 |
|
Bankruptcy
Chasing Billion-Dollar Babies
Nathan Koppel
The American Lawyer
April 15, 2002
image: EyeWire Illustration |
Even if Enron Corp. had not imploded, 2001 would still have been a banner year for bankruptcy attorneys. More publicly held companies -- 257 -- filed for bankruptcy last year than ever before, and the size of many of the filings was staggering. Barry Ridings, co-head of the restructuring advisory group at Lazard Frères, says that 39 of the public companies that filed for Chapter 11 protection in 2001 had more than $1 billion in debt. "The last time we had so many billion-dollar babies was from 1990 to 1992 -- we had 25 in total during those years," says Ridings, whose company is advising 360networks (USA) Inc., in its $5.6 billion filing, 2001's eighth-largest.
The telecommunication sector's meltdown, now two years old, kept many bankruptcy professionals busy last year. Five of the 20 largest companies to file for Chapter 11 in 2001 were involved in telecommunications. Harold Novikoff, who heads the bankruptcy practice at New York's Wachtell, Lipton, Rosen & Katz, estimates that telecommunications companies were responsible for up to 50 percent of the debt owed by public companies that went bankrupt last year.
"Telecom businesses clearly overestimated how quickly consumer markets could be developed to provide the revenue needed to support their capital costs," says Bruce Zirinsky, head of the restructuring department at New York's Cadwalader, Wickersham & Taft, which represents the creditors committee in the filing of Winstar Communications Inc., a broadband network that sold its operating assets to Newark, N.J.-based IDT Corp. With assets of almost $5 billion, Winstar was the ninth-largest public company to file for Chapter 11 bankruptcy protection last year.
Besides telecommunications, many other industries, such as steel manufacturing, were hurt by the recession, which curbed consumer demand and made investors and lenders skittish. The travel and entertainment sector, meanwhile, was depressed by the Sept. 11 terrorist attacks. ANC Rental Corporation, home to the National and Alamo car rental brands, filed for Chapter 11 protection in 2001, due in part to the postSept. 11 decrease in airport traffic. With $6.35 billion in debt, the rental car company was the seventh-largest public company to file under Chapter 11 last year. And for the second year in a row, asbestos litigation produced some huge bankruptcies -- the $10 billion Federal-Mogul Corp. filing, the $3.2 billion USG Corp. filing, and the $2.5 billion W.R. Grace & Co. filing.
"We did $11 million [in bankruptcy billables] in 2000; in 2001, we did $20 million," says David Friedman of the bankruptcy group he heads at New York's Kasowitz, Benson, Torres & Friedman. That firm is counsel to the creditors committee in the $3.1 billion Sunbeam Products Inc. filing, the year's 15th-largest. Says Friedman: "We are swamped, cranking -- whatever adjective you want to use, it applies."
To capitalize on the onslaught of work in 2001, many law firms brought on additional bankruptcy lawyers -- no small commitment in an otherwise unsteady legal economy. Cleveland's Jones, Day, Reavis & Pogue nearly doubled the size of its bankruptcy practice last year. (Among others, that firm's caseload includes the USG bankruptcy and the $4 billion filing of transportation giant Laidlaw Inc., corporate parent to Greyhound Lines, Inc. Both are among the year's 15 biggest filings.) Cadwalader Wickersham added 14 bankruptcy laterals in its New York office and seven laterals in London.
There is so much work to go around that the competition to represent creditors committees, a lucrative legal assignment in bankruptcy, has become less fierce, says William Perlstein, a bankruptcy specialist who chairs Washington, D.C.'s Wilmer, Cutler & Pickering. "We are finding less competition from firms -- they are stretched thin," says Perlstein, whose firm represents the creditors committee in the ANC filing, as well as that of the Internet company PSINet Inc., in its $4.5 billion filing, the tenth-largest of 2001.
And then there's Enron Corp. Since its filing on Dec. 2, that firm's bankruptcy has occupied more than 100 law firms and could propel even unrelated companies into Chapter 11 by making it harder to secure financing, lawyers say. "Companies which have question marks related to their accounting practices will have difficulty accessing banks and the capital markets," says Douglas Bartner, co-head of the bankruptcy practice at New York's Shearman & Sterling. "That could subject [those companies] to liquidity concerns."
