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Consumer Review files for Chapter 11 Reorganization...(28 posts)

Consumer Review files for Chapter 11 Reorganization...gregg
Jul 2, 2002 7:17 AM
My boss and founder of RoadbikeREVIEW, MtbREVIEW, and ConsumerREVIEW Inc has posted this in Passion on mtbr.com. It is regarding our parent company.

I'm glad I am also able to fill you guys in. Here's the deal:

Why: We have more than $18 million in long-term debt mostly incurred from our 3 rounds of financing. Given today's market, we don't have a reasonable chance of paying that back and we need to restructure our debt as we prepare to sell the company to a new owner.

The Good: We have identified a new owner that has extensive resources, will continue to grow our sites specially mtbr.com, and will hire on our existing staff. This process will take 2-4 months.

The Plan: The sites should be unaffected during this transition period. We need to be lean and mean and we need to continue to generate money.

What you can do: Mtbr.com is the flagship of the company. It has the best traffic and the best revenue. RoadbikeREVIEW is an off shoot of mtbr and as such, we enjoy a fair amount of traffic as well. (No, not as big as mtbr, but pretty decent, if I say so myself.) Please, continue to refer the site to your friends. Use our paid classifieds sections. Whenever you buy something online, click on our Hot Deals and our partners in the Product Review Pages (we get paid per click). Support our banner advertisers and our section sponsors. Yes, you should do the same for our other sites as you need a digital camera or a DVD Player.

With your help, we'll come out of this transition stronger than ever.

As always, thanks to all of you for your continued patience and support.

-gregg

gkato@roadbikereview.com
Thanks for the heads up. Hope your job is OK. nmLen J
Jul 2, 2002 7:24 AM
You have my support...GeekRoadie
Jul 2, 2002 7:32 AM
Thanks for the heads up Gregg. I hope that transition is smooth... Okay, time to go shopping with your sponsors. I know there is something "I gotta have".

Mike
Best of luck and glad no axes will fallkenyee
Jul 2, 2002 7:45 AM
From someone who went down w/ a dot.bomb last year and whose headed down w/ a dying dot.bomb this year (just can't learn)-:

I always thought sites like this and epinions were one of the few that did pretty well...didn't know you guys burned through $18M already!

At least that explains the pay-for classifieds. The free ride (where everyone expects stuff for free) for the Internet was a dumb idea. At least you have .Net under your belt ;-)
thanks for everything, and I have a dumb questionET
Jul 2, 2002 7:54 AM
How does the new owner expect to take on that kind of debt and still turn a profit?
thanks for everything, and I have a dumb questionTJeanloz
Jul 2, 2002 7:58 AM
Debt goes away with bankruptcy, like magic. It's actually not that easy, but close.

I want to know how they can be sure that the trustee is actually going to sell it to this 'new owner', and not somebody else who may come to the table with a better offer.
exactly.gregg
Jul 2, 2002 8:08 AM
You hit it on the head, TJ on both accounts.

Yes, the debt goes away.

No, we can't be "sure" that the sell will be exclusive. The root of my fear is uncertainty.

-gregg
seems a bit morally repugnantEJC
Jul 3, 2002 4:56 AM
You took on the debt when the world went "dot-com" crazy. YOU folks accepted a deal, to borrow money in good faith and that it would be paid back. Now you want to wave a magic wand and make the debt "go away". But guess what? The debt DOESN'T go away! Guuess who ends up footing the bill at some point? The average slobs in the street. Meanwhile you guys got to cry "Uncle" and made you debt go the way of the Dodo.

While you are at your corporate shell game, wave that wand and make my VISA debt go away...oh wait...my debt isn't in the millions, so I HAVE to pay it back.

EJC - sickened by this ability to go broke in a big grand fashion to the tune of millions and everything is hunky-dory.
rules of the gameDougSloan
Jul 3, 2002 6:32 AM
At this level, barring fraud, all the "big boys" know the rules of the game. Loans and investments have a speculative nature to them. Everyone understands that some businesses fail or have hard times. Bankruptcy is a potential risk. Bankruptcy allows creditors to be paid on a fair basis, based upon the assets available, or allows something to worked out while the company regains its strength. At the end of the line, it allows assets to be liquidated and redistributed to further use.

