Local bankruptcies have ripple effect

EMILY C. DOOLEY AND LOUIS LLOVIO TIMES-DISPATCH STAFF WRITERS
Published: December 28, 2008

Michael L. Boykin has a business that once stored, shipped and maintained trade-show exhibits for LandAmerica Financial Group Inc. and its subsidiaries.

Since the Henrico County-based company filed for bankruptcy Nov. 26 and sold off its title-insurance underwriters, Boykin has been unsure of what it means for his business, Display Management Services.

The $175,000 LandAmerica account was a big chunk of Boykin's business and paid his salary and that of a partner. Warehousing bills for some 250 displays, ranging from 6 feet to 20 feet, are unpaid, and many of the exhibits are now outdated.

"It leaves us in limbo because we don't know what's going to happen with that account," Boykin said.

On a recent morning there was a bit of a reprieve. Fidelity National Financial, which bought LandAmerica's title insurers, asked Boykin to retrofit an old display with the logo of the Jacksonville, Fla., company.

"[Orders] will drop in volume, but we will continue some working relationship and one that we hope to see grow," Boykin said.

More than the primary company suffers in a bankruptcy case. Vendors, employees, retirees and businesses can be affected. Restaurants, tax districts and towns may also be hit.

Richmond is facing a painful future with Circuit City Stores Inc. and LandAmerica in dire straits. The Henrico companies filed for bankruptcy in November, were taken off the New York Stock Exchange and face an uncertain future.

"When you have two big ones running into problems at the same time, it's a big punch," said Tom Arnold, a finance professor at the University of Richmond's Robins School of Business.

Henrico's director of finance, John A. Vithoulkas, said the county already is feeling a hit from the bankruptcies. "We are by no means immune," he said. "The county has clearly been impacted by what's going on."

While the exact effect is difficult to quantify, jobs are what drive the county. "As jobs go, so does the economy," he said.

Circuit City filed for Chapter 11 bankruptcy protection Nov. 10. Days earlier the electronics retailer laid off 588 people.

LandAmerica and subsidiary LandAmerica 1031 Financial Services Inc. filed for bankruptcy weeks later. About 120 layoffs preceded the filing.

"Even if they can be absorbed back into the workplace, the number is so large that it's going to take a while," Arnold said.

If people can't find a job, they may move, putting homes up for sale. "We have a real estate market that isn't doing well, and this isn't going to be helping that," he said.

After a job loss, people spend less, so fewer sales-tax dollars go into county coffers, fewer homes are sold, and personal-property taxes decrease.

Robert Gonzales, manager of the IHOP on West Broad Street, about a mile from Circuit City headquarters, said business has fallen $4,000 per week since the layoffs.

While he said the decline of about 10 percent is not solely attributed to Circuit City, he has seen a drop in the number of employees coming through the door.

"Its been a big loss," he said. "We had their employees coming here all the time, but that's dried up now."

At the Starbucks near the headquarters, assistant manager Mike Jones said he hasn't seen any difference, but he is concerned. Circuit City is a main source of the shop's customers.

"I would imagine if they left it would hurt us tremendously," Jones said.

In LandAmerica's bankruptcy filings, local companies are among the top 20 unsecured creditors, including Monument Consulting, owed $469,000.

LandAmerica 1031 Exchange Services also has local creditors, including Millmar Holdings LLC, a holding company of a custom home builder, which is owed nearly $4.9 million.

In a company town, the impact can be more serious, especially when it comes to other businesses. "Particularly, for a local supplier, these very large firms tend to be their only business," Arnold said.

After the LandAmerica bankruptcy, Boykin decided to merge the display business into another company he owns, Displays, Designs & Signs. His partner has chosen to retire.

"That leaves me with only one salary to think about," Boykin said.

In the LandAmerica case, retirees found their life insurance and health benefits cut. Many found that replacing the life-insurance policy would cost nearly as much as the policy itself. Health and dental insurance are also costlier now, taking money out the pockets of people on fixed incomes.

One group that is not getting hit as hard: lawyers.

State laws often can affect federal bankruptcy cases, and many claimants choose to have local representation in addition to their regular attorney, said Guy K. Tower, executive director of the Virginia Bar Association.

"The way corporate law firms have survived for many years is they beef up their bankruptcy practice," he said. "It can be very profitable work."

For the LandAmerica case alone, more than 70 lawyers are listed on a court-provided mailing list of parties involved in the case. The Circuit City case has three times as many attorneys.

"Being in bankruptcy right now is a pretty good specialty practice, and it won't ever go away," Tower said.
Contact Emily C. Dooley at (804) 649-6016 or .

Contact Louis Llovio at (804) 649-6348 or .