The end of the Blacksmith?
News broke on The Source late yesterday that Gavin McMichael, founder/owner of the Blacksmith restaurant as well as (the now closed) Bourbon Street and Gatsby’s Brasserie, is filing for bankruptcy. (Note that The Source article has undergone several revisions since first appearing last night.) This morning the Bulletin followed suit, and tonight KTVZ had an interview with McMichael on their newscast.
According to the various news, it is Chapter 7 bankruptcy that is being filed, covering his personal finances and debts (to the tune of nearly $2.5 million); this is being talked about as a measure to protect his restaurants from his creditors and that his restaurants will be unaffected, but of course everyone’s going to have the question anyway:
What’s really going to happen to the Blacksmith and Gatsby’s?
I saw the story on KTVZ last night and wondered how a business could avoid being liquidated along with the owner’s other assets.
So having nothing more useful to do this morning, I figured that, as a good blogger, I’d provide some unasked-for and entirely uninformed speculation about this story.
McMichael had a big flurry of recent growth (Bourbon Street, Gatsby’s) and he may have taken out a lot of personal loans to finance the expansion and keep things afloat. (Weird timing, in my mind, looking more like Housing Bubble go-go thinking, not post-bubble no-no austerity.)
Unable to service both the business and personal debts, McMichael closes Bourbon St.*, which probably stops some bleeding of cash (payroll, utilities, supplies) but still remains a negative asset with the lease, and any loans taken out to redecorate and renovate the property when it was opened, albatrossing** around his neck.
If all three restaurants are independent LLCs or corporations then Bourbon St.’s debt will not negatively impact the balance sheets of the other two. Whether or not they can be liquidated to satisfy McMichael’s personal creditors would depend entirely on whether they are individually worth anything.
But if they are all part of one umbrella LLC or corp, the one will drag the down the value of the entire operation, burying it up to its corporate eyeballs in debt, making it an illiquid asset. Can’t liquidate something worth nothing.
If no buyer can be found to take over, McMichael could continue to own and operate it, as long as he can find a way to satisfy its creditors, including those holding Bourbon St. paper. McMichael probably wants to avoid declaring Bourbon St. bankrupt because the people who would be stuck holding the loans are the people he needs to deal with to keep his other two restaurants in operation.
But if your other two restaurants are throwing off enough cash to satisfy the Bourbon St. creditors, they are profitable enough where a buyer could be found, leaving McMichael picking up after his personal bk and without ownership in any of the businesses he built. That could be sucky.
That’s my guess about the sitch. Amateur speculation only. Those who have a fargin’ clue are urged to speak up.
* Is anyone going to miss Bourbon St.?
** It’s important to invent one new word a day.