The Work

January 6, 2012 4:37 PM

The Bankruptcy Files: A Big Start to 2012

Posted by Brian Baxter

Signs that the economy is improving notwithstanding, the number and size of large corporate bankruptcies could double in 2012, according to a new Fitch Ratings report covered by CNNMoney.

Fitch predicts that corporate bond defaults will hit 3 percent this year—more than double last year's 1.4 percent and 2010's 1.3 percent. Middle market companies valued between $200 million and $1 billion are at particular risk because of the difficulty they face in trying to refinance and restructure outside of court, according to the ratings agency.

No less an authority than Weil, Gotshal & Manges bankruptcy heavyweight Harvey Miller concurs with that assessment. "Nobody is going to want to put more money into these companies," Miller told CNNMoney. "Hedge funds didn't have a good year so that will play into it too."

Meanwhile, 2011's largest bankruptcy filings—including those of American Airlines, Borders Group, MF Global, and The PMI Group—could soon be joined on the Chapter 11 docket by such household names as Sears Holdings and Eastman Kodak. Both have recently taken fresh steps to cut costs and raise revenue in an effort to shore up sagging bottom lines.

For its part, Kodak reshuffled its lineup of outside legal counsel last month, hiring Sullivan & Cromwell to replace Jones Day as the company's chief restructuring adviser.The move was noteworthy because S&C almost never handles Chapter 11 cases, instead serving as special counsel on certain restructuring initiatives. Jones Day, on the other hand, is well-versed in guiding debtors through bankruptcy proceedings.

Andrew Dietderich, the head of S&C's restructuring group, did not respond to a request for comment about the firm's work for Kodak. While refusing to confirm the restructuring counsel switch, Kodak has said publicly that it has relied on S&C for various matters since 1974. In recent months, Kodak has also turned to Rochester-based Harter Secrest & Emery for a patent licensing deal with IMAX and the sale of its image sensor unit to a private equity buyer. 

While Kodak's plans remain unclear, other companies—and the lawyers advising them—have pressed on with major restructuring plans.  

Bracewell & Giuliani financial restructuring chair Evan Flaschen, for example, led a team from the firm advising senior lenders of Australia's Centro Properties Group on a mammoth restructuring deal in December designed to wipe out roughly $3 billion in debt. The restructuring plan has won the support of investors and will create a new listed property trust for Australia's second-largest mall owner, which sold nearly 600 U.S. malls to The Blackstone Group a year ago in a $9.4 billion deal. 

Also in Europe, Cleary Gottlieb Steen & Hamilton may have landed the coveted role advising the Greek government on its sovereign debt initiatives, but other firms—including White & Case and Allen & Overy—are now representing some of Greece's creditors on the possible restructuring of those obligations, according to Reuters.

Closer to home, Davis Polk & Wardwell, which collected roughly $40 million in fees for helping Delta Air Lines emerge from bankruptcy in April 2007, has been retained by Memphis-based Pinnacle Airlines to help it avoid filing for Chapter 11 protection. Despite cost-cutting efforts that have included laying off 154 employees, the regional carrier is likely to land in bankruptcy, analysts say.

One U.S. company that has managed to dodge the bankruptcy bullet—at least for now—is sandwich chain Quiznos, which reached a restructuring deal on $870 million in debt in late December, according to The Wall Street Journal. Marc Lasry's hedge fund Avenue Capital Group will convert its debt into equity and inject $150 million in capital into Quiznos to take a majority stake in the fast food franchise. Paul, Weiss, Rifkind, Wharton & Garrison is advising Quiznos, while Vinson & Elkins is providing finance counsel to the company.

And the holiday season was kind to Hughes Hubbard & Reed bankruptcy cochair James Giddens, as a  bankruptcy judge in Manhattan ruling that Giddens is sufficiently disinterested to serve as liquidating trustee of MF Global's brokerage unit.

Giddens, who is seeking to recover some $600 million from the failed company's U.K. arm, had faced questions about whether Hughes Hubbard might be conflicted out of the MF Global work as a result of unrelated engagements for JPMorgan Chase, a key MF Global lender. Bloomberg reports that Giddens and Hughes Hubbard are also currently seeking $24.3 million in fees for four months' work liquidating Lehman's former brokerage.

