December 29, 2008 1:51 PM

Heller Ehrman Files for Bankruptcy

Posted by Zach Lowe

Update (4:05 p.m.): The second, third and fifth paragraphs of this post contain new information.

This just in: As predicted by our sibling publication the Recorder last week, the defunct firm Heller Ehrman has filed for Chapter 11 bankruptcy protection. In a statement, Peter Benvenutti, said the firm filed not because it has run out of money, but because its main two lenders--Bank of America and Citibank--refused to renegotiate the terms of a $5.7 million debt the banks say the firm owes as part of a long-term loan. 

Heller's dissolution committee found a recent filing the banks made with the California Secretary of State in which, the committee believes, the banks forfeited their prior status as secured creditors--that is, creditors who get first dibs on Heller's cash. Heller owed the banks about $60 million when the firm collapsed, and they quickly paid back all but $5.7 million of that amount because they believed, at the time, that the banks qualified as secured creditors, says Leslie Corwin, a Greenberg Traurig shareholder who has been advising the dissolution committee. When Heller found out about three weeks ago that the banks might not have been secured creditors after all, they asked the banks to repay some of the money so Heller could use it to repay other creditors, Corwin says. The banks wouldn't budge, and the firm decided its best move was to file for bankruptcy--a move that will force a judge to decide whether the banks have to return any cash. 

David Minnick, the Pillsbury Winthrop Shaw Pittman partner representing Bank of America, was not immediately available for comment. Citibank's attorney, Gibson, Dunn & Crutcher's Jonathan Landers, declined comment. 

Another factor that drove Heller's filing today: a judge's ruling last week that the firm's San Francisco landlord, 333 Bush Associates, was entitled to a $48 million writ of attachment -- meaning a portion of Heller's assets were immediately frozen, and Bush Associates became a secured creditor, ahead of dozens of unsecured creditors waiting in line for their money. (The firm's dissolution committee has settled accounts with nine other landlords, according to a 13-page declaration Benvenutti filed with federal bankruptcy court in California.) The Heller team claims Bush would be entitled to only about $16 to $18 million under bankruptcy rules, which typically max out payments to landlords at roughly one year's rent, Corwin says. Bush asked for $48 million based on the rent Heller would have paid throughout the duration of their lease. 

In his statement, Benvenutti stressed that the firm is collecting money regularly and expects to recover "tens of millions" in collections going forward. According to Benvenutti's 13-page declaration, the firm has $3.7 million in cash and expects to recover about $35 million in accounts receivable. The firm's liabilities consist of the $5.7 million it owes to lenders, $10 million in other accounts payable and $4 million in taxes, the statement says.

The statement also reveals how bad things have gotten for the 54 employees left at Heller. The firm has no cash on hand to pay them their regular salaries (due at the end of this week), and their main banks "swept all of the cash (approximately $6.5 million)" from the firm's accounts on Dec. 9 upon learning that  the firm might file for bankruptcy that day. The firm filed first-day motions with the court asking to use cash collateral to pay the remaining employees (who have also been promised 100 percent retention bonuses in exchange for staying on).

The firm says it hopes to repay the bank lenders in the next three or four weeks.

Teams from Greenberg Traurig and Pachulski Stang Ziehl & Jones are bankruptcy cocounsel for Heller.

Make a comment

Comments (1)
Save & Share: Facebook | Del.ic.ious | | Email |

Reprints & Permissions

Post a comment

If you have a TypeKey or TypePad account, please Sign In

You are currently signed in as (nobody). Sign Out

Name:

Email Address:(Not displayed with comment.)

URL:

Remember personal info?

Comments: