Double-Dip Bankruptcy?

I used to like the phrase "double dip" back in the days when it meant ice cream. By now, we're all familiar with the term "double-dip recession," which is Wall Street's latest source of anxiety. This week there's a new usage to consider: the double-dip bankruptcy. That's the concern raised in an article this week in Light Reading.

"Many doubt that large-scale telecom tragedies will manage to transform themselves into feel-good stories with happy endings," writes LR reporter Eugenie Larson. "The other option is that the whole industry could devolve into a cyclical situation with repetitive bankruptcies, just like the airline business."

Yikes. The story cites a new report from i2 Partners titled "Telecom Distressed Assets: Bondholder Beware", which suggests that recent reorganization plans commit the same sin that put these companies into Chapter 11 in the first place - projecting future revenues from demand that hasn't materialized yet. The folks at i2 dub these "magic revenues."

"Revenue for high-growth, high-margin managed services assume unprecedented growth rates ... for which there is no pre-bankruptcy track record," the firm writes. Reorganizations counting on huge revenue growth in managed services should certainly get close scrutiny, especially given the prospect of a double-dip recession and the likelihood of depressed corporate IT spending.

But there are also plenty of bankruptcy plays that seek to tip the financial equation with a different cost structure. Many feature new owners picking up distressed assets out of Chapter 11 and moving ahead without the baggage of having pre-bankruptcy management still in place.

Either way, a single dip is fine by me these days. Even when it means ice cream.