Saturday, March 21, 2009

Non Sequitur: Bankruptcy Bonuses?

One doesn't expect a bankrupt company to pay performance bonuses. Since the whole company cratered, why would individuals get bonus pay? Because this form of compensation is neither performance related, nor a bonus, it's nonsalary, nonbenefit, lump sum compensation. Consider the companies paying "bonuses" under bankruptcy:

Lehman Brothers $2 billion
Hawaiian Telecom $6 million

Why don't creditors or shareholders deserve a shot at those funds? While the bankruptcy judge makes the final determination, management reveals much with their bonus requests.

Hawaiian Telcom Chairman Walter Dods said in a statement that it is important that the employees be compensated.

Once bankrupt, it's important that all parties be compensated, I mean bonused. Will The Carlyle Group continue to take a management fee from Hawaiian Telecom? Is the bankruptcy a plan to cram down creditors, given the huge debt Carlyle floated to acquire HT? Did any Carlyle distressed debt funds buy HT credit default swaps as the firm approached bankruptcy? HT bonds went from 102.75 cents on the dollar to 0.5 cents. But CDS holders don't have to own the underlying debt instrument. How many ways will Carlyle ring the register on HT's failure?