The Work

November 20, 2011 2:38 PM

The Bankruptcy Files: Municipalities, Shippers, and Irish Ex-Billionaires

Posted by Brian Baxter

After a slowdown earlier in the year, bankruptcy and restructuring work continues to keep litigators and corporate lawyers at Am Law 200 firms and boutiques busy.

Among the companies finding themselves on the financial ropes recently: Ally Financial's Residential Capital unit, wireless Internet service provider Clearwire, and embattled mortgage insurer PMI. The Wall Street Journal reports that Ally Financial has hired Kirkland & Ellis for advice on its restructuring options, as has Clearwire, while Bloomberg notes that PMI has turned to Sullivan & Cromwell and Young Conaway Stargatt & Taylor in the same context.

But those companies' problems pale next to those of the U.S. Postal Service, which this week announced a whopping $5.1 billion annual loss. The deficit might have been larger if not for Congress passing legislation delaying $5.5 billion in retiree health benefits payments.

Bloomberg reports the Postal Service's troubled finances have the agency weighing the possibility of hiring of external restructuring advisers. Postal Service general counsel Mary Anne Gibbons did not respond to an Am Law Daily request for comment on whether the agency has approached outside counsel, and a Postal Service spokesman declined to comment. But while they aren't talking, some observers believe the Postal Service could indeed use some outside help if it is in restructuring mode.

"In any restructuring you need someone who is going to make tough judgment calls," says Cadwalader, Wickersham & Taft financial restructuring cochair Deryck Palmer, who advised the U.S. Department of the Treasury on the government-backed restructuring of the U.S. auto industry and once handled an out-of-court restructuring for the Detroit Public School system. "It's not clear to me what the new Postal Service is going to look like. We all know it has to be more efficient and cost less, but what services do you have?"

Similar questions are being asked in Detroit, where Mayor Dave Bing announced this week that the Motor City could face a $45 million cash shortfall when the current fiscal year ends in April 2012. Without certain concessions from public employees, Bing told CNN that Detroit's budget woes could force it into bankruptcy, causing the city to default on its larger debt obligations, and wreak further havoc on municipal services that have already been scaled back.

While Detroit grapples with its fiscal woes, Alabama, one of 24 states in the country that allow municipalities to file for bankruptcy, saw its largest county file the largest Chapter 9 case in U.S. history on November 9.

A controversial $3.2 billion sewer project has saddled Jefferson County, whose seat is in Birmingham, with $4.1 billion in debt. The county's Chapter 9 filing follows that of two other cities this year, Central Falls, Rhode Island and Harrisburg, Pennsylvania. (The commonwealth of Pennsylvania announced Friday that it had hired McKenna Long & Aldridge as outside counsel and would seek to appoint former Saul Ewing and Cozen O'Connor partner David Unkovic as receiver for Harrisburg.)

As The Am Law Daily reported over the summer when Jefferson County debated whether to file for Chapter 9 protection, several firms have been busy offering beleaguered local officials restructuring counsel. Kenneth Klee, Lee Bogdanoff, and David Stern, name partners with Los Angeles–based bankruptcy boutique Klee, Tuchin, Bogdanoff & Stern, are advising the county, along with partner Robert Pfister.

Bankruptcy partners J. Patrick Darby, Christopher Hawkins, and Roger Jones, litigation partners Dylan Black and Joseph Mays, Jr., and appellate litigation chair Kevin Newsom from Bradley Arant Boult Cummings are serving as local counsel to Jefferson County. J. Foster Clark, chair of the public finance practice at Balch & Bingham, is serving as special counsel to the debtor, along with public finance partner J. Hobson Presley, Jr., a founder of Birmingham's Presley Burton & Collier.

John Young, Jr., a court-appointed receiver for Jefferson County's sewer system, has turned to Baker, Donelson, Bearman, Caldwell & Berkowitz bankruptcy partners W. Patton Hahn, Timothy Lupinacci, and Bill Bensinger, litigation chair Gregory Fletcher, and litigation partner Joe Conner, and restructuring of counsel Max Moseley.

Those advising other parties in the Jefferson County case include attorneys from such Am Law 200 firms as Adams and Reese, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, and Quinn Emanuel Urquhart & Sullivan, as well as leading southeastern firms like Burr & Forman, Maynard Cooper & Gale, Moore & Van Allen, and Waller Lansden Dortch & Davis.

Some of the more notable developments in other recent major bankruptcy filings are highlighted below.

Blitz USA

Beset by a blizzard of products liability suits—22 different cases since March, according to the Tulsa World—Miami, Oklahoma–based gas can manufacturer Blitz USA filed for bankruptcy in Delaware on November 9. Blitz says that litigation costs related to its fuel containment products are the primary reason it has opted to reorganize in bankruptcy.

Daniel DeFranceschi and Michael Merchant, partners with Delaware's Richards, Layton & Finger, are representing Blitz in its Chapter 11 case. The firm has not yet filed billing statements with the bankruptcy court. According to a list of Blitz's 50 largest unsecured creditors, the company owes more than $1 million to 14 law firms.

They are as follows: Shook, Hardy & Bacon ($591,454), Strong Pipkin Bissell & Ledyard ($78,254), Logan & Lowry ($63,937), Hawkins Parnell Thackston & Young ($63,011), Rodey, Dickason, Sloan, Akin & Robb ($40,653), Schwabe, Williamson & Wyatt ($30,222), Frantz Ward ($27,238), Dinsmore & Shohl ($26,516), Carrington, Coleman, Sloman & Blumenthal ($24,742), Barnwell Whaley Patterson Helms ($21,321), Brownstein Hyatt Farber Schreck ($20,846), Greenberg Traurig ($17,204), Robinson Bradshaw & Hinson ($13,545), and Smith & Carson ($10,380).