Bankruptcy is not immoral. Bankruptcy fraud is. Running up credit cards with the intention of declaring bankruptcy is far different than a company having difficult times in a difficult market, or someone losing a job and not being able to pay the mortgage.

Doug
Doesn't make it right, regardless of "rules"EJC
Jul 3, 2002 6:44 AM
The sad sentiment that comes through that idea is "I have the right to do it, therefore it is the right thing to do"

Spurious logic at best.

Having the right to do something does NOT make it the right thing to do.

EJC
you may misunderstandDougSloan
Jul 3, 2002 7:00 AM
I have worked for and against lots of businesses faced with bankruptcy. It's not a casual or appealing decision to make.

This is usually the scenario. The business if fine for a while. Something happens, the market changes, it gets sued, or it simply wasn't well run. In any event, the company finds that it cannot pay it's bills. Sometimes, it is the creditors, not the company, that make the decision to force bankruptcy, too.

At that point, the creditors start threatening to call notes, file lawsuits, and repossess things, any of which would certainly cause the business to fail. If it fails, and there is no bankruptcy, creditors descend like vultures to pick off any assets they can find. This could be unfair to other creditors, who may have a legal claim superior to others. Managers and employees flee, which doesn't help anyone.

What bankruptcy does, at this point, is to stay litigation against the company. It sort of cools things off, and allows things to be sorted out on an orderly basis. The court oversees the operations and claims. To the extent a plan for getting back on its feet can be implemented, that may happen. If not, the assets are sold and claims are paid based upon legal entitlement.

Some debts or portions of debts may ultimately be discharged, meaning they "go away." That's likely your beef. However, if not for this, the debt would exist, but there would be no assets to collect anyway. If a corporation ceases to be viable, or even exist, the debt for all practical purposes has "gone away."

Now, during this process, the company, or parts of it, may be sold to someone who might continue the operations. However, this is usually not an attractive proposal, unless some of the debt is discharged or compromised. It is the creditors who may well support some discharge, if it means that part of the debt could be repaid by the business continuing, rather than folding. Further, continuing the business in another form, possibly, might allow some people to keep their jobs, might preserve the usefulness of assets, or serve the public (like us) in some way. With a large enough business, it might even positively affect the entire economy of the country (like an auto manufacturer) to keep it in business.

So, that's my "Bankruptcy 101" speech. The point is, it is not all bad.

Doug
thanks, Doug, for that excellent explanationgregg
Jul 3, 2002 10:08 AM
Your expertise in this area shows, by your ability to explain it to even a lay-man like me.

Oh, and EJC, while I won't try and debate or change your opinion/point of view; let me just say that this is a scenario that NO ONE wants, even now. We just don't have a lot of options at this point.

-gregg
Better offersDCP
Jul 2, 2002 8:25 AM
They can't be sure. Most likely, that offer is the one management/current ownership wants the company to take. You can make an offer if you want to.
will continue to click on...n.m.koala
Jul 2, 2002 7:55 AM
I feel your painPhatMatt
Jul 2, 2002 7:57 AM
My company is going through a similar situation now also. Glad to here of no job losses, you would be missed.
If RBR is gone...JackDanielsFSU
Jul 2, 2002 8:06 AM
If RBR goes away what would we all day at work?
re: Consumer Review files for Chapter 11 Reorganization...peloton
Jul 2, 2002 2:02 PM
Hope it goes smoothly, Gregg. This site is a great resource, and it has gotten better over the years too.

