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— Bankruptcy —
Bankruptcy lawyers and advisers share this sentiment in these turbulent economic times, and that will become only more prevalent over the next year or so. After all, as The Deal's bankruptcy league tables for the fourth quarter of 2008 can attest, debtors are becoming more numerous, bigger and less likely to reorganize -- all to the benefit of the professionals who serve them. See press release regarding The Deal Pipeline's bankruptcy league tables. See also: DIP financings on record pace for 2009 Last year, according to BankruptcyInsider.com, there were 3,799 U.S. and non-U.S. bankruptcy filings, up almost 23% from 3,094 in 2007 and 72% higher than 2,208 in 2006. Even more compelling is how big the filers are becoming. There were 60 debtors in 2008 with assets of more than $1 billion, compared with just seven in 2007. In last year's fourth quarter alone, there were 18.
The proliferation of large cases have helped the law firms (Latham & Watkins LLP; Young Conaway Stargatt & Taylor LLP; Richards, Layton & Finger PA) in New York and Delaware where many have been filed, while the continued rise in non-U.S. filings have not just aided the incumbents (Deloitte Touche Tohmatsu) but the upstarts (Begbies Traynor Group plc and Menzies Corporate Restructuring). More and more debtors aren't even entertaining reorganization, either, which means that professionals are working on more liquidations than ever before. Burgeoning Chapter 7 filings is only one reason why "we're at the front end of the tsunami" of bankruptcy work, says White & Case LLP's Thomas Lauria (17 active cases in the fourth quarter). Nearly every law and advisory firm bolstered its bench in anticipation of a bankruptcy up cycle that has become even more frenetic than expected. The fruits of those efforts became apparent in the fourth quarter. For example, Jefferies & Co. (17 active cases, tied for fourth among investment banks) had an eight-case gain, thanks to rebuilding and expanding its restructuring group with the addition of senior bankers Hal Kennedy and Leon Szlezinger after William Derrough and Thane Carlston defected to Moelis & Co. And the recruiting hasn't stopped. Clearly, Kirkland & Ellis LLP (49 active cases, tied for 48th place among law firms) hopes getting James Sprayregen back after a three-year stretch at Goldman, Sachs & Co. will help the Chicago law firm reverse its 15-case slide in the fourth quarter. Some law firms certainly experienced a rebirth in the fourth quarter. Latham & Watkins LLP, for example, gained 18 active cases, giving it 249 (third among law firms). Latham also gained a measure of prominence, getting work on huge cases such as VeraSun Energy Corp., Key Plastics LLC and DHP Holdings II Corp. But others, such as Weil, Gotshal & Manges LLP suffered in the rankings even as their client list swelled with billion-dollar debtor assignments. In the fourth quarter alone, the firm was tapped to advise debtors Kaupthing Bank hf, Pilgrim's Pride Corp., Key Plastics LLC and Lenox Group Inc. Weil (93 active cases, tied for 21st) purged 130 cases from its roster, dropping it from the fifth-place finish it had in the third quarter of 2008. But Weil wasn't alone. Duane Morris LLP (206, sixth) and Alston & Bird LLP (86, 22nd) trimmed 75 and 41 active cases, respectively. The Deal pruned other caseloads, such as 257 active cases chopped from noninvestment bank PricewaterhouseCoopers LLP (32, 11th) and nine from consultantcy RSM Richter LLP (15, tied for 16th). One group that has consistently gained cases over the past year is claims and noticing agents, and the same trend held true for Kurtzman Carson Consultants LLC (159 active cases, third place among noninvestment banks), Epiq Systems Inc. (144 active cases, fourth) and BMC Group Inc. (98 active cases, fifth). These firms gained 35, 17 and 21 active cases, respectively, in the fourth quarter. The uptick in business prompted Epiq to expand by opening an office in Connecticut in December and hiring 12 professionals to staff it. Professionals serving certain venues did particularly well. Delaware, for example, generated nine of the $1 billion-plus bankruptcies last year (so did Manhattan), helping the Wilmington bar. Young Conaway (200 active cases, eighth among law firms) gained 13 cases and vaulted three spots in the fourth quarter. Richards Layton (122 active cases, 19th) picked up 16 cases and leapfrogged over 11 rivals. Pachulski Stang Ziehl & Jones LLP (227 active cases, fifth) accumulated 11 cases. Professionals getting work in the Wilmington and Manhattan courts also are doing well on a fee basis, too. Sidley Austin LLP (66 active cases, tied for 31st), debtor counsel to Tribune Co., which filed in Delaware on Dec. 8, has requested an hourly fee of $1,100, though it will likely be permitted only $925. In the Manhattan court, debtor counsel Kirkland & Ellis for Tronox Inc. is seeking $1,110 an hour; that case was filed on Jan. 12. Individually, there is some fresh blood among the leaders. Tied for fourth among investment bankers in the fourth quarter was Chanin Capital Partners LLC's Brendan Murphy (nine active assignments) after gaining four cases. Others made healthy gains. James Carr (239 active assignments, fifth among lawyers) of Kelley Drye & Warren LLP picked up 25 new assignments. Henry Miller of Miller Buckfire & Co. LLC, not even ranked in the third quarter, got back in the top 10 (five active assignments, tied for eighth) among investment bankers by annexing four assignments in the fourth quarter. Noninvestment banker Daniel McElhinney (131 active assignments) of Epiq Bankruptcy Solutions LLC vaulted from ninth place to third after collecting some 17 cases in the fourth quarter. The cases and assignments are likely to keep coming in the quarters ahead. Russ Belinsky, co-founder of Chanin Capital (18 active cases, third among investment banks), believes "it will get worse before it gets better." Belinsky (six active assignments, tied for seventh among investment bankers) predicts that there will be significant increases in defaults and dislocations among bankrupt and financially distressed companies this year. White & Case's Lauria believes the increasing abundance of Chapter 7 liquidations sought by failing businesses is particularly telling. "Until recently, Chapter 7 was an extremely rare remedy for large corporations," he says. "Now, many companies are going into Chapter 7 to liquidate." Some observers have been quick to blame changes to the federal Bankruptcy Code in 2005 for the increase in Chapter 7 liquidations and Chapter 11 sales and auctions, pointing to the shorter exclusivity periods, reduced time frames for deciding what to do with leases and other changes brought about by the amendments that are discouraging reorganizations. But Schuyler Carroll of Arent Fox LLP (148 active cases, 14th among law firms) doesn't buy it. It's not the bankruptcy laws that need adjusting, he says, but rather that the parties involved with troubled companies need to become more flexible and willing to negotiate with one another. Something had better give soon or else the filings will keep coming fast and furious well beyond this year. Lauria already thinks the bankruptcy upcycle will last into 2011. "We're only toe-touching at this point," he says. "The deep waters are still to come." See press release regarding The Deal Pipeline's bankruptcy league tables. See also: DIP financings on record pace for 2009 Comments |
"Our caseload is currently very healthy, although I shouldn't say that with a smile on my face," says one insider at a bankruptcy law firm.
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One can only hope for growing caseloads at these aggressive firms. In fact one could even say that it might be best if they took a pro-active stance, encouraging more liquidation! There is room yet for more Firms participating in Jumbo Wind Downs.
The biggest plum awaits, Fedrally supported lending institutions, ie the Fed which only operates on a charter from Treasury!! Good Luck Guys, at least the end will be Orderly and Not Chaotic!
George Harter