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Another SCO Creditor Sells Its Claim to Argo

Wednesday, October 13 2010 @ 02:15 AM EDT

Tech Marketing Ink of Orem, Utah, a creditor in the SCO bankruptcy, has sold its claim to Argo Partners. I guess it figured a bird in the hand and all that. At this point, the company may feel that there's no getting blood from a stone and the likelihood of getting paid by SCO in bankruptcy court is slim. You can sell your claim if anyone will buy it, usually for a price that may be less than you are owed, but at least you have something. In real money. In a real world.

The company does presentations, among other things. I can't help but wonder if they did the presentations that SCO used with analysts. That would be ironic, to have it all end up like this.

But why would Argo buy this claim? I can't imagine, so let's research possibilities. The claim is modest, in the bigger picture, for $3,000. But we've seen Argo before.

First, here is the filing:

10/11/2010 - 1179 - Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 2 Transferor: Tech Marketing Ink To Argo Partners. Filed by Argo Partners. (Gold, Matthew) (Entered: 10/11/2010)

You find Tech Marketing Ink listed on the May 2009 list of creditors, and the company is also listed on Schedule F [PDF; as text], which SCO filed in October of 2007, but I don't see it on the original list SCO filed in September 2007, when it first applied for bankruptcy protection. In general, that happens when a company files all the creditors it can think of, but sometimes others show up later with a claim the company forgot about.

Argo Partners has bought other claims in the past. If you go down the list of filings in our SCO Bankruptcy Timeline page, searching for Argo, you'll see at least four others. It started buying them up in 2007, when it made more sense. But now? I can't help but wonder. Who are they, and why do they want these claims?

I'll save you the trouble. Here's the list of claims it bought prior to the latest one, and if you wish to read them, they are on the Timeline page:

175 - Filed & Entered: 11/01/2007
Transfer/Assignment of Claim
Docket Text: Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 1 Transferor: Bynari, Inc.(Amt. $5,209.58) To Argo Partners. Filed by Argo Partners. (Gold, Matthew)
361 - Filed & Entered: 02/26/2008
Transfer/Assignment of Claim
Docket Text: Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 1 Transferor: Main 10(Amt. $2,000.00) To Argo Partners. Filed by Argo Partners. (Gold, Matthew)
436 - Filed & Entered: 04/09/2008
Transfer/Assignment of Claim
Docket Text: Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 2 Transferor: Randd Strategic Solutions LLC To Argo Partners. Filed by Argo Partners. (Gold, Matthew)
[438] 10-Apr-2008 Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 1 Transferor: Mirage (Amt. $37,017.39) To Argo Partners. Filed by Argo Partners. [Referenced by [448].]

There's another mention of Argo on that Timeline page, #423, but #436 is the amended version of #423, so it's one sale, not two.

Here's some info on Argo Partners, from BusinessWeek, as well as some detail on founding principal Michael C. Singer. The company's web site says they buy up the assets of distressed, usually bankrupt, companies:

Argo Partners is an investment firm that specializes in purchasing potential future cash flows of distressed, often bankrupt, entities. Typical investments take the form of trade receivables from, and bank loans to, bankrupt companies (i.e. “distressed paper”).
We specialize in distressed companies across many industries. The credits we have been involved with include small and middle-market private companies, as well as larger public companies.
Depending on the stage of the economic cycle, we have invested in retailing, oil and gas, transportation, financial services, insurance, health-care, technology, metals and refining, and real estate.

Claims are not assets, not in the traditional sense, but in bankruptcy they can be valuable. Here's a paper that explains the business of buying up claims, On the Nature of the Transferred Bankruptcy Claim [PDF], and here's one reason some do it, mentioned in footnote 7:

^7. See, e.g., Simeon Gold & Daniel Holzman, Shopping for Distressed Companies, METRO. CORP. COUNSEL, Feb. 2008, at 42 (“If a purchaser desires to strengthen its position in the acquisition of an entire company under a plan of reorganization, there are steps it can take. The purchaser can acquire a stake in the ‘fulcrum’ securities of the bankrupt seller (i.e., those obligations of the seller that, based on the likely valuation of the seller's business by the bankruptcy court, are likely to receive equity in the reorganized business).”); see also Michelle M. Harner, Trends in Distressed Debt Investing: An Empirical Study of Investors’ Objectives, 16 AM. BANKR. INST. L. REV. 69, 82 (2008) (citing study results illustrating firm propensities to pursue exchanges of debt for equity).

Of course, aside from any dreams of equity, with a claim in your pocket, it gives you a voice in bankruptcy court, and you can oppose a reorganization plan. Here are two more footnotes:

^13. See 11 U.S.C. § 1109(b) (2009) (“A party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.”). For example, claim traders looking to expedite returns on their investments may use the right to be heard conferred by Bankruptcy Code section 1109(b) to support a piecemeal sale of the debtor. See Circuit City Unplugged: Why Did Chapter 11 Fail to Save 34,000 Jobs?: Hearing Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the Judiciary, 111th Cong. 13-14 (2009) (testimony of Harvey R. Miller, Senior Partner, Weil, Gotshal, & Manges, LLP), available at http://judiciary.house.gov/hearings/pdf/Miller090311.pdf (“Distressed debt traders and hedge funds have different objectives than those of vendor/suppliers. They are motivated by quick and sizeable returns on their investment. Because their entry price usually is much lower than the face amount of the acquired debt, they are more apt to favor the sale and dismemberment of a debtor, if it will yield faster and greater recoveries based upon the costs of purchasing claims. Unless they are extending loans to own the debtor, a process that gained some favor in the mid-2000s, there is little or no interest in the rehabilitation of the debtor.”).
^14. For example, claims purchasers can vote down a debtor’s proposed plan of reorganization to maximize distributions paid out on their claims. See Kevin J. Coco, Empty Manipulation: Bankruptcy Procedure Rule 2019 and Ownership Disclosure in Chapter 11 Cases, 2008 COLUM. BUS. L. REV. 610, 615 (2008) (“It is these active investors who, because they have the ability to shut down a debtor’s ability to reorganize, present the greatest threat to the active rehabilitation and reorganization of debtors, which are the two primary goals of Chapter 11.”).

So, claims purchasers aren't necessarily trying to help the debtor, just making a buck for themselves. No offense, but it sounds a teensy bit like vultures. I confess, bankruptcy court is so much worse than anything I ever could have imagined. My favorite sentence from that paper:

Although the practice of claims trading can introduce complications into Chapter 11 proceedings that would not arise otherwise, it is not unlawful.

Not unlawful. What a low bar.

But there's more: claims buyers can also offer the debtor money as a loan so as to take over the company. Hmm. That might explain why Argo would buy a claim now, when SCO is selling off essentially all its assets. One way or another, it looks like Argo has been getting into position for something since 2007.

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Corrections

Authored by: bprice on Wednesday, October 13 2010 @ 02:21 AM EDT

If needed.

---
--Bill. NAL: question the answers, especially mine.