February 11, 2009

Barton-Cotton Files Chapter 7 Bankruptcy

By Paul Clolery

Barton-Cotton, the 80-year-old Columbia, Md.-based direct marketing firm, has filed for Chapter 7 bankruptcy in United States Bankruptcy Court for the District of Maryland.

The firm filed liquidation paperwork on four companies: Barton-Cotton Inc., Barton-Cotton Sales Corp., Barton-Cotton Holding Corp., and Barton-Cotton Real Estate Inc. The law firm DLA Piper in Balitmore is the court-appointed trustee in the case. Venable LLP, also in Baltimore, filed the petitions for Barton-Cotton.

The NonProfit Times broke the story regarding the bankruptcy on Monday (Feb. 9) on nptimes.com after obtaining a copy of a letter sent to at least some of Barton-Cotton’s creditors by the Bank of Montreal in Chicago. The letter notifies the recipient that the bank is “a secured creditor of the Debtor,” which it identifies as Barton-Cotton, Incorporated. The bank identifies itself as “Agent.”

According to the bank’s letter, “the Debtor has defaulted on the obligations the Debtor owes to Agent. Agent is therefore entitled to collect all outstanding accounts receivable, general intangibles, rights to payment, and contract rights of the Debtor.”

Calls to Barton-Cotton were not returned. Messages left on the cell phones of Barton-Cotton executives were likewise not returned. One executive reached via cell phone asked to be called back and then did not respond to subsequent calls.

The filing for Barton-Cotton Inc. reported assets of less than $50 million and liabilities between $50 million and $100 million. Barton-Cotton Holding Corp. and Barton-Cotton Sales Corp. both reported less than $50,000 in assets and liabilities of from $50 million to $100 million. Barton-Cotton Real Estate Inc. reported assets of less than $10 million and liabilities between $100 million and $500 million.

Staff at Barton-Cotton had recently acknowledged the firm had been up for sale for several months and that there were no takers. 

The filing has 48 pages of 423 employees, firms and charities listed as being owed money by Barton-Cotton, Incorporated, including money owed to the other bankrupt Barton-Cotton companies. The amounts owed to each were not listed in the filings. (Click here to see filing #1, #2, #3, #4, and #5.)

An official of one Barton-Cotton client, who asked not to be identified, said that his organization was told that it would not be receiving royalty payments on Christmas cards sold as part of a holiday fundraising promotion. The official did not know the amount owed.

At least 83 percent of Barton-Cotton is owned by American Capital Strategies, a company publicly-traded on NASDAQ. The firm paid $144 million for Barton-Cotton in April 2006, announcing the deal on May 2.

In filings with the Securities and Exchange Commission, American Capital reported $62.7 million in debt tied to Barton-Cotton. It estimated the firm’s fair value at $12.4 million.

This past December 2, American Capital announced that it was implementing various cost saving measures in response to economic and market conditions and that the changes would affect both American Capital and its wholly‑owned European affiliate, European Capital Financial Services Limited.

The firm announced it would close two offices, eliminate certain functions at other offices and cut approximately 110 positions or 19 percent of the combined United States and European work forces.  The announcement did not identify the offices nor did it mention Barton-Cotton.

American Capital, including its global fund management business, has approximately $17 billion in capital resources under management and more than 290 portfolio companies.

Barton-Cotton was the primary direct mail agency for Veterans of Foreign Wars (VFW) until last month, when its contract expired. “There were no indications that they would be closed,” said Jerry Newberry, director of communications.

The Kansas City-based nonprofit sought Requests for Proposals (RFP) in June, as it typically does in advance of an expiring contract. Barton-Cotton participated in the process but there was no indication that a bankruptcy was on the horizon, Newberry said, adding that VFW is still negotiating with a couple of different agencies. The decision to not renew the contract, which started in 2005, was based on price and performance, he added.

VFW is listed as a creditor in the bankruptcy petition. 

Irving, Texas-based Mothers Against Drunk Driving (MADD) used Barton-Cotton for a greeting card package this past fall to its complete donor file (about 550,000), according to Nick Ellinger, vice president of strategic outreach.

“I think that all of our mailings around that time suffered because of the economy, kind of the nature of the beast. But I would say the mailing was one that we were considering doing again but hadn’t decided on that,” Ellinger said, describing the performance as “fair.”

The firm had approached MADD within the past month about the potential for a spring mailing, he said, “so we’re very curious to know what’s going on and how things will be going forward. We’re still looking for more information on that.” Ellinger said MADD uses Creative Direct Response of Bowie, Md. as its primary agency but estimated it’d been two years since it employed Barton-Cotton prior to last fall.

The MADD mailing contract had a “no-risk” clause. “We do have a contract with them (Barton-Cotton) that was in that vein, that we were trying to guarantee a net and wanted to get that settled with them, so yes we did have that type of contract,” Ellinger said. “It didn’t meet the net that was in the contract but mailings around that time as you know were suffering all the way around. I would say it depends on what you compare it too.”

Sources told The NonProfit Times that a “no-risk contract” to a major client that went badly was the card that caused the house to tumble. The sources said that the contract had guaranteed specific returns and that the program had done poorly. Estimated losses on that one contract ranged from $200,000 to $2 million. The NPT could not confirm it was the MADD contract guarantee.

Barton-Cotton also lost the Juvenile Diabetes Research Foundation (JDRF)  in New York City when it’s contract expired this past June and it was not renewed, a JDRF spokesman said.

Sister Georgette Lehmuth, president and CEO of Hempstead, N.Y.-based National Catholic Development Conference (NCDC), said a significant number of her members used Barton-Cotton, particularly for church mass cards and memorial cards. She estimated she’s received as many as 30 calls from member nonprofits, either in various stages of campaigns with the firm or just a past client. “Somewhere along the line, they used them for something or were planning something,” she said.

“Our members are calling and we’re trying to figure out how to best help them. We just need more information ourselves,” Lehmuth said. “We feel badly of course; Barton-Cotton was a founding corporate member of our organization, so they’d been with us 40 years,” she said.

“It does impact the Catholic fundraising community. They did something that was kind of specific to our religious group, not that there aren’t others out there that do that but because they were so longstanding with the Catholic community, for some folks it’ll take a search,” Lehmuth said.

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