The (Monthly) Cost Of Bankruptcy

Tyler Durden's picture

Readers have been recently inquiring why it is that so many financial advisors have sprouted all over the place and are scrambling to represent bankrupt companies: after all the company is, well, "bankrupt" - how much money can financial advisors really make on these kinds of deals? The answer may be surprising, especially in light of the proliferation of various splinter financial advisors who had previously been part of larger firms.

I present to you comparable fee schedule, compliments of Miller Buckfire, which itself was recently the target of a gratuitous campaign to demonetize the advisor in its noble (yet definitely not pro bono) cause of representing bankrupt REIT General Growth Properties. Luckily, the firm managed to convince the Judge and anyone else who cared that the total complete all in cap of $33 million in the event of a successful restructuring (and somehow nobody even jokingly assumed the Obama administration would let this bellweather of everything that is wrong in CRE liquidate) is more than earned: whoever said being proficient with excel macros, making pretty powerpoints and having a (formerly) big rolodex does not pay off.

But back to the matter at hand: below are the monthly retainer fees that firms such as Evercore ($400,000 a month in its reorganization of nationalized General Motors), Lazard, Blackstone and Rothschild extract out of complacent creditor committees and nationalized entities (in colorful splendor compliments of Miller Buckfire):

So when you wonder next how it is that banks will sustain themselves in the future and expense $1,000 dinners every night, now that IPOs (as much as Cohen and Steers would like to invest in the IPO of Simon Property for the 2nd time... and 3rd) and M&A are dead, Goldman controls all equity and fixed income markets, and the vertical yield curve is set to flatten, wonder no more: the vultures already are circling and are picking off the meat of their clients to the tune of about $10,000/day.

And speaking of $1,000 dinners, shortly Zero Hedge will analyze the expense report of one Capstone Advisory Group, made famous for employing one Robert Manzo, and how its "investment bankers" tried to slip one too many past the myopic eyes of its dazed, shocked and hypnotized creditors who had already gotten the Vaseline treatment thanks to Stephen Rattner's strikingly convincing negotiating tactics.

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Anonymous's picture

The going rate for financial whores makes the sevices provided by the now defunct Emperors Club VIP seem down right cheap.

Anonymous's picture

Maybe Elliot would care to comment...he's popping up a lot these days...

KevinB's picture

Somehow, I don't think Elliott is popping up quite as often as he used to...

Anonymous's picture

Tyler, when will the expense reports and fees be available?

A Single Serving Friend

Anonymous's picture

i worked at a major 'wall street' lawfirm that had a financial implosion as most of its business was papering over securitizations of cmbs. I was in their surviving bankruptcy department and we had miller buckfire do a presentation. i also did the bills for the partner(s).

the law firms and and financial consultants ARE thieves. they are not 'basically' thieves , or 'like' thieves. they simply are thieves. they have legal authority by the judge who almost always signs off on the bills. law firms over-bill and make up billable hours that don't exist. i saw it first hand. i was told to 'make' hours by doing 'creative-work' i was also forced to write 'memo' after 'memo' that were completely and utterly a waste of paper/time they were never intended to be read by anyone. More often than not, entire groups of associates would be made to do busy work. Partners would also bill for hours of 'research' and 'review' that they never did. If they did 1 hour, they'd bill for 2 or 5, really depending on how much they though the client could afford to pay. ;

My friends at Weil tell me that this is precisely what is occuring on the lehman bankruptcy.

financial consultants have it easier. those who helped 'manage' our debtor would have us help them sign retainer agreements where they were paid both fees and outrageous 'success fees' , that would reward them far greater sums of money than the law firms would receive if the company were able to pass through a chapter 11 and have their debt restrucutred. Unfortunatley, well over 50% of large companies regorganized under chapter 11 wind up years afterwards liquidated under chapter 11 or in an 'organized' wind down under chapter 11, known as a chapter 22. Judges know this, and they don't care. check out lynn lopucki on the statistics.

the judges have almost no power in this matter. they fight for juridiction. if debtors' counsel know a judge will be hostile towards compensating them , debtors simply file in a more friendly jurisdiction. hence the battle between delware chancery court, the ny southern district, and other emerging centers for major corporate bankruptcy filings.
everyone knows these facts.

the whole notion of recievership was initially legislated at the turn of 20th century as a law covering the rail roads because they simply had too many assets in too many jurisdictions and they were too large and of too much economic significance to be allowed to wallow in 'due process' as the various lawyers and consultants siphoned off any remaining surplus. while recievership is extended to banks ( under the fdic ) , it is now eschewed in favor of buyouts and refinancings, which themselves avoid the need to restructure the debt.

there is no way around the fact that there are too many bad loans out there.

what is needed is a quick and effective way of settling them all, not a method of centralizing them through more money printing (financing and purchasing) under the auspices of various Government Sponsored Entities and reserve banks that themselves have no method of going 'bankrupt'. alas, the parasites usually set in fully prior to the last gasps of a soon to be corpse. however, it is not the parasites that are responsible for the underlying weakness of the system; those bad loans are not out there because of the lawyers and consultants. they are there because of the banks and the federal reserve and reckless consumers.

channel_zero's picture

the law firms and and financial consultants ARE thieves. they are not 'basically' thieves , or 'like' thieves. they simply are thieves. they have legal authority by the judge who almost always signs off on the bills. law firms over-bill and make up billable hours that don't exist.

