# Why would B of A extend credit to a company right after they pulled it? **URL:** \ **Category:** Great Debates\ **Created:** [December 10, 2008, 4:05am UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505 "2008-12-10T04:05:36Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [December 10, 2008, 10:06am UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/21 "2008-12-10T10:06:54Z")
> [@magellan01](#): > > But that bank had already made the decision that the company was not worth any extra investment/risk. Maybe they calculated (at the time they cut off the funding) that if the company went under they’re assets were already shy of what was owed. Whatever their reason, they wanted to bow out, to cut their risk. As I wrote in another thread, in the current climate, you can’t assume that a bank cutting a line of credit is acting on the basis of a sound assessment of the company’s situation. Banks have been cutting credit lines senselessly for some time, putting otherwise viable companies in very difficult situations. Given, as several posters mentioned, that said banks have received all sorts of bailouts and guarantees, in particular with the expectation that this could prevent a complete credit crunch, it’s not at all unreasonable to second guess their decisions when they refuse to extend a line of credit. I’ve zero clue about the situation of this particular company, but you can’t just say “companies must be allowed to fail” because currently many companies are failing or on the verge of failure (or simply unable to expand though they would have the opportunity to do so) not because they can’t compete, can’t find clients, etc…but rather because banks are suddenly pulling the credit carpet from under their feet. This is _not_ a good thing, regardless of your political inclination or economical analysis. Maybe this particular company is indeed doomed, and the bank’s decision was very sensible, maybe the company isn’t doomed and is just trying to get off its obligations and lay the responsibility at the bank’s feet, but statements to the effect that a bank’s unreasonable policy is causing a company to fail and/or to be unable to meet its obligations are unfortunately currently quite credible. You shouldn’t assume a priori that it’s just the free market in action, culling the herd by removing the weak and the diseased. ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [December 10, 2008, 6:10pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/22 "2008-12-10T18:10:55Z")
> [@magellan01](#): > > Some good points have been made. and maybe the PR angle is the answer. But this has GOT to stop. Companies must be allowed to fail. That HELPS the system. I’m sorry for the workers… You’re NOT sorry for the workers, it’s obvious that you’re not, so don’t say you’re sorry for them. Argue your economic theory as you like, but don’t pretend to sympathy you clearly do not possess. ---
**Author:** ![Smitty](https://avatars.discourse-cdn.com/v4/letter/s/e274bd/32.png) [@Smitty](https://boards.straightdope.com/u/Smitty)\ **Post date:** [December 10, 2008, 7:44pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/23 "2008-12-10T19:44:57Z")
> [@Nobody](#): > > And as for a lawsuit. These things take time > There’s no guaranty that the assets will total what they’re owed. > If the assets do total what their owed, will there be enough after court and lawyer costs? > What about competing interests? > Going to court would be too time consuming and have too much uncertainty. All very good arguments that Bank of America can make as well. > [@Nobody](#): > > In my opinion, BofA loaning the money was the best way to handle this. The workers get their money, the business is still shut down due to poor management decisions, and BofA is in a much better position to handle being owed money than the ex-workers are. Which is why you should never own a business. Just because B of A can afford it doesn’t mean they should have to or that they have any responsibility whatsoever to do so. ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [December 10, 2008, 7:47pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/24 "2008-12-10T19:47:45Z")
> [@Evil\_Captor](#): > > You’re NOT sorry for the workers, it’s obvious that you’re not, so don’t say you’re sorry for them. Argue your economic theory as you like, but don’t pretend to sympathy you clearly do not possess. :rolleyes:Whatever you say, Kreskin. Fact is, I AM sorry for them. THEY did NOTHING wrong. The company owes them money. I just don’t think that any of us have a right to expect a third party to come in and save the day, whether it be you, me, Bill Gates, or B of A. But, thanks for playing. ---