Below are some of the latest corporate bankruptcy filings of note and their lawyers of record to cross our desk:

AES Eastern Energy

Citing the high cost of coal and decling power prices, the subsidiary of independent power producer AES filed for bankruptcy in Delaware on December 30, the WSJ reports. AES Eastern Energy, which operates four coal-fired power plants, had its value dropped to zero in March 2011 because of negative cash flow.

Weil business finance and restructuring chair Marcia Goldstein is advising Ithaca, New York–based AES Eastern, along with restructuring partners Joseph Smolinsky and Adam Strochak. Richards, Layton & Finger bankruptcy chair Mark Collins and partner Michael Merchant are providing Delaware counsel to AES Eastern. Neither firm has yet filed billing statements with the bankruptcy court.

Coach America

The next stop for one of the country's largest bus operators is bankruptcy court in Delaware. Coach America embarked on its Chapter 11 sojourn in Wilmington on January 3. Reuters reports that the Dallas–based company, whose majority owner is New York–based private equity firm Fenway Partners, has been unable to restructure $400 million in debt after losing $207 million since the end of 2009.

Lowenstein Sandler bankruptcy partners Sharon Levine, S. Jason Teele, and Paul Kizel are serving as lead counsel to Coach America in its Chapter 11 case. Christopher Ward, vice-chair of the financial restructuring practice at Polsinelli Shughart, is serving as Delaware counsel to the company. Neither firm has yet filed billing statements with the bankruptcy court.

Delta Petroleum

Unable to find a buyer for its assets, Denver-based Delta Petroleum filed for bankruptcy in Delaware on December 15, Reuters reports. Kirk Kerkorian’s private holding company, Tracinda, owns 32 percent of Delta Petroleum, which specializes in extracting natural gas. The company lists debts of $310 million against assets of $375.5 million in its Chapter 11 filing.

Hughes Hubbard corporate reorganization partner Kathryn Coleman ($925 per hour) and litigation partner George Tsougarakis are representing Delta Petroleum in its Chapter 11 case. Court documents show that the firm has received a $500,000 retainer from the debtor. Hughes Hubbard was also paid more than $1.1 million between October 20 and December 15 of last year in preparing Delta Petroleum for a possible bankruptcy filing, according to court filing. Partners working on the matter are billing between $700 and $975 per hour, counsel between $640 and $925, and associates at hourly rates ranging from $350 to $695.

Derek Abbott ($600) from Delaware firm Morris, Nichols, Arsht & Tunnell is also advising Delta Petroleum. Morris Nichols has received retainers totaling $150,000 for services rendered to the company, according to an affidavit by Abbott. Partners from the firm are billing between $480 and $795 per hour.

Delta Petroleum has also retained Denver-based Davis Graham & Stubbs as special counsel. Court filings submitted by the firm show that its partners are billing between $275 and $585 per hour, with associates billing in the $195–$335 range. Davis Graham has served as primary outside corporate counsel to Delta Petroleum since 2006.

Davis Graham also received more than $1.4 million from Delta Petroleum in the year prior to the company's bankruptcy filing, according to an affidavit by Davis Graham corporate partner Ronald Levine II. The firm has received an advance payment in the amount of $300,000 for work performed in connection with that filing.

Getty Petroleum Marketing

What remains of J. Paul Getty's oil empire exists as East Meadow, New York–based Getty Petroleum Marketing (GPM), a subsidiary of Russian energy giant Lukoil until its sale early last year. Bloomberg reports that GPM, which filed for bankruptcy in New York on December 5, acts as a liaison for nearly 800 leases between landlords and gas station operators using the Getty brand.

Greenberg Traurig business reorganization partner John Bae and commercial litigation partner Loring Fenton are advising GPM, which faces mounting liabilities related to environmental cleanup costs. The debtor lists both assets and liabilities of up to $50 million in its Chapter 11 filing.

Wilmer Cutler Pickering Hale and Dorr bankruptcy and financial restructuring vice-chair Andrew Goldman is representing an official committee of unsecured creditors in the GPM's bankruptcy. According to a list of GPM's 30 largest unsecured creditors, the company owes a total of $3.6 million to at least 12 law firms.

The leading legal billers listed as creditors are Akin Gump Strauss Hauer & Feld ($1.9 million), Boston-based Cooley Manion Jones ($825,630), Thompson Hine ($201,784), McCarter & English ($186,758), New York’s Anderson Kill & Olick ($154,770), White Plains, New York–based Bleakley Platt & Schmidt ($100,035), Boston-based Posternak Blankstein & Lund ($65,616), Fox Rothschild ($53,763), Roseland, New Jersey–based Brach Eichler ($49,754), Portland, Maine–based Friedman Gaythwaite Wolf & Leavitt ($48,321), Long Island’s Ruskin Moscou Faltischek ($43,203), and Kilpatrick Townsend & Stockton ($14,765).

A motion by Greenberg's Bae reveals that Bleakley Platt and Brach Eichler are serving as legal counsel to GPM on certain environmental and real estate matters, while Thompson Hine is advising the company on insurance recoveries and trademark disputes. Anderson Kill is handling insurance matters and landlord and tenant disputes in New England, and New York's Lester Schwab Katz & Dwyer is serving as legal counsel for insurance claims, landlord and tenant issues, and general liability counsel to the debtor. GPM's labor and employment counsel is Jackson Lewis.

Inverness Distribution

Once known as Morgan Creek International, Bermuda-based Inverness Distribution filed for bankruptcy in New York on December 30 in order to obtain protection from lawsuits filed by creditors, according to The Wrap.

Inverness owns the international rights to certain films—such as Ace Ventura: Pet Detective and The Last of the Mohicans—produced by Morgan Creek, a Los Angeles–based movie studio behind such other titles like Major League and True Romance. Inverness, which previously filed for Chapter 15 in May 2011, is now run by Bermuda-based liquidators in Bermuda. But The Wrap reports that the Chapter 11 filing by the company allows it to file lawsuits in the U.S. Inverness owes creditors about $75 million.

Hogan Lovells business restructuring partner Ira Greene and dispute resolution partner Scott Reynolds are representing Inverness in Chapter 11 proceedings. The firm has not yet filed billing statements with the bankruptcy court.

Lee Enterprises

The publisher of the St. Louis Post-Dispatch and more than 40 other daily newspapers filed for bankruptcy in Delaware on December 12, according to The Associated Press. The prepackaged Chapter 11 filing by the Davenport, Iowa–based newspaper publisher has the support of lenders holding more than 95 percent of $1 billion in debt.

Sidley Austin reorganization partners Kenneth Kansa and Bojan Guzina, bankruptcy cochair Larry Nyhan, and litigation partner John Hutchinson are advising Lee in the matter. Court filings by Sidley show that lawyers from the firm are billing Lee up to $975 per hour.

An affidavit by Kansa states that Sidley was paid more than $3.1 million by Lee in the year prior to its Chapter 11 filing. Sidley has also received retainer payments totaling $2 million to be applied for bankruptcy-related work in November and December. The retainer’s current balance is $283,977.

Bankruptcy partners Robert Brady ($675), Edwin Harron ($625), and Edmon Morton, Jr. ($550) from Delaware’s Young Conaway Stargatt & Taylor are serving as local counsel to the debtor. The firm states in court filings that it received an aggregate retainer in the amount of $50,000 for prepetition fees and services. 

Davenport-based Lane & Waterman—Lee's longtime outside general counsel—is serving as special counsel to the company. Court filings by the firm show that it intends to charge Lee a flat fee of $35,000 per month for its work during Chapter 11 proceedings. Lawyers from Lane & Waterman are billing between $205 and $310 per hour.

Lane & Waterman received approximately $361,000 from Lee for overall restructuring work in the year prior to the bankruptcy case, according to an affidavit by name partner D. Dana Waterman III. In the past 90 days, Lane & Waterman has received $492,594 in fees for restructuring and general outside counsel services rendered to Lee.

Penn Camera Exchange

Retailers coming off a bad year in 2011 got some more bad news this week when another of their brethren, Beltsville, Maryland–based photographic supplies chain Penn Camera Exchange, filed for bankruptcy on January 4 in nearby Greenbelt.

The Washington Post reports that Penn Camera will close five of its eight locations in the tri-state area surrounding Washington, D.C., with its remaining stores holding clearance sales. Founded in 1953 and privately owned, Penn Camera received a much-needed injection of cash in September from Los Angeles–based private equity firm Transcom Capital, according to the WaPo.

Zuckerman Spaeder bankruptcy partner Nelson Cohen is representing Penn Camera in the Chapter 11 case. The firm states in court filings that it has received a $100,000 retainer for its services, of which $81,076 was applied to prepetition fees and expenses.

The Money Tree

The Money Tree stopped shaking on December 16, when the provider of small consumer loans filed for bankrupcy in Alabama. The Bainbridge, Georgia-based company listed assets of $68 million and debts of more than $71 million, citing a bad economy and the inability of its customers to repay loans as reasons for its Chapter 11 filing.

Baker, Donelson, Bearman, Caldwell & Berkowitz bankruptcy of counsel Max Moseley is advising The Money Tree in its bankruptcy case. The firm has not yet filed billing statements with the bankruptcy court. The Money Tree, which was founded in 1987, hopes to use bankruptcy to reorganize its operations and close 92 locations across the southern U.S.

Trident Microsystems

Sunnyvale, California-based microchip maker Trident Microsystems filed for bankruptcy in Delaware on January 4, listing both debts and assets of up to $500 million, Bloomberg reports. San Diego–based semiconductor company Entropic Communications has already put up a $55 million stalking horse bid for certain assets owned by Trident, which cited an economic slowdown as the reason for its filing.

DLA Piper restructuring partners Stuart Brown, Richard Chesley, and Kimberly Newmarch are advising Trident in the Chapter 11 filing. Brown serves as the managing partner of DLA's Wilmington office and Chesley was part of a team of lawyers that joined the firm last year from Paul Hastings.

Edward Batts, a corporate partner at DLA in Silicon Valley, and German labor and employment partner Michael Magotsch, are also advising Trident on an asset purchase agreement with Entropic to sell the debtor's set-top-box unit. DLA has not yet filed billing statements with the bankruptcy court.

According to a list of Trident's largest unsecured creditors, the company owes $162,304 to Fenwick & West, $20,828 to Palo Alto–based Feinberg Day Alberti & Thompson, and $6,755 to Fennemore Craig for legal services.

William Lyon Homes

The collapse of the U.S. housing market hasn't been kind to Newport Beach, California–based William Lyon Homes, which has suffered from the ongoing slump in the residential real estate market. The company filed for bankrupcy in Delaware on December 19 under a prepackaged plan to eliminate $180 million in debt for the struggling home builder.

Bloomberg reports that the reorganization plan will see the Lyon family, which took the company private in 2006, reduce its stake in Lyon Homes from 94.6 percent to 20 percent. New York–based hedge fund Luxor Capital Group, advised by Gibson, Dunn & Crutcher business restructuring cochair David Feldman and of counsel Matthew Kelsey, will take control of the company as part of the deal.

Laura Davis Jones ($895), a name partner at bankruptcy boutique Pachulski Stang Ziehl & Jones, is leading a team from the firm advising Lyon Homes that includes partners David Bertenthal ($775), Joshua Fried ($650), Maxim Litvak, and of counsel Shirley Cho ($650). Court records show that Pachulski Stang has received $1.1 million from Lyon Homes in the year prior to its bankruptcy filing.

Irell & Manella is serving as special corporate and tax counsel to Lyon Homes. The firm states in court filings that it has been paid more than $4.9 million in the year prior to the debtors' Chapter 11 case. Irell corporate real estate and litigation partner Richard Sherman ($945), executive committee member and bankruptcy practice head Jeffrey Reisner ($810), corporate partner Kyle Kawakami ($800), debt finance practice head Meredith Jackson ($800), and tax of counsel Elliot Frier ($800) are leading a team from the firm working on the matter.

According to a list of Lyon Homes's 30 largest unsecured creditors, the company owes $1 million to Irell and $146,102 to Las Vegas–based Lee, Hernandez, Landrum, Garofalo & Blake. The debtor also has pending litigation claims of $500,000 in Santa Monica and $146,000 in Las Vegas.


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