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January 25, 2011 6:44 PM

The Bankruptcy Files: Lehman Fees, State Bankruptcies, and Three New Filings

Posted by Brian Baxter

Lehman Brothers paid its outside lawyers and restructuring professionals another $30.5 million in December, Bloomberg reports, as the largest Chapter 11 case in U.S. history enters its twenty-eighth month.

According to the most recent Lehman monthly operating report filed with the SEC, Jones Day took home $2 million for its work as special domestic litigation and Asia counsel to Lehman, while Curtis, Mallet-Prevost, Colt & Mosle received almost $1.4 million as conflicts counsel to the debtor.

One line item on the filing initially struck as as odd--a slash through the column listing Weil, Gotshal & Manges's Lehman legal bills for December. Had Weil kicked up its feet and taken December off for the holidays?

Not exactly. The firm hadn't compiled its monthly bills and other expenses in time for inclusion in the December filing. We'll check back on Weil's Lehman total--it currently stands at nearly $255 million--in February. (Lehman filed a revised bankruptcy plan late Tuesday.)

In other bankruptcy news...

Weil counts more than just Lehman as a bankruptcy client. The firm is representing Highland Hospitality on a $2 billion out-of-court debt restructuring that could help the Phoenix-based company shed another $600 million in debt, according to The Wall Street Journal.

Another restructuring heavyweight, Jones Day, has picked up a key assignment of its own, advising mail order marketer Harry & David, known for its fruit and snack baskets, as it seeks to avoid a potential bankruptcy filing.

After two years of rain, the pace of work for big-firm bankruptcy lawyers is, expectedly, slowing down. Like many restructuring industry observers, Weil is predicting a downturn in bankruptcy work this year, according to a recent survey of 125 distressed debt and turnaround professionals on the firm's restructuring blog.  (Hat Tip: The WSJ's Bankruptcy Beat.)

Beyond such practice area forecasts for the coming year, another big industry debate touched off recently with this story in The New York Times about some members of Congress quietly working to craft a bankruptcy option for states to escape their mounting debt burdens. (States are currently barred from filing for bankruptcy in federal court.)

Kirkland & Ellis restructuring partner Jonathan Henes is urging Congress to adopt such an option, writing this piece for The Hill. But the pushback to the proposal was almost immediate. California state treasurer William Lockyer blasted the idea, despite the Golden State's recent financial troubles.

The debate itself may be short lived, as some congressional leaders already are lining up in opposition to any proposed changes, which in itself might hit insurmountable state and federal constitutional obstacles.

Some recent bankruptcy filings of note...

ANCHOR BLUE

Customers seeking to return any items to Anchor Blue had until January 17. The Corona, Calif.-based clothing retailer filed for bankruptcy in Delaware for the second time in two years earlier this month, Reuters reports, and the company will begin liquidating its 117 stores after its private equity owner refused to pump any more money into the business.

Morgan, Lewis & Bockius bankruptcy partner Neil Herman is representing Anchor Blue's owner, Boca Raton, Fla.-based Sun Capital Partners, in its unit's bankruptcy case. Court records show that the firm was paid a $135,000 retainer prior to Anchor Blue's Chapter 11 filing. Partners at the firm are billing between $725 and $805 per hour, while associates are working at rates ranging from $410 to $570.

Young Conaway Stargatt & Taylor bankruptcy partner Michael Nestor ($625 per hour) is serving as Delaware counsel to the debtor. Court records show that Anchor Blue paid a $90,000 retainer to the firm prior to its latest Chapter 11 filing.

Bingham McCutchen financial restructuring partners Andrew Gallo and Julia Frost-Davies are representing PNC Bank, which is owed $3.5 million on a $15 million revolving credit line dating back to August 2009, according to The Press-Enterprise of Riverside and San Bernardino, Calif. (Morgan Lewis has also represented PNC in the past; the firm stated in court documents that it had obtained a waiver from the Pittsburg-based bank to represent Anchor Blue in its bankruptcy case.)

Kelley Drye & Warren bankruptcy partner Eric Wilson is serving as lead counsel to Anchor Blue's official committee of unsecured creditors. Mark Hurford of Wilmington's Campbell & Levine is providing local counsel to the committee.

When Anchor Blue last went through a restructuring in 2009, it sold the operating rights to 73 outlet stores to longtime Cooley client Levi Strauss. Anchor Blue, which was founded in 1972 as Millers Surplus, now expects to complete its liquidation within two years.

CONSTAR INTERNATIONAL

One of North America's largest makers of plastic food-and-beverage containers, Constar International, filed for bankruptcy in Delaware on January 11 under a prepackaged reorganization plan to slash up to $150 million in debt, Bloomberg reports. It's an ignominious "Chapter 22" filing for Philadelphia-based Constar, which previously had filed for Chapter 11 in December 2008, only to emerge six months later. But the company slid back into bankruptcy, in part because of a shift by its largest customer, which bottles Pepsi, to manufacture its own drink containers, Reuters reports.

Andrew Goldman, vice-chair of the bankruptcy and restructuring group at Wilmer Cutler Pickering Hale and Dorr, is advising Constar in its bankruptcy case, along with partner Dennis Jenkins and special counsel Nancy Manzer. Court filings reveal that the firm has been paid a $475,000 retainer and that partners are billing between $695 and $1,025 per hour, counsel between $710 and $750, and associates at hourly rates ranging from $465 to $665. (Wilmer was paid nearly $3 million as lead debtor's counsel in Constar's last Chapter 11 case, according to court records.)

Neil Glassman, chair of the bankruptcy practice at Delaware firm Bayard, and partner Jamie Edmonson are serving as local debtor's counsel. The firm was paid retainers totaling $45,553 prior to Constar's Chapter 11 petition, according to court filings. Partners are billing between $550 and $840 per hour, while associates and counsel are working at rates ranging from $275 to $550.

Kirkland bankruptcy partner Patrick Nash, Jr., is advising certain secured note holders of Constar's, along with Mark Desgrosseilliers of Womble Carlyle Sandridge & Rice in Wilmington. Many note holders are backing Constar's reorganization plan to reduce debt, according to The Associated Press.

ORCHARD BRANDS

Apparel and home products maker Orchard Brands filed for bankruptcy in Delaware on January 19 under a prepackaged plan with lenders to slash the company's debt by $420 million, Reuters reports. Beverly, Mass.-based Orchard Brands, which owns companies like Appleseed's and Draper's & Damon's, has sought bankruptcy court approval for $140 million in debtor-in-possession financing.

Kirkland bankruptcy partners Richard Cieri and Joshua Sussberg and litigation partner Ryan Morettini are advising Orchard Brands in its Chapter 11 case. The firm has enjoyed a longtime relationship with Orchard's owner, San Francisco-based Golden Gate Capital. Kirkland advised the private equity fund in July 2009 when it bought outdoor retailer Eddie Bauer out of bankruptcy for $286 million. (Kirkland also handled Golden Gate's $75 million purchase of women's brand J. Jill from Talbots a month earlier.)

Bankruptcy partner Domenic Pacitti and of counsel Michael Yurkewicz from Delaware's Klehr Harrison Harvey Branzburg are serving as cocounsel to the debtor. The firm will advise Orchard on matters in which Kirkland has a conflict. Neither Klehr nor Kirkland have submitted billing statements with the bankruptcy court.

Winston & Strawn lending cohead William Brewer and restructuring partner Brian Swett are advising UBS, which is one of Orchard's secured lenders backing its DIP financing agreement.

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