The Work

December 4, 2009 12:22 PM

Cravath On OTB Bankruptcy in First-Ever Case as Debtor Counsel

Posted by Julie Triedman

In a rare Chapter 9 filing, New York City Off-Track Betting Corp. filed for bankruptcy Thursday in federal bankruptcy court in New York City.

NYC OTB, created in 1971 as the first horse-race off-track public benefit corporation created under state auspices, listed $500 million in debts and $50 million in assets in its petition. A Chapter 9 filing permits public agencies and municipalities, as opposed to private companies, to reorganize rather than liquidate.

OTB qualifies because it's a public benefit corporation created by the state. Chapter 9 filings, however, differ from Chapter 11 cases. The bankruptcy judge can't interfere with a debtor agency's assets, and the normal fee approval process doesn't apply. The court's role is mainly to approve a debt adjustment plan.

The filings are rare, with only one or two a year filed nationally, says Cravath, Swaine & Moore's Richard Levin, who was tapped by OTB in a bidding process. Levin seems especially qualified for the work. As a Judiciary subcommittee staff lawyer in the mid-1970s, he helped draft a 1976 municipal bankruptcy bill that amended Chapter 9 laws to make them more favorable to New York City after it tipped toward bankruptcy. (Levin has a framed copy of the bill signed by then-president Gerald Ford on his wall.)

The OTB filing, while small, represents Cravath's first-ever filing for a debtor. Levin was hired two-and-a-half years ago from Skadden to found the firm's restructuring practice, which now has five partners.  Because a $250 million bond offering is part of the reorganization plan, corporate finance partner LizabethAnn Eisen is expected to contribute advice.

In an affidavit filed Thursday, the company's CEO portrayed a company beset by severe structural and market problems. Competition from five rival OTBs have reduced OTB's market share, while steep increases in New York state and city taxes on gross revenues, as well as surging health care and operating costs, have also erased profits. In June 2008, New York state governor David Paterson announced the takeover of the company's operations.

OTB's reorganization plan calls for a $250 million bond sale to pay debts and update technology, the closure of some locations and new state legislation to make the company solvent. Labor unions will likely be asked to accept very steep reductions. They are represented by District 37, the city's largest public employees union.

No judge has been assigned the case yet. But if OTB fails, it could have major ripple effects in the state, Levin says. Some 40,000 people work for the horse racing and breeding industry in the state; NYC OTB owes millions of dollars to the state's tracks, breeding associates, and the state racing authority.

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