The Clare at Water Tower

Apparently unable to attract enough well-heeled retirees amid the downturn in the U.S. housing market, The Clare at Water Tower filed for Chapter 11 protection in Chicago on November 14.

Construction of the 53-story upscale retirement residence, which opened on Chicago's Gold Coast in 2008, was financed with $229 million in municipal bonds, according to The Bond Buyer. Bloomberg reports that as revenue dwindled, The Clare defaulted on debt related to those bonds in September. The largest unsecured creditor: Loyola University, which owns the land on which The Clare sits, holds a 99-year-lease on the property, and is owed $1.54 million in unpaid rent, according to the Chicago Tribune.

Thomas Califano, the vice-chair of DLA Piper's restructuring practice, and partner Matthew Murphy are representing The Clare in its Chapter 11 case. The firm has not yet filed billing statements with the bankruptcy court.

General Maritime / Trailer Bridge

General Maritime, a New York–based operator of midsized tankers, has followed the lead of other shipping companies (Omega Navigation Services, Marco Polo Seatrade) and steered itself into bankruptcy court. The second-largest owner of U.S. oil tankers, General Maritime lists debts of $1.41 billion against assets of $1.71 billion in its Chapter 11 filing in Manhattan.

Kramer Levin Naftalis & Frankel bankruptcy cochair Kenneth Eckstein and partners Adam Rogoff and Douglas Mannal are advising General Maritime in its bankruptcy case. The firm has not yet filed billing statements with the bankruptcy court.

A second bankruptcy filing with a nautical theme this week saw Jacksonville-based marine and truck freight company Trailer Bridge, which lists $102.7 million in assets against debts of $118.1 million, file for Chapter 11 protection in Jacksonville. The came after Trailer Bridge failed to refinance $82.5 million in bond debt, according to The Journal of Commerce.

DLA restructuring cochair Gregg Galardi in New York and Foley & Lardner partner Gardner Davis in Jacksonville are advising Trailer Bridge in thes bankruptcy case. Neither firm has yet filed billing statements with the court. Galardi joined DLA in May from Skadden, Arps, Slate, Meagher & Flom.

MF Global Holdings

While we've previously reported on the legions of lawyers tending to the meltdown of MF Global—the eighth-largest bankruptcy in U.S. history—the list of law firms sorting through the wreckage following the New York–based commodities and derivatives broker's collapse continues to grow.

The court-appointed trustee for the liquidation, Hughes Hubbard & Reed bankruptcy cochair James Giddens, plans to begin dispersing about $520 million from cash-only accounts at MF Global to their 23,000 owners by Thanksgiving, according to The New York Times. The sum represents roughly 60 percent of their cash collateral, Bloomberg reports.

Almost $600 million in customer funds has gone missing and has yet to be located, according to various news reports. A group of futures and commodities customers advised by Stroock & Stroock & Lavan bankruptcy partners Lewis Kruger, Andrew DeNatale, and Mark Speiser are seeking to form an official panel in the liquidation of the brokerage in Manhattan.

Regulators who have come under criticism for their oversight of MF Global are now ratcheting up their push for documents and other evidence from the company, which has retained Kasowitz, Benson, Torres & Friedman to represent it in responding to requests from the CFTC, SEC, and the U.S. Deartment of Justice. The firm is also serving as conflicts counsel to MF Global in its Chapter 11 case, with Skadden, Arps, Slate, Meagher & Flom serving as lead counsel. (Former MF Global CEO Jon Corzine has retained his own counsel, as have other company executives.)

This week sibling publication Corporate Counsel reported that former Skadden associate Laurie Ferber, who became general counsel of MF Global in 2009 after two decades at Goldman Sachs, had pushed for a crucial regulatory change that could have helped speed the brokerage's demise.

Last week MF Global laid off almost 1,100 employees, leading to the filing of at least three suits under the federal WARN Act by employment firms like Outten & Golden and Klehr Harrison Harvey Branzburg.

SP Newsprint

Entering Chapter 11 proceedings in Delaware this week was SP Newsprint, a Greenwich, Connecticut–based company owned by former billionaire entrepreneur and arts collector Peter Brant. SP, which is one of the country's largest makers of newsprint, blamed a bad economy and an increase in costs for raw materials as reasons for its bankruptcy.

Cahill Gordon & Reindel restructuring partner Joel Levitin is advising SP, which lists both assets and liabilities of between $100 million and $500 million in its Chapter 11 filing. Court records show that Cahill Gordon has received more than $1.5 million from SP over the past year. Attorneys from the firm are billing between $368 and $995 per hour and Cahill Gordon estimates its fees in the bankruptcy case to be $350,000, according to court records.

Richards Layton's Mark Collins, chair of the Delaware firm's bankruptcy and restructuring group, is serving as local counsel to SP in its Chapter 11 case. The Oregonian reports that SP expects to obtain interim financing in order to continue operating in bankruptcy.

Seán Quinn

While the Bankruptcy Files usually stays stateside, insolvency-related news out of Belfast late last week involving Irish real estate tycoon Seán Quinn is too interesting too ignore.

Once the richest man in Ireland, Quinn was forced into bankruptcy over nearly $4 billion in debt he owes Anglo Irish Bank, which was nationalized in 2009. The BBC reports that the former billionaire, who lost control of his manufacturing and insurance business empire in April, made the strategic decision to file for bankruptcy in Northern Ireland. By doing so, he will only have to wait a year before going back into business, according to the BBC, which reports that a similar filing in the Republic of Ireland would require a 12-year wait.

Quinn believes he owes Anglo Irish only about $300 million for property loans that he cannot currently pay. John Gordon, the managing partner of Napier & Sons in Belfast, is representing Quinn in his insolvency case.

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