Getty Images filed for bankruptcy on Wednesday, Oct. 21, with the ending already written. The Getty family and affiliates of Koch Equity Development would own the whole company. They'd put in up to $533 million to do it. The people who own Getty's stock today would be wiped out, the Journal's Samantha Kroontje reported.
It's called a prepackaged bankruptcy. Getty and its major investors agreed on the plan the week before it filed in Delaware. The photo company expects to keep operating and wrap up by the end of the year. A Koch affiliate is providing up to $143 million of financing to get it through. The filing came after a planned $3.7 billion merger with Shutterstock fell apart this summer. That deal was meant to cut costs and pay down debt. Getty dropped it after a U.K. regulator said the deal could go ahead only if Shutterstock sold its editorial business.
The warning sign came in September. Getty missed interest payments on its unsecured bonds. It used a 30-day grace period and paid later that month. Then the filing itself set off defaults on roughly $1 billion and €407 million of debt. The euro part is about $456.7 million.
Who gets paid first
Think of a company's money as a line at a counter. Secured lenders stand at the front, because they have a claim on specific assets. Unsecured bondholders come next. Stockholders stand at the very back. When there isn't enough to go around, the back of the line goes home empty. Optimum Communications shows the same order from the lenders' side. It's losing broadband customers to fiber and wireless rivals, and it carries about $26 billion of debt. About $6 billion of that comes due in 2027. It's preparing to file for chapter 11, the kind of bankruptcy where a company keeps running while it reworks its debt. The plan would hand control to its lenders, people familiar with the matter told the Journal. Majority control is expected to go to creditors including Apollo, Oaktree and JPMorgan Chase, WSJ Pro Bankruptcy reported earlier. Its stock hit a new low of 48 cents on Thursday, Oct. 22, down 15%. Neither Getty nor Optimum is held in our books.
Our read
This is Investments/Risk, IN04. A stock that falls hard can look cheap. While a company is reworking its debt, that cheap stock is often a ticket to the back of the line. Getty's stockholders found their answer written into the plan itself. Optimum's stock trades for less than a dollar while its lenders work out how to own the company. Our Avoid is for that general trap, buying a stock for a bounce while its debt is being redone. It's no comment on any one security.
Your connection is any single stock in your brokerage account that has fallen hard this year. This week, look up two things about it. First, check its recent news for a missed interest payment or a grace period. Second, find out when its biggest debt comes due, the way Optimum has about $6 billion due in 2027. Both show up in company filings and news stories. If either one turns up, remember that the stock stands behind every lender. Decide on purpose whether you want to stay. You find the exits when you walk into the theater, before anyone smells smoke. If you'd like a second look at a position like that, bring it to your next review.