I can second this observation. I worked for an accountant who had first-hand experience and did not care for the fantasy billing of bankruptcy accountants.

It just goes to show you there are no rewards for an honest days labor.

Anonymous's picture

can you divulge any more details about the lehman bankruptcy?

Anonymous's picture

Also in the industry. I'd agree with about 60% of the post. A few points --

a. In my experience, bankruptcy lawyers do overbill but do not necessarily engage in make-work. While the memos you reference may not necessarily become particularly relevant, running a big chapter 11 case is extraordinarily complex and dynamic, as I'm sure you understand. It strikes me as reasonable for a senior partner to worry about certain issues that are a few steps in the future, and then for reality to take the case in another direction, rendering the memos irrelevant. It may have still be the prudent move to have them drafted.

b. In recent years, the trend has been to create a "fee examiner" to oversee the fees charged by the debtor's professionals. Do not be fooled. These guys will extensively review Weil/Kirkland/Skadden's $3,000,000 bill and recommend docking $100,000 for failure to mind some totaly meaningless US Trustee guideline. The firm seeking compensation wil then graciously amend its requested amount, and walk away ggling after the court signs off on the $2.9 MM fee app.

c. It's worthwhile to read LoPucki, but he's a partisan. I give him just a tiny amount more credibility than the disgusting Elizabeth Warren. Still, you're right about the problem of the judges prostituting themselves to get the big cases.

d. The financial advisors often provide some real value at the mid- to senior- levels. But they have TONS of very junior people, often just out of college, that don't know a thing about running or rehabilitating a business.

Anal_yst's picture

My only qualm with your very informative post is that firms like Evercore and Blackstone are virtually impossible (although not literally) to get-into straight out of college.  Even to get a gig on their "A" restructuring team after say 2-3 years work and a top-10 B-school is an impressive feat.  Not impossible, again, but to say there's tons of "non-value-add" junior people methinks might be a bit of a stretch. 

Anonymous's picture

I think we worked together at the same firm. It is all true. Disgusting. I can't tell you how many memos I did that no one ever read, just to bill hours for the partners (who are now being profiled as "good guys"). Luckily I'm back to an honest business - trading for a living.

Anonymous's picture

And look for bankruptcy make-work and bill-padding to spike even higher now that capital markets and M&A deals are dead. At most big New York law firms, those two are the biggest headcount groups (even post-layoffs); and more importantly, they are normally the cash cows that bring in the bulk of firms' profits. Now all the partners are desperately looking to bankruptcy - er, "restructuring" - to keep everyone busy and to bring in the bumper profits. (In recent years, profits-per-partner at many big firms has exceeded $2 million; they may be sidekicks to the bankers, but they make almost as much money.)

I read in a legal trade magazine that 98% of Biglaw partners approved of bailing out the big banks. The corporate bar is even more in the thrall of the banks than our elected officials are, because big law firms, even if they're "diversified" across lots of practice areas, make their real profits working on deals led by the banks. (These deals are so profitable to law firms because (i) there is so much document review, with bankers delegating all the due diligence to the lawyers and (ii) the clients don't resist high legal fees in big deals the way they do for routine legal work, since (a) deals often mean top people on the client side are cashing in big-time and (b) as high as the lawyers' fees are, they're a drop in the bucket compared to the percentage of deal value that the bankers get.)

Anonymous's picture

Lawyers equal "parasites", completely agree and are worse yet than even bankers. you said,

"those bad loans are not out there because of the lawyers and consultants. they are there because of the banks and the federal reserve and reckless consumers."

I would also are out there because of worthless CAREER POLITICIANS buying votes with tax money to keep their sorry asses in office using divisive OR RACIST politics and stupid legislation like the community reinvestment act. And Yes, most of them are sorry-assed gas bag lawyers!!

Anonymous's picture

Tyler, this will be a productive effort on your part. Liked your comments in May on the 23.5 hours in a day. Must be how you get a $10 million bonus for one person to sell a bankrupt auto company to the government and the union. Only a few people could do that!!! Yea, right.

A Single Serving Friend

mgarrett84's picture

Don't Heavily focus on single names any more, but got one here for you.   NYSE:FCN they are killing it in this environment with increased demand from bankruptcy and related events.  Forensic account unit should be really strong here.  


This was one of my few stocks I was willing to consider being long in 2007 when I figured came to realize sup-prime would be where the credit-crisis would first manifest itself.  