It was funny, just the other day I heard someone who I told about this site plugging the classifieds to someone else. Bike shop guy too, who sees a lot of people. The word of mouth thing works.
Maybe its just me...mahoneyjoe
Jul 2, 2002 3:15 PM
but I think RBR would be well served by putting something on the opening screen to the effect that the site gets paid by clicking through to Supergo or the others from this site; I really like this site and read it regularly and would like to see it survive; I buy from supergo, Co. Cyclist, Abici, etc, but also have them bookmarked, and that's how I get there; I haven't the least bit of a problem paying some small amount more to help this site survive--I'll be clicking through from now on and will soon as there are a few things I'm needing.
One last thing, this site is very well run compared to golfreview.com and compared to BicycleMagazine's site; the first is really awful and the second has become a shell of its former self. Thanks.
Thanks for the encouraging words, everyone...gregg
Jul 2, 2002 3:46 PM
...and mahoneyjoe, I think you might have something there.

Just finished talkin' to my boss about your idea and it seems like a good one! I will get started on implementing this right away.

You guys' are the reason RoadbikeREVIEW exists in the first place! Thanks for all your help, and I'll be sure to keep you posted.

-gregg
Thanks for the encouraging words, everyone...bic
Jul 2, 2002 7:06 PM
Gosh, owners may change but what can one do about making a buck on the internet. If this format did not work before should one expect it to work again? I think not. I find this a great place to visit and have always preferred to pay a yearly fee vs popups etc. Nothing is free and I am more then willing to pay for things that are worth it.
a common suggestion but...gregg
Jul 3, 2002 10:16 AM
...research shows that the people willing to pay are in the EXTREME minority. I don't recall the exact stats, but it was something like 3% or less.

Thank you, however, for the offer bic. This is an idea that has been discussed/debated/brainstormed around here a lot lately. So far, we have yet to come up with a reasonable subscription service option.

In short, we do not feel confident that we have enough to offer a user to justify charging them a subscription fee. If anything, we owe all the users for helping write the reviews in the first place!

-gregg
$18 Million in debt.EJC
Jul 3, 2002 4:51 AM
...and no hope of being able to pay it back. I enjoy this sight fellas, but I am sorry, you lost your heads in the dot com halcion days and now want to cry "Uncle" and not pay back debt you incurred by overestimating the worth of your company when you went to VC's.

If I did that with my mortage or whatever, I'd be tarred and feathered, have my house taken, and become a pariah in town.

I don't have much sympathy, but I will miss the sight should it go away.

EJC - sick of the corporate bail-outs at the regular folks expense. I mean, $18,000,000 in debt and NOT paying it back. Just another great example of if you are going to go broke, do it big, you get forgiven then.
Learn something about finance before you spout off...TJeanloz
Jul 3, 2002 6:07 AM
What you've just said, and said above, makes absolutely zero sense. While I'm not familiar with the exact details of the situation, the $18 million is not on a mortgage or line of credit, it's long term debt, probably in the form of convertible preferred stock. The people who loaned the $18 million (read: invested) probably had a pretty good idea of the likelyhood of default, and had an equally good idea of the possible upside.

They also didn't overestimate the worth of their company with the VC's- I can assure you that the term sheet was carefully negotiated, and that the VC's agreed to the value of the Company.

If you did this with your mortgage, I don't know where you live, but I doubt you'd be tarred and feathered. You would have bad credit, your house would be taken, and you might become a pariah. I don't know what rosy things you think are going to happen to ConsumerReview, but the Company is going to be taken from its owners, sold at auction, the proceeds will be divided among the creditors, and the CEO will become a pariah- but at least he'll be in good company.

I fail to see how the regular folks are paying for this. Unless regular folks funded the VCs without knowing the risks of that investment- and I don't think anybody invests in venture funds without being fully aware of the inherent risk.
Partial ClarificationTJeanloz
Jul 3, 2002 6:16 AM
$11 million of the $18MM is in the form of convertible debentures (unsecured bond) issued by NewVenturetec ($4MM in 5%; $7MM in 0%). Part of the remaining $7MM came from Selby Ventures, in similar form.

I still fail to see how the common man is taking the fall....
So you are advocating deafulting on debt?EJC
Jul 3, 2002 6:42 AM
I appreciate the insight T, sincerely (no sarcasm implied or intended). I am not in finance, so I may be a bit whet behind the ears, HOWEVER...