So don't look for a slowdown in the bankruptcy bar for the rest of this year. After all, emerging from Chapter 11 is often a slow process, and many public companies which entered Chapter 11 proceedings in 2001 will still be there well into this year. "We spent a lot of time in 2001 working on bankruptcies filed in prior years," says Friedman. "We'd still be extremely busy, even if nothing [new] came in the door in 2002." Fat chance. |
Largest Bankruptcies Filed, 2001
| Assets (Millions) |
Company |
Industry |
Debtor's Counsel |
Creditors Committee Counsel |
| $63,300 |
Enron |
Energy |
Togut, Segal & Segal
Weil, Gotshal & Manges |
Latham & Watkins
Milbank, Tweed, Hadley & McCloy |
| 21,470 |
Pacific Gas and Electric Company |
Utilities |
Howard, Rice, Nemerovski, Canady, Falk & Rabkin; Latham & Watkins |
Milbank, Tweed, Hadley & McCloy |
| 14,050 |
FINOVA Group, Inc. |
Finance |
Gibson, Dunn & Crutcher |
Wachtell, Lipton, Rosen & Katz |
| 12,598 |
Reliance Group Holdings, Inc. |
Insurance |
Debevoise & Plimpton |
Orrick, Herrington & Sutcliffe |
| 10,150 |
Federal-Mogul Corporation |
Manufacturing |
Sidley Austin Brown & Wood |
Sonnenschein Nath & Rosenthal |
| 8,754 |
Comdisco, Inc. |
Technology |
Skadden, Arps, Slate, Meagher & Flom |
Chaim Fortgang
Latham & Watkins |
| 6,350 |
ANC Rental Corporation |
Services |
Blank Rome Comisky & McCauley
Fried, Frank, Harris, Shriver & Jacobson |
Wilmer, Cutler & Pickering |
| 5,596 |
360networks (USA) inc. |
Communications |
Willkie Farr & Gallagher |
Sidley Austin Brown & Wood |
| 4,975 |
Winstar |
Communications |
Shearman & Sterling |
Cadwalader, Wickersham & Taft |
| $4,492 |
PSINet, Inc. |
Communications |
Wilmer, Cutler & Pickering |
Wachtell, Lipton, Rosen & Katz |
| 4,347 |
Bethlehem Steel Corporation |
Manufacturing |
Weil, Gotshal & Manges |
Kramer Levin Naftalis & Frankel
Latham & Watkins |
| 4,000 |
Laidlaw, Inc. |
Transportation |
Hodgson Russ |
Clifford Chance
Jones, Day, Reavis & Pogue
Harter, Secrest & EmeryDebevoise & Plimpton
|
| 3,894 |
Exodus Communications, Inc. |
Communications |
Skadden, Arps, Slate, Meagher & Flom |
Wachtell, Lipton, Rosen & Katz |
| 3,214 |
USG Corporation |
Manufacturing |
Jones, Day, Reavis & Pogue |
Stroock & Stroock & Lavan |
| 3,132 |
Sunbeam Products Inc. |
Manufacturing |
Weil, Gotshal & Manges |
Kasowitz, Benson, Torres & Friedman |
| 2,834 |
Global TeleSystems, Inc. |
Communications |
Shearman & Sterling |
Debevoise & Plimpton |
| 2,812 |
Hayes Lemmerz International, Inc. |
Manufacturing |
Skadden, Arps, Slate, Meagher & Flom |
Akin, Gump, Strauss, Hauer & Feld
Klett Rooney Lieber & Schorling |
| 2,509 |
W.R. Grace & Co. |
Manufacturing |
Kirkland & Ellis |
Duane Morris
Stroock & Stroock & Lavan |
| 2,373 |
Warnaco Group, Inc. |
Manufacturing |
Sidley Austin Brown & Wood |
Otterbourg, Steindler, Houston, & Rosen |
| 2,310 |
Arch Wireless |
Communications |
Hale and Dorr |
Nixon Peabody |
| Source: Bankruptcy.com, companies, and firms |
| (The American Lawyer, April 2002) |
Busiest Judges, 2001
| Judge |
Number of
Chapter 11 Filings
Assigned |
Court |
| Mary F. Walrath |
18 |
District of Delaware, U.S. Bankruptcy Court |
| Peter J. Walsh |
13 |
District of Delaware, U.S. Bankruptcy Court |
| Joseph J. Farnan, Jr. |
9 |
District of Delaware, District Court |
| Sue L. Robinson |
9 |
District of Delaware, District Court |
| Thomas E. Carlson |
8 |
Northern District of California, U.S. Bankruptcy Court |
| Arthur J. Gonzales |
8 |
Southern District of New York, U.S. Bankruptcy Court |
| Allan L. Gropper |
6 |
Southern District of New York, U.S. Bankruptcy Court |
| William R. Greendyke |
5 |
Southern District of Texas, U.S. Bankruptcy Court |
| Roderick R. McKelvie |
5 |
District of Delaware, District Court |
| Randall J. Newsome |
5 |
Northern District of California, U.S. Bankruptcy Court |
| J. Vincent Aug, Jr. |
4 |
Southern District of Ohio, U.S. Bankruptcy Court |
| Robert E. Gerber |
4 |
Southern District of New York, U.S. Bankruptcy Court |
| Erwin I. Katz |
4 |
Northern District of Illinois, U.S. Bankruptcy Court |
| Burton R. Lifland |
4 |
Southern District of New York, U.S. Bankruptcy Court |
| Raymond B. Ray |
4 |
Southern District of Florida, U.S. Bankruptcy Court |
| Source: BankruptcyData.com |
| Delaware district court judges began handling a share of the overflow in Chapter 11 filings almost five years ago. According to Karen Redmond of the U.S. district court in Delaware, the corporate filings represent about 2 percent of the total bankruptcy filings in the district. |
Busiest Industries, 2001
| Industry |
Percent of All Filings
(by Number Filed) |
| Manufacturing |
32% |
| Services |
25% |
| Communications |
13% |
| Retail Trade |
10% |
| Wholesale Trade |
7% |
| Finance, Insurance, Real Estate |
6% |
| Transportation |
4% |
| Construction |
1.20% |
| Energy |
0.80% |
| Agriculture, Forestry, Fishing |
0.40% |
| Mining |
0.40% |
| Source: BankruptcyData.com |
| Assets At Filing Enron's assets represented one-fourth of all Chapter 11 filings in 2001. |
Assets at Filing
Enron's assets represented one-fourth of all Chapter 11 filings in 2001.
|
(The American Lawyer, April 2002) |
|
|
