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January 12, 2012 8:00 PM

The Bankruptcy Files: Twinkies, Bad Banks, and Belly-Up Law Firms

Posted by Brian Baxter

The number of large companies filing for bankruptcy in 2011 declined for the third straight year since the start of the financial crisis in 2008, according to information compiled by BankruptcyData.com, but 2012 is already turning out to be a busy year for the bankruptcy bar.

First, a few quick hits from the bankruptcy beat over the past week:

Delta Air Lines and private equity giant TPG Capital are reportedly mulling bids for AMR, the bankrupt parent company of American Airlines, according to The New York Times's DealBook. AMR, which is being advised in bankruptcy by three Am Law 100 firms, could also be split up into separate pieces that are scooped up by its rivals.

White & Case financial restructuring partner Gerard Uzzi has been retained by a group of secured bondholders who are increasingly concerned that Ally Financial, formerly known as GMAC, will try and cut ties to its struggling mortgage unit Residential Capital through bankruptcy. Bloomberg reports that hedge fund heavyweights John Paulson and David Tepper are among those urging Ally to back ResCap.

Quinn Emanuel Urquhart & Sullivan restructuring chair Susheel Kirpalani has been appointed examiner in the Dynegy Holdings bankruptcy, Reuters reports. Kirpalani will be tasked with investigating whether the company is treating bondholders fairly.

While Quinn Emanuel wades into the Dynegy case, another Quinn, erstwhile Irish billionaire Seán Quinn, is having a tough time in his bid to file for bankruptcy in Northern Ireland. A judge in Belfast ruled this week that Quinn, one of Ireland's richest men until the Emerald Isle's economic collapse three years ago, must file in his home country. Quinn's bankruptcy lawyer is John Gordon, managing partner of Belfast’s Napier & Sons.

Hedge funds hoping to turn a quick profit on Europe's sovereign debt woes would be wise to familiarize themselves with the continent's insolvency laws, which are quite different from this country's. Along those lines, a team of Kirkland & Ellis lawyers seeks to parse Germany’s revised bankruptcy code in this piece for The Daily Deal.

Linklaters and fellow British firms Travers Smith, SJ Berwin, and Addleshaw Goddard have landed roles on the prepackaged administrations of retailers Blacks Leisure and lingerie chain La Senza, according to U.K. publication Legal Week.

And now for some of the more noteworthy bankruptcy filings to cross The Am Law Daily's desk this week...

Hostess Brands

With its Chapter 11 filing on January 11, Hostess Brands—known for snack staples such as Twinkies, as well as goodies produced under the Dolly Madison and Drake's brands—joins the ignominious ranks of companies that have entered so-called "Chapter 22" proceedings.

The Am Law Daily reported three years ago on Skadden, Arps, Slate, Meagher & Flom work representing the company then known as Interstate Bakeries on its exit from more than four years of Chapter 11 proceedings. But now private equity-backed Hostess is headed for a bankruptcy court double-dip, thanks to a $1.4 billion debt load and mounting payments due to the labor unions and pension funds that represent the wholesale baker's workforce.

Jones Day bankruptcy star Corinne Ball, best known for her work in the Chrysler case, is leading a team from the firm advising Irving, Texas-based Hostess. In an 86-page application for employment in the case, Jones Day states that it received an advance payment of $250,000 from Hostess on March 31, 2011, that has been replenished in varying amounts since then.

Prepetition draws by Jones Day in the case total more than $5.8 million so far, with one immediately prior to the company's Chapter 11 filing in the amount of $625,471. As of January 11, roughly $812,750 of the firm's revolving retainer remains unapplied.

The hourly billing rates of the lead Jones Day lawyers advising Hostess are as follows: bankruptcy partners Ball ($975), Heather Lennox ($875), Lisa Laukitis ($775), Verle Roovers ($750), and Ryan Routh ($650), global M&A practice chair Robert Profusek ($975), financial institutions partner John Mazey ($650), labor and employment partners Willis Goldsmith ($875) and Jessica Kastin ($650), and employee benefits partner Evan Miller ($875) and of counsel John Cornell ($975).

Venable labor and employment partners Kenneth Hoffman ($660), Robert Ames ($595), Gregory Ossi ($595), and Lisa Tavares ($525), and bankruptcy of counsel Frederick Carter ($520) are serving as special employee benefits counsel to Hostess. Court filings by the firm show that Venable received a prepetition retainer in the amount of $200,000 last November. Nearly all of that retainer has been drawn down upon, with Hostess repleneshing it with a payment of nearly $50,000.

