Mega-Bankruptcies Generate Record-Breaking Fees

In a finding that has not exactly been a surprise, the NLJ recently reported that bankruptcies are big business. REALLY big business. Since the three-year-old economic meltdown, bankruptcy attorneys are working nonstop on complex corporate issues…and generating large profits. What is a surprise is that the restructurings of a corporation’s debts may be so multi-layered that they continue to bring in record-breaking fees, stemming from their filing date of 2008.

This is the case with Lehman Brothers, for instance. Several months ago the monies brought in by lawyers handling the Lehman Brothers Holdings, Inc. bankruptcy—the most massive restructuring ever—had already crossed the unprecedented $1 Billion mark. Weil Gotshal, the lead debtors counsel, points to the company’s huge liabilities as well as work related to derivatives (an alternative investment with values based on prognostications of an investment’s movements) as the cause of some of the ongoing work.

Other factors include the company’s setup and its insolvency cases in other countries, explained Harvey Miller (first photo on the left), a business refinance and restructuring partner at Weil Gotshal. “These are very large, very complex cases,” Miller said. “They require and absorb a huge amount of time.” Miller stated that the case has also been heavily litigated. With 20 offices nationally and internationally, some of Weil’s 1,200 lawyers were on the case and helped bring in the ongoing bankruptcy’s monumental fees.

Manny Grillo, a New York partner who chairs the restructuring financial practice at Goodwin-Proctor, based in Boston, admitted that the fees “are going to be astronomical”. Grillo (pictured on the right) said that, because Lehman operated so many businesses, everything from real estate derivatives to derivative portfolios, “This thing is like a jellyfish, with tentacles everywhere.”

There were approximately 24 firms billing Lehman at some point, and they’ve collected millions or even tens of millions of dollars. Millbank, Tweed Hadley & McCloy, unsecured creditors committee lead counsel, billed in the area of $89.9 million in fees and expenses, according to a recent monthly operating report filed in the case.

Miller pointed out that the turnaround firm Alvarez & Marsal—the company running Lehman’s liquidation as well as serving as interim management—had collected $393.4 million by the end of December of last year. That’s even more than Weil Gotshal’s $254.6 million. (According to a court filing, Weil Gotshal’s hourly fees for partner and of counsel were from $700 to $1000, while associates billed from $225 to $840.)

As an example of an actual attorney fee request, one Milbank Tweed financial restructuring partner, with the firm for 12 years, billed 303 total hours at the hourly rate of $1,050.00. This netted him a payday of $318,150.00. According to the NLJ post, the lead lawyers on the case did not respond to requests for comments.

Other mega-corporations which have opted to restructure have paid out similarly large amounts to their lawyers. Top pending bankruptcies (based at the time of filing) with fallouts that stemmed from the 2008 economic collapse include: General Motors Co.’s bankruptcy vehicle; Thornburg’s Mortgage Inc.; Washington Mutual Inc.; Motors Liquidation Co. and Capmark Financial Group. Capmark’s sale of assets at the time of filing featured the largest sale of assets in 2009.

In some of these restructurings, more negotiation, litigation and renegotiation is on the horizon, which should continue to bring in millions in legal fees. As Grillo—whose work isn’t enough to warrant a separate line item on the monthly report—said of the behemoth Lehman Brothers, “You can’t not be involved in Lehman. It’s the one case where there are probably not necessarily enough lawyers to go around.” For details, go to http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202482620914.

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