Sullivan & Cromwell, a storied Wall Street firm that took on its first debtor side bankruptcy role nearly six years ago, is now representing offshore drillship operator Pacific Drilling SA in a Chapter 11 case filed by the company earlier this month.
Luxembourg-based Pacific Drilling and nearly two dozen affiliates filed for bankruptcy on Nov. 12 in Manhattan as part of an effort to restructure some $3 billion in debt. The company, the latest drilling business to run into financial troubles amid low oil prices, listed in court records assets and liabilities of between $1 billion and $10 billion.
Pacific Drilling said it sought Chapter 11 protection after failing to reach a deal with its lenders. The company, whose general counsel is Lisa Manget Buchanan, added that it hopes to use the bankruptcy process to restructure its operations as it awaits a recovery in the oil and gas rigging sector. Assisting the debtor in that endeavor will be Sullivan & Cromwell and its bankruptcy co-counsel Albert Togut from New York’s Togut, Segal & Segal.
Court filings this week by Sullivan & Cromwell show that the firm has represented Pacific Drilling since January 2016 in connection to liability management matters and that in November of that year the firm began working with the company to prepare for a potential Chapter 11 case.
Andrew Dietderich, the head of Sullivan & Cromwell’s restructuring and bankruptcy group, which earlier this month saw partner Michael Torkin decamp to Simpson Thacher & Bartlett in New York, is leading a team of lawyers from the firm working on the matter.
“There’s a lot of work that has to be done in a bankruptcy that other firms can do, as well as Sullivan & Cromwell,” said Dietderich, noting his firm’s work with Togut, a veteran of many bankruptcy court battles. “We recognize that and often partner with co-counsel.”
In early 2012, Sullivan & Cromwell advised longtime client Eastman Kodak Co. on its Chapter 11 filing in Manhattan, a representation that broke from the firm’s traditional aversion to debtors’ side work. The Kodak case earned Sullivan & Cromwell at least $44.5 million in fees, according to The American Lawyer’s previous reporting, and since then Dietderich said that he and his team have been busy building out a bankruptcy group at the firm that does work for both debtors and creditors.
The Kodak case showed that Sullivan & Cromwell, like some of its storied, New York-based legal peers, eschews hourly billing in favor of a value-based metric. That policy is reiterated in a declaration submitted by Dietderich this week in the Pacific Drilling case. In it, Dietderich states that Sullivan & Cromwell will adhere to bankruptcy court rules and bill its client on an hourly basis for its work.
Court filings show that Sullivan & Cromwell partners are billing between $1,150 and $1,435 per hour for their services; of counsel and special counsel between $1,100 and $1,390; and associates at rates ranging from $550 to $990. Sullivan & Cromwell also received payments totaling nearly $2.7 million from Pacific Drilling in the three months prior to its bankruptcy.
For its part, Togut is billing $990 per hour—a rate that would put him at the top tier of Sullivan & Cromwell associates—and fellow bankruptcy partner Frank Oswald is billing $875 per hour, according to a declaration filed by Togut. Other Togut Segal partners are billing between $695 and $870 per hour; counsel between $630 and $730; and associates at hourly rates ranging from $195 to $330. Togut’s firm has not yet received a retainer for its services.
Many in the high-end market for legal services would not necessarily equate Sullivan & Cromwell as being a bankruptcy practice leader, but Dietderich notes that his firm has strong bankruptcy roots that like many of Wall Street’s top law firms go back to the 19th century.
“Restructuring was in the DNA of the firm,” said Dietderich of Sullivan & Cromwell.
Dubbed the “Physician of Wall Street,” Sullivan & Cromwell founding partner William Cromwell had a penchant for keeping struggling companies afloat. In 1893, Cromwell was brought in by J.P. Morgan & Co. to represent the financial services giant in the bankruptcy of the Northern Pacific Railroad.
But that legacy shifted during the era of the New Deal, when U.S. bankruptcy laws were changed and control of bankruptcy filings was handed over to the U.S. Securities and Exchange Commission, a move that Dietderich said saw many elite law firms take a step back from bankruptcy and restructuring work for the remainder of the 20th century.
By the time of the financial crisis of 2008, which hit hard the bottom lines of many top law firms, a few of the elite sought to try and snag some engagements from traditional market leaders Kirkland & Ellis and Weil, Gotshal & Manges. Cravath, Swaine & Moore, which like Sullivan & Cromwell had been partially built on century-old restructuring work, made headlines when it formed a bankruptcy practice in 2007.
“The cool thing about being a restructuring lawyer at Sullivan & Cromwell is that all of my partners in all the other disciplines are not only willing to participate in the bankruptcy, but love it,” Dietderich said.
The compensation is an added bonus.
The American Lawyer reported last year on Sullivan & Cromwell’s representation of Arctic tanker company Primorsk International Shipping Ltd. in its bankruptcy case, one that saw a creditor challenge the firm over a $2 million fee request. Sullivan & Cromwell eventually submitted a bill for $4.1 million in legal fees and expenses after Primorsk moved to liquidate its operations in bankruptcy court late last year.