by Jamie Mason | Published May 29, 2012 at 12:04 PM
After weeks of speculation and partner departures, Dewey & LeBoeuf LLP, once a leading global law firm, has filed for bankruptcy and is planning to wind down its operations.
The New York-based law firm filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York in Manhattan on Monday, May 28.
The law firm, itself a major player in bankruptcy -- its $849.6 billion in volume on 24 active cases placed it 17th among its rivals for the first quarter in The Deal Pipeline Bankruptcy League Tables, ahead of large firms such as Jones Day and Kirkland & Ellis LLP -- was confronted with liquidity constraints during the first three months of 2012, leading to the resignation of more than 160 of the firm's 300 partners by May 11, court documents said.
Among those fleeing partners were bankruptcy heavy hitters Martin Bienenstock and Bruce Bennett, who decamped for Proskauer Rose LLP and Jones Day, respectively.
Dewey decided it was in the best interest of its clients, creditors and employees to wind down its business after it was unsuccessful in structuring a transaction to maintain the core value of the firm through a merger with another firm. Such a deal was hindered because no firm was willing to take on all of its obligations. The law firm was also unable to renew or secure alternative financing and was faced with continuing defaults of its prepetition debt.
The vast majority of Dewey employees were notified that they would be terminated as soon as May 15, as the law firm was faced with the potential acceleration of approximately $225 million in prepetition secured debt.
The remaining 150 employees will be reduced to approximately 90 people in the U.S. through May 31.
The law firm's liquidation is being overseen by partners Janis M. Meyer and Stephen J. Horvath III.
Dewey is looking for approval to use its cash collateral to fund the liquidation of its firm. Judge Martin Glenn in Manhattan will consider the interim cash collateral use, but a hearing hasn't yet been scheduled.
During its case, Dewey plans to liquidate its assets, close its offices, dispose of former clients' files, evaluate and administer claims against its estate and investigate and pursue potential causes of action.
Dewey has a $100 million credit facility with J.P. Morgan Chase Bank NA, Citibank NA and Bank of America NA that was set to mature on April 16 but was instead extended through May 18.
The firm also has $40 million in 4.49% Series A senior secured notes due April 16, 2013; $15 million in 5.39% Series B senior secured notes due April 16, 2015; $40 million in 6.10% Series C senior secured notes due April 16, 2017; and $55 million in 6.65% Series D senior secured notes due April 16, 2020, court filings said.
Dewey owes $76.45 million on the secured credit facility and $150 million on the notes. J.P. Morgan Chase Bank is the collateral agent to the noteholders, court papers said.
The debtor operated 26 offices throughout the world, including Abu Dhabi, Beijing, Boston, Brussels, Chicago, Hong Kong, Houston, Los Angeles, Moscow, New York, San Francisco and several other locations.
Dewey was created in 2007 through the merger of two law firms, Dewey Ballantine LLP and LeBoeuf, Lamb, Greene & MacRae LLP. As a result of the merger, Dewey & LeBoeuf became one of the largest law firms in the world, with more than 1,300 attorneys in 12 countries. But it also borrowed heavily.
"Unfortunately, Dewey & LeBoeuf was formed at the onset of one of the worst economic downturns in U.S. history, which had a devastating effect on the financial markets and related industries that constituted the majority of the firm's historic client base," court filings said.
The negative economic conditions, combined with the firm's rapid growth and debt expansion, left it without sufficient cash flow to cover its capital expenses and fulfill compensation expectations. The partners canceled deferred income of more than $100 million.
In December, Dewey's profit fell $30 million short for the calendar year and the firm was advised not to use $25 million of its $100 million revolving credit facility in January.
"The resulting contraction of working capital by $55 million resulted in a liquidity crisis for the firm, which contributed to its ultimate demise," court papers said.
The company listed its assets and liabilities at $100 million to $500 million in its petition.
Dewey's largest unsecured creditors are the Pension Benefit Guaranty Corp. ($80 million), 1301 Properties Owner LP of New York ($3.77 million), Thomson Reuters Corp. of Eagan, Minn. ($2.36 million), Bank of America ($2.14 million) and HireCounsel of New York ($1.55 million).
Debtor counsel is Albert Togut, Scott E. Ratner and Lara R. Sheikh of Togut, Segal & Segal LLP.