**Author:** ![Miller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/miller/32/481_2.png) [@Miller](https://boards.straightdope.com/u/Miller)\ **Post date:** [December 10, 2008, 8:11pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/25 "2008-12-10T20:11:28Z")
I may be incorrect, here, but I was under the impression that the bank was seizeing the factory’s assets to pay off the debts the factory owed to the bank, and the purpose of the strike was to prevent that from happening. Am I totally off-base in that? If the bank is liquidating the factory’s assets, it doesn’t sound unreasonable for the bank to set aside some of those profits to clear the factory’s payroll obligations. ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [December 10, 2008, 8:31pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/26 "2008-12-10T20:31:14Z")
> [@Nobody](#): > > I’m not the one who took away the line of credit, causing the company to no longer be able to pay their employees. It’s not like BoA pulled the line of credit because they wanted to be mean. If I recall correctly, Republic posted significant losses in '06, '07, and presumably were well on their way to do so in '08. That’s three years of unprofitably, and potentially more. In other words, since Republic is losing money, their ability to pay off loans is questionable at best. Since BoA isn’t in the business of giving money away, they decided not to loan Republic any more money. It’s not BoA that caused Republic to not be able to pay their employees. It’s (probably) gross mismanagement by Republic that caused them to not be able to pay their employees. BoA is an innocent bystander in this situation. > [@Miller](#): > > ``` > I may be incorrect, here, but I was under the impression that the bank was seizeing the factory's assets to pay off the debts the factory owed to the bank, and the purpose of the strike was to prevent that from happening. Am I totally off-base in that? If the bank is liquidating the factory's assets, it doesn't sound unreasonable for the bank to set aside some of those profits to clear the factory's payroll obligations. > > ``` Unless I am mistaken, the best BoA is going to be able to do in this situation is to recoup their loan through the sale of collateral. However, it’s almost a certainty that the value of the assets BoA ends up selling will be significantly less than the loans made, resulting in a loss for BoA. ---
**Author:** ![griffin1977](https://avatars.discourse-cdn.com/v4/letter/g/977dab/32.png) [@griffin1977](https://boards.straightdope.com/u/griffin1977)\ **Post date:** [December 10, 2008, 8:37pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/27 "2008-12-10T20:37:10Z")
The point is that the recent government bailout, was specifically to stop this kind of thing from happening (i.e. otherwise healthy companies failing from lack of credit). ---
**Author:** ![Miller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/miller/32/481_2.png) [@Miller](https://boards.straightdope.com/u/Miller)\ **Post date:** [December 10, 2008, 8:38pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/28 "2008-12-10T20:38:55Z")
> [@treis](#): > > Unless I am mistaken, the best BoA is going to be able to do in this situation is to recoup their loan through the sale of collateral. However, it’s almost a certainty that the value of the assets BoA ends up selling will be significantly less than the loans made, resulting in a loss for BoA. In other words, they owed money to their employees, and to the bank, right? I don’t necessarily see the problem in making sure the employees get paid off before the bank does. Part of the business of lending money is the risk that you won’t get all the money back. ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [December 10, 2008, 8:42pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/29 "2008-12-10T20:42:37Z")
> [@griffin1977](#): > > The point is that the recent government bailout, was specifically to stop this kind of thing from happening (i.e. otherwise healthy companies failing from lack of credit). There’s no evidence that this is an otherwise healthy company. In fact, there is strong evidence that it is an unprofitable and poorly ran one. > [@Miller](#): > > In other words, they owed money to their employees, and to the bank, right? I don’t necessarily see the problem in making sure the employees get paid off before the bank does. Part of the business of lending money is the risk that you won’t get all the money back. It depends on what the terms of the loan were, and what ends up happening in bankruptcy court. ---
**Author:** ![Redwing](https://avatars.discourse-cdn.com/v4/letter/r/dfb087/32.png) [@Redwing](https://boards.straightdope.com/u/Redwing)\ **Post date:** [December 10, 2008, 8:45pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/30 "2008-12-10T20:45:56Z")
> [@treis](#): > > Unless I am mistaken, the best BoA is going to be able to do in this situation is to recoup their loan through the sale of collateral. However, it’s almost a certainty that the value of the assets BoA ends up selling will be significantly less than the loans made, resulting in a loss for BoA. I believe the debt to the workers (missed payroll) takes precedence over other creditors. It might make sense in that case for the bank to extend enough cash to Republic simply to avoid having an immediate auction, which given the current market isn’t likely to be very profitable. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [December 10, 2008, 8:51pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/31 "2008-12-10T20:51:41Z")