TYLER,  got a question for you.   Do you believe the shock that rippled through the markets in march 2007 (partially a yen carry unwind)  was caused by a large institution (maybe GS) positioning for the coming crisis.  Also,  was the crisis really a surprise to most?  I was 23 at the time and didn't have deepest understanding of markets and the economy,  but the coming crisis was blatantly obvious to me in size and scope.  Following many paths led me to the same conclusion as well.  Would really like to here your take on this.

Anonymous's picture

Bankrupt the US of A and we shall all get rich.

frozenfood's picture
frozenfood (not verified) Aug 12, 2009 3:05 PM

just absurdcan not compete with the vast amounts of money being used to influence decisions. can not compete with the vast amounts of money being used to influence decisions. recommended.. good links my newest bookmarked finance website

Handle with care's picture

I've seen this at the lower end when VC funded companies go bust.


Amazingly the amount of money left over after the assets have been sold is almost always the same amount as the receivers fees!


Astonishing coincidence.  Or more likely they price the assets low to get a quick sale (hmm seem familiar) so they can get paid quickly.


The founders were too demoralised to do anything about it.  The investors had moved on and mentally written the whole thing off and no-one else had any idea if they had any rights or not, so the receivers would simply help themselves to any remaining value

Anal_yst's picture

If everyone else (overgeneralizing) is too (insert at least one): indifferent, lazy, ignorant, incapable, etc, then fuck 'em.  Just because the receivers (in your case) are strong is no reason to hate them; quite the contrary, ire should be on those who lack the fortitude to claim what is/should be theirs.

Handle with care's picture

Blaming the victim is exactly what Wall Street has done to justify its rape of everyone else.


The receivers are supposed to be professionals who's job is to maximise the returns for all the stakeholders in the company.  Not a bunch of thieves that have to be defended against.


Its another piece of evidence of the complete collapse of professional ethics and the now commonly held view that if you can get away with it, then its right, no matter the ethics or morality.


Financial advisors who sold people products that then blew up are defended using the same reasoning.  As if society would be a better place if all the surgeons took time out from learning surgery to learn finance so they can better defend themselves, if all the mechanics, plumbers, dentists small business owners should invest the time in learning finance to defend themselves.  Absolutely not.  If a profession has reached a state where its customers are viewed as legitimate prey unless they invest the time to be able to reach a level of expertise in a totally different field merely to protect themselves against the professionals they've hired to help them then that profession needs to be regulated with an iron hand and jail sentences.


I once met one of those guys who works in a boiler room scamming people out of money for non-existent shares.  His rational was identical.  The people are stupid for believing him and therefore deserve to lose their money.  I'm not a violent person, but someone sitting nearby overheard this and came over and bitchslapped the guy till he was snivelling on the floor begging to buy us all drinks.  He was scum and so is anyone else who takes the same view that its OK to rip off grandmothers because their lack of knowledge of finance and trusting natures means anything they lose is their own fault for not being a cynical financial services person.  All the people who work in the financial services could do with a good bitch slapping and at the very minimum regulations need to be passed that demand ethics from professional advisors.  We need lemon laws for financial products to stop the car salesmen selling us junk because we didn't all go to mechanic school 

Ben_the_Bald's picture

This reminds me of an interview of Jack Bogle by Bill Moyers, back in September of 2007. This is Bogle:


"We all know that in professions, the idea has been service to the client before service to self. That's what a profession is. That's what medicine was. That's what accountancy was. That's what attorneys used to be. That's what trusteeship used to be inside the mutual fund industry. But, we've moved from that to a big capital accumulation — self interest — creating wealth for the providers of these services when the providers of these services are in fact subtracting value from society. So, it doesn't work."

Anonymous's picture

Great quote. There was a similar line in a Justice O'Connor opinion several years ago, lamenting that the law was once a profession but is now a trade. Believe that it was the State Bar of Kentucky case, but that's really pulling from a dusty corner of my body's attic.

Anonymous's picture

Amen Brother

waterdog's picture

All this talk about lawyers has made me realize that I have not made one today. I see the bathroom is clear, back in a minute boys.

Anonymous's picture

The fees Alvarez & Marsal (bankruptcy advisory firm) and Weil Gotshal (law firm) are collecting via the Lehman bankruptcy would absolutely dwarf this entire list. Granted, Lehman is not being is being unwound. And the task at hand is a monster. But the money involved is astounding, and the vultures have been circling & feasting since Sept. 15.

Reference the link below from Bloomberg which mentions the incredible $262MM Lehman has paid Alvarez in the last 9 months. Add to that the $64MM they paid Weil Gotshal through June and you can see we're talking size opens eyes here:

Anonymous's picture

Those guys will earn most of that money, eye-popping as it may be. Yes, there is some overbilling. But do you have any idea how difficult it is to unwind a trading book? (Assuming you don't do it AIG style.)

If the professionals' fees were too out of hand, then any creditor could come in and demand conversion to Chapter 7. They're not doing so -- and you can assume they've evaluated the economics of it. So that suggests that the creditor constituencies believe that they're getting close to their money's worth from Weil and Alvarez.