The Work

March 30, 2009 6:18 PM

The Bankruptcy Files: BI-LO, Prepacks for Charter, Herbst Gaming

Posted by Brian Baxter

While it might be harder than ever for companies entering bankruptcy proceedings in the U.S. to emerge from Chapter 11 due to a dearth of debtor-in-possession and exit financing, each day seems to bring a new batch of companies banging the bankruptcy drum.

The Am Law Daily has made it its mission to delve into as many of those filings as our PACER account will allow. Over time we've been chatting with restructuring counsel to try and suss out overarching themes to this global economic madness, and every so often we're able to pair up those prognostications with the present.

Back in November we chatted with Ropes & Gray bankruptcy and restructuring cohead Mark Bane, who touted the merits of a prepackaged bankruptcy for the ailing auto industry. While Big Auto hasn't exactly wowed investors and those in Washington with its business plan, some troubled companies are pursuing 'prepacks' as a means to remain economically viable and appease unruly lenders.

It turns that two of the three largest filings in the past week--Charter Communications and Herbst Gaming--have used prepacks to avoid the current-day pitfalls of Chapter 11:


BI-LO, a Greenville, South Carolina-based company that operates more than 200 supermarkets in the southeastern U.S., filed for bankruptcy last week prior to the expiration of its credit facility.

BI-LO's sister company, Birmingham-based Bruno's Supermarkets, filed for bankruptcy in February. Both companies are owned by Dallas-based private equity firm Lone Star Funds, which focuses on distressed investments.

Vinson & Elkins restructuring and reorganization partners Josiah Daniel III and Barry "Dov" Kleiner, litigation partner Michael Raiff, and M&A partner Jeffrey Chapman are advising BI-LO. (Daniel recently opined for The New York Times on how to save the U.S. auto industry.)

According to bankruptcy court filings, the firm has been paid nearly $2.8 million by BI-LO through March 23. At least $1.8 million of that amount was for work done in connection with BI-LO's Chapter 11 filing.

An engagement letter between V&E and BI-LO states that the firm was also paid a $250,000 retainer on February 1. The billing rates by V&E lawyers range from $265 an hour for the most junior associate to $770 an hour for the most senior partner.

Nelson Mullins Riley & Scarborough, a South Carolina firm that has done general corporate work for BI-LO since 1987, was retained as local counsel. The firm will continue to handle general corporate, litigation, and employment matters for BI-LO.

Bankruptcy and creditors' rights partners Frank Knowlton and George Cauthen and restructuring of counsel Linda Barr are also advising BI-LO. Bankruptcy court records show that Nelson Mullins has been paid $575,371.55 by BI-LO prior to the company's bankruptcy filing.

Nelson Mullins lawyers bill between $235 and $525 an hour on bankruptcy work and between $160 and $1,000 an hour on litigation and employment work.

Jones Day, Latham & Watkins, Greenberg Traurig, White & Case and South Carolina's Haynsworth Sinkler Boyd are serving as counsel to BI-LO's creditors.

Charter Communications

After revealing in February that it would declare itself legally insolvent by April 1, St. Louis-based Charter Communications did just that in a bankruptcy filing on Friday in Manhattan.

With roughly five million subscribers in 40 states, Charter is the fourth-largest cable company in the U.S. But Charter is also saddled with $21.7 billion in debt from a series of acquisitions in recent years. So it has spent the better part of the past month negotiating a prepackaged bankruptcy with creditors to reduce its debt load by $8 billion.

Helping guide Charter through that thorny process are Kirkland & Ellis restructuring partners Paul Basta, Richard "Rick" Cieri, Stephen Hessler, and Ray Schrock.

Basta, a restructuring rainmaker who defected to Kirkland from Weil, Gotshal & Manges in 2006, has been busy the past few months advising Hollywood, Florida-based homebuilder TOUSA, which filed for bankruptcy in early 2008.

But with the housing market still in the doldrums, TOUSA announced last week that it would forgo reorganization and proceed to liquidation. Basta and Schrock are also bankruptcy counsel to suburban Chicago-based homebuilder Kimball Hill, which like TOUSA, chose to liquidate late last year rather than restructure in the current environment.

That's an eventuality Charter hopes to avoid.

The company has hired as its chief restructuring officer Gregory Doody, an attorney and turnaround expert credited with the successful reorganization of Houston-based power producer Calpine.

Skadden, Arps, Slate, Meagher & Flom is representing Charter chairman and Microsoft cofounder Paul Allen, who once controlled 90 percent of Charter's voting power. That percentage will be reduced to around 35 percent after Charter emerges from Chapter 11--the company is shooting for a late summer exit.

Curtis, Mallet-Prevost, Colt & Mosle has been retained by Charter as conflicts counsel. Davis Wright Tremaine and Atlanta's Friend Hudak & Harris are serving as regulatory counsel to the company's board of directors.

None of the firms involved had yet filed billing information with the bankruptcy court. The case is being handled by U.S. bankruptcy judge James Peck, the same judge presiding over the liquidation of Lehman Brothers.

Herbst Gaming

On Friday we wrote about the flurry of activity to try and save Las Vegas-based gaming giant MGM Mirage from a possible bankruptcy filing. Earlier that week its distinctly lower-rung gambling rival Herbst Gaming--its flagship property is Terrible's Sands Regency hotel and casino in Reno--filed for Chapter 11.

The bankruptcy filing comes on the heels of restructuring efforts by Atlantic City, New Jersey-based Trump Entertainment Resorts and Las Vegas-based Station Casinos in the last two months.

But like Charter, Herbst hopes to survive through a prepackaged bankruptcy agreement it reached with its creditors. The plan calls for Herbst to maintain control of its slot machine businesses while relinquishing ownership of its casinos to its lenders. The company will continue to operate the casinos.

Herbst has retained Gerald Gordon, Thomas Fell, and Matthew Zirzow from Las Vegas's Gordon Silver as restructuring counsel. Through March 20, court records show that Herbst has paid the firm $970,873.88 since April 2008.

Yet Herbst is also paying more than $1.3 million to a list of law firms that would make My Rich Uncle envious.

According to a list of vendors attached to the company's bankruptcy filing, Herbst is paying Milbank, Tweed, Hadley & McCloy $605,688.83, Gibson, Dunn & Crucher $412,415.34, Skadden $153,702.55, southwest firm Lewis and Roca $61,671.85, Las Vegas firm Jones Vargas $40,256.53, Littler Mendelson $11,707.50, Ropes & Gray $6,064, and Nixon Peabody a whopping $91.

Several smaller firms, some of them IP shops, also appear on the vendor list.

It was not immediately clear at the time of this post what the fees were for, although Herbst did list a litany of personal injury claims against the company in its Chapter 11 court filing.

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