilot shortage, which is affecting all regional airlines, has several roots.

Typically, pilots begin their careers at a regional carrier, then move up to a major airlineand a larger paycheckafter a few years of experience.

But the major airlines have been on a hiring spree in recent years, driven mostly by a wave of retirements, said Louis Smith, president of Nevada-based pilot advisory firm FAPA.aero. Pilots mandatory retirement age is 65.

The major airlines are decimating the regional airline pilot workforce, Smith told IBJ in an e-mail. The seven largest airlines in the U.S. will retire nearly 40,000 pilots in the next 15 years. That is more than twice the size of the entire regional airline pilot workforce.

As a point of comparison, Republic employs just more than 2,000 pilots.

A recent change in pilot training requirements has worsened the shortage. In 2013, following a 2009 Colgan Air crash in which 50 people died, the Federal Aviation Administration instituted whats popularly called the 1,500 rule.

Before they can become co-pilots for U.S. passenger and cargo airlines, aviators now must earn an Airline Transport Pilot certificate, which requires at least 1,500 hours of flight time. Previously, co-pilotsknown in the industry as first officersneeded only 250 hours of flight time, though airlines could impose their own stricter standards.

The 1,500 rule does include exceptions that allow pilots with an aviation degree or military aviation experience to qualify with fewer than 1,500 hours. But in general, it takes longer to land that first airline job, and young graduates end up working in non-airline aviation jobs for a year or two before they can fly for an airline.

Higher pay

The rule change created a temporary gap in new pilots just as the major airlines were revving up hiring.

For a few years, there was almost no such thing as a new pilot, said Seth Kaplan, managing partner of the aviation industry publication Airline Weekly.

That gap is easing as time passes, Kaplan said, but the stricter training standards will likely also reduce the pool of people who enter the profession.

Republic and other regional airlines have reacted to the pilot shortage by significantly increasing pay.

Republic increased its pay scale a few months before it entered bankruptcy. A union contract that went into effect in October 2015 raised first-year pilot pay from $22.95 per flight hour to $40.40.

Including base pay, bonuses and benefits, Republic says, new hires can now earn $64,400 in their first year. The average fifth-year salary for a Republic pilot who has been promoted from first officer to captain is $94,000.

But before the change, Republic lost many pilots who left for other regional carriers after a year or two in search of higher pay. Now, Koscal said, pilots stay at Republic about six years, and 80 percent of departing pilots move on to jobs at major airlines.

Even with the improved pay, the cloud of bankruptcy cast a pall over Republics hiring efforts. A higher percentage of the airlines job offers were declined during the period, and the bankruptcy was the top reason cited by applicants.

Getting out of bankruptcy was critical to our success in being able to retain and attract employees, Koscal said.

Other tactics

The company is attacking the pilot shortage from other fronts as well.

In late 2015, Republic started establishing pipeline agreements with U.S. aviation schools, interviewing students and giving them conditional offers of employment once their training was complete. Today, Republic has pipeline agreements with 22 aviation schools, including ones at Purdue, Vincennes and Indiana State universities.

Students at pipeline schools who commit to flying for Republic can also apply to have the company subsidize some of their required flight training. That training can cost several thousand dollars, Koscal said.

The company has also reduced its aviator needs by several hundred pilots by reducing the size of its fleet, he said. At the end of 2015, Republic had 242 planes. Today, the fleet stands at 170, which will grow to 188 by years end as Republic takes delivery of 18 new Embraer aircraft.

Were appropriately staffed on the pilot side for that fleet, Koscal said.

Republic streamlined its operations in a few other ways.

Previously, the airline flew a mix of 50- and 75-seat aircraft. As part of its renegotiated airline contracts, Republic shed its 50-seat planes, moving to a single fleet of Embraer E170 and E175 planes configured with 69 to 76 seats.

Republic also moved all its operations under a single operating certificate. Until the end of last year, Republic flew under two subsidiaries, each of which operated as a different airline. Republic Airline Inc. flew for American and United while Shuttle America Corp. flew for Delta and United. (A third subsidiary, Chautauqua Airlines, which flew for Delta, was consolidated into Shuttle America in January 2015.)

Now, all of Republics flights operate under the Republic Airline name and operating certificate.

Kaplan said those changes should be good for Republic.

When you have multiple operating certificates, it might look like one company from a financial perspective, but you are running differing airlines from an operations perspective, Kaplan said.

Because of federal regulations, he said, operating under multiple certificates is costlier. You do need to have certain people at each carrier who are somewhat redundant to each other.

Moving to a single-size fleet is also a smart move, Kaplan said. The 50-seat planes are not as fuel-efficient as larger aircraft, and regional airlines are abandoning them.

