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April 8, 2009 3:10 PM

Treasury Hires Three Firms to Advise on Autos for $26 Million

Posted by Nate Raymond

The Treasury Department revealed Friday that it had awarded contracts to three law firms worth up to $25.8 million combined to advise on auto industry restructurings and on how to provide debtor-in-possession financing for troubled manufactures and suppliers.

The contracts, awarded on March 30, went to Cadwalader Wickersham & Taft, Sonnenschein Nath & Rosenthal, and Haynes and Boone. The contracts each carry a ceiling value of $8.59 million. An administration official confirmed the three firms are "providing legal support for the restructuring effort."

Stephen Pezanosky, the Fort Worth-based chair of Haynes and Boone's bankruptcy and business restructuring practice, confirmed the firm received the six-month contract and that he would be one of the partners working with the government on "restructurings and potential bankruptcies."

"We were awarded a contract by the U.S. Department of the Treasury in connection with potential restructurings, refinancings, and bankruptcies in the auto industry," Pezanosky says. "Beyond that, I don't know if I can tell you more."

Both General Motors Corporation and Chrysler face possible bankruptcy filings after President Barack Obama on March 30 rejected their requests to keep billions of dollars in federal loans. New GM CEO Fritz Henderson has called a bankruptcy filing "more probable." Chrysler, meanwhile, is pushing to cut a deal with Italy's Fiat SpA to stave off a filing.

Suppliers are likewise struggling, and the Treasury Department announced Wednesday that GM and Chrysler had initiated financing support programs for suppliers using $5 billion in government funds.

Haynes and Boone is new to the auto restructurings. Cadwalader and Sonnenschein already had previously announced deals to advise the government on bailout-related issues but for much smaller values. Cadwalader received a $417,562 contract in January to provide auto bankruptcy advice to the government. Thacher Proffitt & Wood received a $500,000 contract in December. The contract carried over to Sonnenschein when Thacher dissolved later that month and 100 lawyers switched firms.

When Sonnenschein's contract was originally announced, Treasury said the firm would advise on "purchasing asset-backed securities from a lending facility." But the representation seems to have evolved since then to include the auto work. Cadwalader restructuring cochair Deryck Palmer told the Associated Press in January that his team was working "very closely" with Sonnenschein.

At Sonnenschein, the lawyers representing the government on auto issues include capital markets partners Jeffrey Murphy, Robert McCarthy, Aimee Cummo, and Stephen Whelan. Also advising the government work is corporate partner E. Lee Smith, whose specialty is commercial lending and loan recovery, including bankruptcy exit financing. All five partners originally worked at Thacher Proffitt.

Cadwalader restructuring partner John Rapisardi is the lead lawyer on the Wall Street firm's Treasury engagement.

Notice of the deals was posted Friday on FBO.gov, a site for vendors to make bids for government contracts.

In a synopsis included with the award notice, the Treasury Department says the firms may advise on "loans, equity investments, and other direct or indirect investments in various auto industry participants." They may also develop documentation and negotiate transactions. The contracts aren't limited to the General Motors and Chryslers, but instead broadly cover "manufacturers, suppliers, dealerships and related entities."

"Because the [firms] will assist Treasury in responding to urgent economic circumstances, task orders are expected to involve extremely short deadlines," the synopsis says.

Treasury says it expects the firms to advise on structuring debtor-in-possession facilities and negotiating DIP loan transactions to the auto industry. The firms may also be asked to "negotiate loans or other financing of auto industry participants, including amending or otherwise modifying existing loans to such parties by the Treasury."

They may also advise on bankruptcy issues, "including analysis of assignments and claims relating to loans to or investments in auto industry participants." And the contracts also cover disposing of assets.

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When Sonnenschein picked up 100 or so lawyers from Thacher Proffit & Wood last December, many viewed it as quite risky if not foolish given the economic climate. We'll see over time, but it hasn't been a bad investment so far!

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