> [@Declan](#): > > I have not been able to find anything that refers to this, only that the company told its workers that they were shutting down operations as BOA had pulled the line of credit. > > Do you have a link , the trib and chi-news have’nt mentioned this. > > Declan It was in the NY Times, and it came from a PR company hired by Republic to talk to the press. However the articles today still have them not saying anything. Found it > [@](#): > > Late Monday, the company released a statement that indicated that it had known since at least mid-October that it intended to close the factory by January. The statement suggested that it had gone back and forth with Bank of America for more than a month, but that the bank had rejected several of its “wind down” plans as well as the company’s request for financing to pay workers’ owed vacation. From [here](http://www.nytimes.com/2008/12/09/us/09chicago.html?scp=1&sq=Republic%20Bank%20of%20America&st=cse). ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [December 10, 2008, 9:08pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/32 "2008-12-10T21:08:29Z")
> [@Redwing](#): > > I believe the debt to the workers (missed payroll) takes precedence over other creditors. It might make sense in that case for the bank to extend enough cash to Republic simply to avoid having an immediate auction, which given the current market isn’t likely to be very profitable. From what I’ve read, secured debt would take precedence over unsecured debt. In other words, if Republic put up their factory as collateral for a BoA loan, then BoA is entitled to the proceeds of the liquidation of that factory up to the loan amount. Workers have unsecured debt against the company, which is lower on the precedence level than secured debt. In general workers are pretty high up on the priority list of unsecured debt, but I can’t speak to particulars. I’m guessing, however, that there is little hope of these workers getting their cash through the liquidation of Republic’s assets. ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [December 10, 2008, 9:16pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/33 "2008-12-10T21:16:56Z")
> [@Miller](#): > > In other words, they owed money to their employees, and to the bank, right? I don’t necessarily see the problem in making sure the employees get paid off before the bank does. Part of the business of lending money is the risk that you won’t get all the money back. I’d agree with this, except that the bank had already turned off the faucet. If the company was so poorly run that they didn’t see to it that their employees would be taken care of before the end, I don’t see why the bank has to step back in and make, what is in essence, a donation. ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [December 10, 2008, 9:23pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/34 "2008-12-10T21:23:18Z")
> [@Voyager](#): > > It was in the NY Times, and it came from a PR company hired by Republic to talk to the press. However the articles today still have them not saying anything. > > Found it > > From [here](http://www.nytimes.com/2008/12/09/us/09chicago.html?scp=1&sq=Republic%20Bank%20of%20America&st=cse). Yeah, I couldn’t find their statement either. Thanks. From that same article: > [@](#): > > The statement also revealed that the family of Richard Gillman, once a minority shareholder who in 2006 and 2007 bought out Republic, last month formed a new window business — Echo Windows LLC. All along, workers here said they feared the owners were shutting down to reopen a cheaper operation somewhere else. A trade publication reported last week that Echo had recently bought a window manufacturing plant in Red Oak, Iowa. No one from Republic could be reached for comment. It appears that the management, some combination of old owners and new, are trying to get away with the workers holding the bag. I’d go after Gillman. Get the money from him and/or the old owners. ---
**Author:** ![lee](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lee/32/7455_2.png) [@lee](https://boards.straightdope.com/u/lee)\ **Post date:** [December 10, 2008, 9:47pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/35 "2008-12-10T21:47:13Z")
The reason BOA extended credit is Blago cut off all business with BOA until they extended credit to the company. One reason the state cares about this and is putting pressure on BOA is that they are not liable for unemployment insurance for the period covered by severance pay. The workers are asking for what is rightfully theirs under federal and Illinois law. ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [December 10, 2008, 9:50pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/36 "2008-12-10T21:50:46Z")
> [@lee](#): > > The reason BOA extended credit is Blago cut off all business with BOA until they extended credit to the company. One reason the state cares about this and is putting pressure on BOA is that they are not liable for unemployment insurance for the period covered by severance pay. The workers are asking for what is rightfully theirs under federal and Illinois law. You’re probably right. And if you ask me, that’s just blackmail. Jesse would be proud. B of A has no legal or moral obligation to make things better. The state should look at the sale of the company. It appears they were gaming the system, leaving someone else holding the bag. ---
**Author:** ![KellyM](https://avatars.discourse-cdn.com/v4/letter/k/57b2e6/32.png) [@KellyM](https://boards.straightdope.com/u/KellyM)\ **Post date:** [December 10, 2008, 9:50pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/37 "2008-12-10T21:50:48Z")
> [@treis](#): > > From what I’ve read, secured debt would take precedence over unsecured debt. In other words, if Republic put up their factory as collateral for a BoA loan, then BoA is entitled to the proceeds of the liquidation of that factory up to the loan amount. Workers have unsecured debt against the company, which is lower on the precedence level than secured debt. In general workers are pretty high up on the priority list of unsecured debt, but I can’t speak to particulars. I’m guessing, however, that there is little hope of these workers getting their cash through the liquidation of Republic’s assets. The first $10,000 (per employee) of unpaid wages is a priority claim. Only child support, estate administration expenses, and certain unsecured postpetition claims lie ahead of unpaid wage claims in the priority order. That doesn’t mean that there aren’t secured claims that would leave no residual assets, of course. ---
**Author:** ![Miller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/miller/32/481_2.png) [@Miller](https://boards.straightdope.com/u/Miller)\ **Post date:** [December 10, 2008, 10:12pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/38 "2008-12-10T22:12:25Z")
> [@magellan01](#): > > I’d agree with this, except that the bank had already turned off the faucet. If the company was so poorly run that they didn’t see to it that their employees would be taken care of before the end, I don’t see why the bank has to step back in and make, what is in essence, a donation. I just saying, if the bank is seizing the factory’s assets, I don’t see a moral or ethical problem with the state stepping in and saying, “The employees get theirs before you get yours.” Which seems to be effectively what’s happening here: the banks just paying off the workers before they sell the assets, instead of after. The only way I see this as being unfair is if the bank can’t make enough from the assets to cover the cost of paying out the employee’s wages, which as far as I know, is not the case. ---
**Author:** ![KellyM](https://avatars.discourse-cdn.com/v4/letter/k/57b2e6/32.png) [@KellyM](https://boards.straightdope.com/u/KellyM)\ **Post date:** [December 10, 2008, 10:25pm UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/39 "2008-12-10T22:25:12Z")
I haven’t followed all the details in this situation, but I think part of the perception at least is that BoA is somehow complicit in some sort of scheme to assist Republic’s owners in defrauding Republic’s employees. I’ve also seen some things that seem to suggest that there’s some sort of structured dealing being used to get around NLRA prohibitions on closing a plant to avoid a CBA, although it’s been a long time since I looked at the NLRA. There’s more going on here than just an ordinary bankruptcy and plant closing, and I have a sneaking suspicion that BoA’s role in this is less than fully innocent. ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [December 11, 2008, 2:51am UTC](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505/40 "2008-12-11T02:51:53Z")
> [@Miller](#): > > I just saying, if the bank is seizing the factory’s assets, I don’t see a moral or ethical problem with the state stepping in and saying, “The employees get theirs before you get yours.” Which seems to be effectively what’s happening here: the banks just paying off the workers before they sell the assets, instead of after. The only way I see this as being unfair is if the bank can’t make enough from the assets to cover the cost of paying out the employee’s wages, which as far as I know, is not the case. It’s morally wrong because it changes the basis of the agreement that BoA made with Republic. BoA loaned that money on the basis of getting collateral, and would likely have not made the loan otherwise. [Previous page](https://boards.straightdope.com/t/why-would-b-of-a-extend-credit-to-a-company-right-after-they-pulled-it/476505.md?page=1)