Their fleet now is a better match for where the industry is heading, he said. The broad trend in the airline industry is toward larger jets.

The larger jets might also be more appealing to recruits, Smith said. The 50-seat aircraft are seen to some prospective pilots as an indication that that airlines days are numbered.

Restructuring

Republic has also made some big corporate structural changes.

Pre-bankruptcy, Republic was a public company whose shares traded on the Nasdaq exchange. The company canceled those shares, which had dropped to 3 cents apiece on their last day of trading, April 28.

The reorganized company is owned by its former creditors, who were issued new common stock in exchange for their claims.

Between them, American, Delta, Embraer S.A. and United own about 75 percent of the company, with hedge funds and individual claimants owning the remainder, Koscal said. Exact ownership percentages are still in flux because claims from the bankruptcy are still being settled.

Right now, Republic is focusing on some projects it had to delay during bankruptcy, including technology and training upgrades. The airlines operating center, where staffers handle flight scheduling and dispatch, just got an upgrade with new workspaces and improved lighting. The company would also like to renovate the rest of its headquarters space, in an office park just south of the Pyramids, near West 86th Street and Michigan Road.

Republic also intends to amp up its community presence, Koscal said, with new initiatives to be announced in coming months.

Down the road, he said, the company wants to once again be publicly traded. But that wont happen for a while, he added, because Republic needs a period of inward focus to attend to more immediate goals.

To go public today would be a distraction from those efforts.

See more here:

Streamlined Republic Airways revamping after bankruptcy - Indianapolis Business Journal

John Moorlach ran against Citron in 1994, warning of the coming doom. He lost, but was appointed Treasurer-Tax Collector after his dire predictions came true. He went on to become a county supervisor and is now a state senator.

There was the homeless man in a miniskirt and fishnet stockings who stuffed oranges in his brassiere and wielded a plunger a reminder that Orange County was going down the drain.

There was the eccentric forensic accountant who pushed recalls against officials who had already agreed to leave office, hordes of enraged anti-tax activists who shouted down county supervisors, Killer Bees cities like Buena Park, Santa Barbara, Claremont and Montebello who refused to toe the line.

Then there was Robert Bob Citron himself, self-proclaimed master of the ship at the helm and former Orange County treasurer, who had a strong affinity for Navajo jewelry, a collection of 300 ties that he rarely wore, authored 14-page odes to Chrysler automobiles, and consulted psychics and a $4.50 star chart as he managed a highly-leveraged investment pool with billions of dollars belonging to schools, cities and the county itself.

Citron bet wrong on interest rates. There was a run on the bank. His investment pool lost $1.64 billion. And county officials fled into federal bankruptcy court.

There have been other spectacular municipal bankruptcies, but none can claim the color of Orange Countys debacle, which was the largest ever when it was declared in 1994. That one of Americas wealthiest counties could go bust shocked the nation, and officials vowed to repay the public agencies that had lost money seeking Citrons beefy returns. The county issued $1 billion in bonds to raise the cash to make that happen, and onSaturday, July 1 22 years and $1.5 billion later Orange Countys final payment on that bankruptcy bond debt was delivered to bondholders.

Repayments averaged $68 million a year money that could have funded street improvements, libraries, health care and myriad other public services. Its impact is a ghostly one, measured in shadows of what might have been.

On the up side, a great many lessons were learned that have benefited public agencies nationwide. Public accounting is far more transparent. Leverage taking billions of public dollars, persuading elected officials to borrow against it, and then persuading Wall Street to lend money on the loaned money, thus generating enormous earnings to fund government operations is no longer allowed. Many exotic investments are verboten for public treasuries. And public treasurers must mark to market publicly disclose what their investments are worth now, as opposed to what theyll be worth months or years down the road when they mature.

If Citron had been required to do any of those things, Orange Countys story may have ended much differently.

In another only-in-Orange County twist, there were criminal charges attendant to the bankruptcy, but not because anyone was lining his own pockets. Citron was actually lining the countys pockets, trying to provide more and more money for public services.

Shortly before implosion, Citron had managed to leverage $7.6 billion in public funds into a $20.6 billion investment pool. Earnings had grown so astronomically high that his office was skimming money off the top and reporting lower-than-actual returns to cities, schools and special districts so as not to alarm them and trigger a run on the bank.

The skimmed money $89 million went into county coffers, and false accounting was the source of the criminal charges to which Citron ultimately pleaded guilty.

Citron died in 2013, long maintaining that the county had other options and never should have declared bankruptcy to begin with.

The sagas impact on the day final bond payments are made prompted many to reflect.