Paul, Weiss, Rifkind, Wharton & Garrison bankruptcy partner Alan Kornberg is representing a finance unit of investment firm Silver Point Capital, one of several private equity and hedge funds providing $75 million in debtor-in-possession financing to Hostess. CNNMoney reports that one thing Hostess can cling to is that iconic brands like Twinkies rarely suffer in bankruptcy proceedings.

International Media Group

Los Angeles–based multilingual television broadcaster International Media Group (IMG) filed for bankruptcy in Delaware on January 9. Bloomberg reports that the company lists both debts and assets of between $100 million and $500 million. 

William Chipman, Jr., and Mark Olivere of Delaware's Landis Rath & Cobb are listed as lead debtors' counsel to IMG. Court filings by Landis Rath show that in the 90 days prior to IMG's bankruptcy filing, the firm received retainer payments totaling $140,517. Partners are billing between $475 and $720 per hour, while associates are receiving between $325 and $430.

According to a list of IMG's largest unsecured creditors, the debtor owes $27,459 to Skadden.

Lehman Brothers Australia

The legal bills for bankrupt Lehman Brothers continued to grow in late December, with payments to professional legal, accounting, and financial advisers totaling $1.5 billion since the start of the Chapter 11 case more than three years ago, according to the defunct investment bank's monthly operating report for November.

Now Lehman's Australian subsidiary has also began bankruptcy proceedings, filing for Chapter 15 protection in New York on January 6, Bloomberg reports. The Sydney-based affiliate has $1.3 billion in assets that could be used to defray certain litigation claims, according to a longer story on the filing by The Wall Street Journal.

Kirkland bankruptcy partners David Seligman, Jeffrey Gettleman, and Sienna Singer in Chicago are advising Lehman Australia in its Chapter 15 case. The firm has not yet filed billing statements with the bankruptcy court.

Despite being out of business for more than three years, Lehman was able to swing a deal of its own this week, according to DealBook. U.S. bankruptcy judge James Peck ruled that Lehman has the right to match a $1.3 billion offer last month by Sam Zell's Equity Residential for a stake in apartment owner Archstone, which is owned by Lehman, Bank of America, and Barclays.

According to Lehman's latest monthly operating report, lead debtors' counsel Weil, Gotshal & Manges billed for nearly $8 million in November alone, bringing the firm's total haul in the case to $366.6 million.

Other leading bankruptcy billers are conflicts counsel Curtis, Mallet-Prevost, Colt & Mosle ($2.5 million in November/$38.5 million total) and creditors committee' counsel Milbank, Tweed, Hadley & McCloy ($5.7 million in November/$123.3 million total).

ShoreBank Corporation

A community bank founded and based in Chicago, ShoreBank officially went bust in 2010 when the FDIC shut the lender's doors and its assets sold to the similarly social conscious Urban Partnership Bank. Now ShoreBank and several affiliates have filed for bankruptcy in Chicago, according to the Chicago Tribune.

Skadden restructuring partner George Panagakis in Chicago is advising ShoreBank in its Chapter 11 case. The firm has not yet filed billing statements with the bankruptcy court.

According to a list of ShoreBank's 20 largest unsecured creditors, the debtor owes an unspecified amount in litigation claims to clients of Chicago firms Kovitz Shifrin Nesbit and Pavalon & Gifford. ShoreBank lists $63.5 million in debts against $19.2 million in assets in its bankruptcy filing.

Farer Fersko

When law firms file for bankruptcy, it doesn't usually end well. Plaintiffs' firm Kelley & Ferraro was the exception to the rule when it emerged from Chapter 11 proceedings in April of last year, but Florida's Ruden McClosky filed for bankruptcy the following November and was sold later that month to rival Greenspoon Marder.

Now a Westfield, New Jersey–based firm, Farer Fersko, has filed for Chapter 7 in Newark, according to sibling publication the New Jersey Law Journal. The filing came the same day that all but one of the firm's 14 lawyers joined larger New Jersey firm Greenbaum, Rowe, Smith & Davis in nearby Woodbridge.

Stacey Meisel, bankruptcy cochair and founding member of New Jersey's Becker Meisel, is representing Farer Fersko in its Chapter 7 case. Meisel has not yet submitted billing records to the bankruptcy court.

The NJLJ reports that Farer Fersko is a boutique that specializes in environmental and real estate work. But hard financial times forced name partner David Farer to initiate talks with Greenbaum Rowe five months ago, according to the NJLJ.

Court records show that Charles Forman, a senior partner at Paramus, New Jersey–based Forman, Holt, Eliades & Ravin, was named trustee for Farer Fersko before his appointment was vacated in order to name Benjamin Stanziale, Jr., of West Orange-based Stanziale & Stanziale to the role on an interim basis.

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