It does rub me wrong that under a corporate rubric and umbrella, money can be gained under the guise of "investment" and then defaulted on. You yourself cannot be so naive as to believe that during the heydey of dot-com fever, companies, even ones we enjoy such as the Consumer Review family, weren't overestimating their worth, can you?

So they acquire 18 million dollars of DEBT (gregg's word, not mine) and he openly admits that they have no chance of repaying it, that the debt 'goes away' by declaring the legal version of "Uncle" (filing bankruptcy) and everything becomes rosy. At some point, by these defaults, tax payers will absorb some sort of Federal Bailout of VC's who go under or even, yes even, a failed Savings and Loan in Texas (where the former head of the S&L then gets to bankrupt a Baseball team, have interesting relations with ANOTHER company that overestimated its worth and put many employees if financial dire straights, and then goes on to become King of this country) or even from a dot-com that has accrued 18 million dollars of unsecured debt.

You cannot be so naive to believe at some point, the "person on the street" isn't going to have to pony up a little $$$ for bailouts and federal corporate welfare are you?

And, I enjoy this sight, but that doesn't mean I have to blindly follow along, tongue hanging out of my cheek, saying "you are bailing out on 18 million dollars of debt? That's okay boys, you are cyclists, so everything you do is okily-dokily with me".

EJC
what would you do?DougSloan
Jul 3, 2002 7:01 AM
If the money does not exist to pay the debt, what would YOU do? Are you printing it?

Doug
Rewards in investing only come with risk attached...TJeanloz
Jul 3, 2002 7:10 AM
There's a lot to cover, so I'll go one point at a time.

1. Debt structure. Debt was issued in the form of long term, convertible debnatures. What does this mean? The owners of ConsumerReview made a deal with a VC, and they agreed to pay 5% of $4MM per year and 0% on $7MM (which is to say, annual debt service payments of $200,000). When the debnatures expired, ConsumerReview could either pay off the full $11MM, or the VC could opt to 'convert' the loan into equity (stock) in the Company. So while this may be viewed as debt, it is really a sort of half-debt, half-equity transaction, that the VC nonetheless knew exactly what he was getting into. Had the internet been the financial boon that some thought it would be, the debt would have been peanuts, and everybody would be happy. That was the risk that the VC took. Classifying the debnature as debt, while technically accurate, isn't accurate in the spirit of the financing.

2. Why do you think the VC will get a federal bailout? That's where you lose me. S&L's got a bailout because the money lost was primarily by those at the bottom of the financial spectrum through no fault of their own (and was borrowed money besides). VC's lost actual money (not borrowed) fair and square in the normal course of their business. Why would anybody bail them out?

3. Investment is inherently a risk vs. reward decision. That's one of the problems in the market today, that all of the risks are not well known, and thus we assume that there is greater risk than there may be, and demand greater compensation for them (in the form of lower equity prices).

4. The end result of everything, actually, is that the person on the street pays for everything in the form of higher prices, higher taxes etc. But we have to ask ourselves, who got rich on the $18 million loan? It's fair to say that all of that money was spent (unless the owner stuffed it in a mattress) on things that the man in the street was paid to produce. Money doesn't vanish when it's spent, it is put into the economy, and the benefit of the $18 million went to the economy on the whole- not some CEO.
Yupgrzy
Jul 3, 2002 10:28 AM
It's all part of the game. Being in the VC business is like going to Vegas, but not having to leave home. They get large private sums from wealthy investors who are taking a gamble. They only need a few of their gambles to pay off to make it big and the rest can and do die on the vine. These people can afford to lose the money and they have no recourse or expectation for a "bail out". In the end $18M may sound like a lot of money to you and me, but it's peanuts in the VC world.

Part of the whole deal with borrowing money for a business venture is that others are sharing in your risk and for that they get something in return. Only the niave person would think that every new venture is an assured winner and most of those people are the ones working their tails off to make the thing fly.

If you buy and own stock you're really participating in the gamble also. When a company goes bankrupt they're "excercising the option to give the company to the stock holders" Recognize that stock holders are typically last in line after all of the higher forms of debt have been paid off. It's the way business gets done in America and part of what makes our economy so robust and responsive.