To me, the bankruptcy showed how disunited we are as a county, said Fred Smoller, political science professor at Chapman University. Citron did wrong, but O.C. voters wanted services they didnt want to pay for, so he gambled with the funds in the investment pool. When he got outrageously high returns he was hailed by the supervisors and others as a genius. But when things went South, he was called an incompetent fool.

Citron bet that interest rates would fall; the Fed ratcheted them up. Some savvy cities and water districts saw the disaster coming and quietly began withdrawing funds.

Unlike the bank run scene in Its a Wonderful Life, when Jimmy Stewart asks customers to put the community ahead of themselves so his civic-minded Savings and Loan could hang on, fund investors put self-interest over the county, Smoller said. Had we all hung in, ironically, the Orange County Investment Pool would have eventually recouped its loses when the Fed began lowering interest rates.

If voters had approved Measure R a half-cent sales tax to pay off bankruptcy debt that was soundly rejected hundreds of millions in interest and fees would have been saved, Smoller said.

William Popejoy, the Newport Beach investment banker who volunteered to get the countys financial house back in order immediately after the debacle and supported the sales tax hike, tried to tell everyone that.

We said, youll pay one way or the other, Popejoy said. The money had to be repaid.

Popejoy led the crippled county as it struggled to make ends meet in those early, chaotic days, when public meetings were full of rancor and blame and dragged on for what seemed like days. He clashed with county supervisors who resented his unvarnished assessments of their abilities and motives, and was ousted after five months. But he balanced a decimated budget and set the ship back on course.

People still come up to me and say thanks, Popejoy said. There were a whole bunch of volunteers who put in very long hours, and I was impressed by the quality of the county employees. Top notch people. I dont have any regrets. Its one of the things Im most proud of in my life.

John Moorlach was an upstart CPA running against Citron in 1994, warning of the coming doom. He was scolded by officials for hurting investors confidence and dismissively dubbed Chicken Little. When his predictions came to pass, he was appointed Treasurer Tax Collector. His license plate says, SKY FELL.

The bankruptcy dramatically changed my life, said Moorlach, who went on to become a county supervisor and is now a state senator. I sort of feel like I lived in a movie. I was an officer of the county when those recovery bonds were issued, and I wondered if Id live long enough to see them paid off. It was a great turn-around opportunity. A lot has changed since then, and the county is better for it. Its been nearly 23 years, and no one has been able to pull a stunt like this again. Its a good day.

Others feel justice wasnt done.

Just like the Wall Street meltdown starting in 2008, virtually no one (save house arrest for Citron) was held politically or legally responsible for what happened with the peoples money during the O.C. bankruptcy, said Mark Petracca, political science professor at UC Irvine. Its pretty darn amazing and there is a very troubling lesson here for any public officials who wish to play fast and loose on the taxpayers dime.

While the bonds are finally paid off, theres still another $19.7 million that must be paid before all bankruptcy-related bills disappear. The Killer Bees or class b-13 claimants refused to sign on to the payback plan agreed to by everyone else. These 11 agencies from Atascadero, Buena Park, Claremont, Milpitas, Montebello, Mountain View and Santa Barbara sued separately andgot their own repayment deal. Theyll get their final payment late next year.

And then what?

Despite the checks and balances now, and a commitment to strategic planning, there is always the chance that institutional memory will fade as time goes by and as leadership changes, said William Steiner, who was appointed to the Board of Supervisors the year before the fall. The county has essentially fared well over the years despite the bankruptcy. Still, millions of dollars have been diverted from other important county departments and priorities.

Steiner expects parks and recreation programs to get a significant bump in revenue now that the bonds are paid off.

Todd Spitzer was elected to the Board of Supervisors in 1996, as the county was adjusting to the new normal. He went on to serve in the state Assembly, then was re-elected supervisor in 2012.

The entire time the focus has been one of incredible belt-tightening and difficulty because of the huge whopping amount of dollars that were being paid to pay off the bankruptcy, Spitzer said. My biggest fear is that, as the bankruptcy gets more and more in the rear view mirror, supervisors are going to have lost perspective of what it means to operate under the guise of a very, very, very difficult financial situation.

To UCIs Petracca, it ends not with a bang, but a whimper. He said few people even those whose lives weredramatically impacted by cutbacks in socialservices spending will recall anything about the bankruptcy.

As it is said towards the end of The Untouchables, when Eliot Ness leans over Al Capone, Here endeth the lesson,' Petracca said.

Updated 10:45 p.m. with Spitzer comment

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We're out! Orange County pays final bankruptcy bill on July 1. The ride's been wild - OCRegister