The Work

November 24, 2008 6:05 PM

Who Headlines a Big Three Bankruptcy?

Posted by Brian Baxter

Should one of Detroit's Big Three auto manufacturers go bankrupt, it will be among the largest Chapter 11 filings in U.S. history. So who are the likely candidates for the assignment? The Am Law Daily interviewed several leading restructuring lawyers--most on the condition that they not be named--to find out.

The apparent early frontrunner for landing a Big Auto Chapter 11 assignment is New York's Weil, Gotshal & Manges. Long a mainstay in the bankruptcy field through the founding partner of its practice, Harvey Miller, the firm also counts General Motors as a longtime client. (Miller and several other Weil restructuring partners did not respond to requests for comment.)

Several lawyers interviewed for this story say that Weil has the client relationship, pedigree, and size necessary to take on a potential GM filing. The bevy of high-profile Chapter 11 clients that Weil already has under its belt includes Enron, WorldCom, Global Crossing, Lehman Brothers, and as of today giftware maker Lenox Group.

"There aren't that many firms that have the debtor capacity to represent [one of the Big Three]," says Mark Bane, cohead of the bankruptcy and business restructuring group at Ropes & Gray. "You would need such an enormous number of bankruptcy lawyers that many of the firms that are significant players would be precluded just by nature of their size limitations."

Bane says that his own department, which numbers about 30 lawyers, doesn't have the manpower necessary to take on a Big Three bankruptcy without abandoning the firm's current clients and restricting its ability to take on new representations.

It's uncertain whether a potential Big Three bankruptcy might present a similar problem for Weil--and how the firm would manage to juggle its Lehman, Lenox, and other client obligations in the event of such a resource-draining retention. That's especially true given that it's unclear whether a potential Big Three filing would proceed on a liquidation track (a la Lehman) or as an infinitely more complicated corporate restructuring.

"It's one thing when you're running a liquidation-mode case," Bane says. "It's intensive and it's large. But it's not the same challenge as keeping a company going and the myriad challenges you have regarding the different dimensions of a company's operations in Chapter 11."

Some lawyers say that Weil or any firm taking on a complex Big Three bankruptcy would likely have to rely heavily on local counsel.

Detroit's Honigman Miller Schwartz and Cohn has historically been GM's local counsel; the auto giant has often tapped the firm for supply chain management and insolvency issues. (The firm's GM liaison partner, Robert Weiss, did not return a phone call requesting comment.)

Bane says that besides Weil, firms like Kirkland & Ellis, Willkie Farr & Gallagher, and Skadden, Arps, Slate, Meagher & Flom come to mind as having the appropriate capacity and expertise to handle a Big Three bankruptcy.

In the past year, Kirkland's bankruptcy and restructuring practice has even managed to outpace Weil's, recovering from the departure of former practice head James "Jamie" Sprayregen to Goldman Sachs in 2006 by landing former Gibson, Dunn & Crutcher partner Richard "Rick" Cieri to head the group. Ford is a longtime Kirkland client--the firm was named The American Lawyer's Litigation Department of the Year in 2008 in part for work done for Ford--and the company has turned to the firm before to help it advocate for auto industry interests. (Cieri, a former American Lawyer Dealmaker of the Year, declined to comment.)

While Willkie has previously served as bankruptcy counsel to Dickson, Tenn.-based Teksid Aluminum--a foundry and engine-part manufacturer for Chrysler, Ford, and GM--some observers question whether the firm has the "Rust Belt" connections needed to land a Big Three bankruptcy assignment. (Jones Day was one firm mentioned as having that connection, but neither practice founder David Heiman or practice chair Paul Leake responded to requests for comment.)

Skadden--whose 100-plus lawyer restructuring group is headquartered out of both New York and Chicago due to its three-headed leadership hierarchy of J. Gregory Milmoe, John "Jack" Butler, Jr., and Timothy Pohl--would seem to be another possible candidate.

The firm has a conflict, however, when it comes to a possible GM bankruptcy: Skadden currently represents auto parts supplier Delphi in Chapter 11 proceedings. The Troy, Mich.-based company was spun-off from GM in 1999 and the auto giant has been a major protagonist in Delphi's bankruptcy, making it virtually impossible for Skadden to be retained by GM for any Chapter 11 issue.

Pohl says Skadden has historically done work for former Chrylser owner Daimler, which sold 80 percent of Chrysler to private equity firm Cerberus Capital Management in 2007 for $7.4 billion. Skadden also does work for Ford, says Pohl, adding that the firm has yet to be contacted by either automaker.

"I'm not convinced that any [of the Big Three] are hiring advisers yet," Pohl says. "But between us, Kirkland, and Weil, I'd say that the three of us have the largest [bankruptcy and restructuring] groups with a big falloff after that."

Competition for Big Three bankruptcy work also figures to be fierce across the border in Canada, where U.S. auto manufacturers have substantial operations, predominantly in Ontario.

Jay Swartz, a financing and corporate restructuring partner at Toronto's Davies Ward Phillips & Vineberg, says that Osler, Hoskin & Harcourt and Blake, Cassels & Graydon are the leading candidates to represent GM and Ford, respectively.

"Chrysler is a bit of a mystery simply because they have tended not to use any of the major law firms [here] on a regular basis, but scatter their work all over the place," Swartz says. "The rumor is that it's Stikeman Elliott, but that's nothing more than speculation." (The Toronto-based cohead of Stikeman's insolvency and restructuring group, Sean Dunphy, did not return a phone call seeking comment.)

Swartz says that any Big Three Canadian bankruptcy filings will be made under the nation's main insolvency statute, the Companies' Creditor Arrangement Act (CCAA). The CCAA has some relatively new provisions to deal with cross-border insolvencies that would be comparable to what one would find under Chapter 15 of the U.S. bankruptcy code. But Swartz says that it's likely that any Big Three automaker would do a separate CCAA filing for its Canadian entities, rather than use the Chapter 15 equivalent.

Swartz anticipates that any CCAA filing would be in Ontario, as the province is home to the bulk of the automaker's Canadian operations as well as the most sophisticated jurisdictions for such filings. Since the CCAA is a national statute, Swartz says that any Ontario filing under its guise would be interpreted nationally.

The Big Three also have operations in Mexico, but lawyers contacted for this article, still unsure of the ramifications of any potential U.S. filing, were reluctant to speculate on what might happen south of the border.

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