Hdl, when I saw this I thought about you.
<<Bankruptcy Doctors Are Most Definitely In
By ANDREW ROSS SORKIN
nron. Global Crossing. Kmart. Soon, probably WorldCom.
For investors, these spectacular corporate flameouts represent the perfect storm. But for a cadre of Wall Street bankers, they are opportunities.
When the markets were soaring in the late 1990's, this crowd of bankruptcy reorganization specialists was praying for rain. Lately, the rain has become a downpour. "This is boom time," said Henry S. Miller, a leading restructuring guru, unabashed by the paradox that his good fortune happens because of the misfortune of others. "It's just the way it is. This is our time."
These days, when big corporate filings for bankruptcy protection seem to be made almost every week, there is a line forming outside the half-dozen corporate emergency rooms in Midtown Manhattan. And the nation's top doctors in that trauma field — Mr. Miller, who recently turned the restructuring group he ran at Dresdner Kleinwort Wasserstein into an independent firm, and Arthur B. Newman of the Blackstone Group, and the team at Lazard — are actually turning away battered patients.
Business is so good, so lucrative, that Harvey R. Miller, a prominent bankruptcy lawyer, announced last week that he would soon leave his post as head of the bankruptcy practice at Weil, Gotshal & Manges to become a bankruptcy banker at Greenhill & Company, a small merchant bank that jumped into the business only two years ago.
Mr. Newman, whose restructuring staff numbers about 40, is now working on two of the largest reorganizations in history: those of Enron and Global Crossing, as well as that of the Williams Communications Group. He just finished repairing Chiquita Brands International and AMF Bowling Worldwide, not to mention helping to reorganize Xerox, which brushed with but avoided bankruptcy. Mr. Miller, whose full-time staff at the newly formed Miller Buckfire Lewis & Company is a bit smaller, is trying to turn around Kmart and Polaroid as well as Reliance Group Holdings.
Last week, Lazard's restructuring group, led by Barry Ridings and Terry Savage, landed what may become the biggest bankruptcy bounty of them all when WorldCom hired them as advisors. Adelphia Communications, AES and Reliant Energy also hired Lazard this summer. Its team numbers 35.
A handful of other boutique investment banks are also busy trying to mend tattered companies and advise upset creditors. Among them are Rothschild North America, which is working for PG&E, and Houlihan Lokey Howard & Zukin, which is working for XO Communications.
The firms can make money from any angle: in some cases, the advisers represent distressed companies and, in others, their creditors.
There is no question that the business of corporate restructuring, once a backwater, has grown into a big business in recent years. With that growth has come big fees, which vary from deal to deal but are typically based on a percentage of assets sold during the process as well as a bonus if the restructuring is consummated.
Kmart, for example, will pay Henry Miller's firm 0.4 percent of the value of any asset sale, plus a monthly fee, and a $12.5 million bonus if the restructuring of the company is completed. If the entire company is sold, the bonus could reach $17.5 million.
Add up the fees, and the figure for each bankruptcy is huge. The reorganization of Enron is likely to generate as much as $400 million in fees for bankers, lawyers and consultants. Of that amount, Blackstone will get either $35 million or 0.25 percent of the restructured obligations on top of the $10 million it already received for selling Enron's trading business to UBS Warburg.
Fees from Global Crossing's reorganization are expected to top $300 million. All told, industry analysts estimate that cleaning up corporate messes will net more than $5 billion in fees this year for the firms like those of Mr. Newman and Mr. Miller.
Personally, they take home seven figures a year.
"For most of the time, us restructuring guys were on the fringe; we were niche players," Henry Miller said. "Now we're getting some respect."
Advisors like him and Mr. Newman are not exactly a beloved bunch, of course. "It's nice to be pretty busy, but it's not good for the country," Mr. Newman acknowledged. Outraged creditors sometimes compare them to ambulance chasers and often fight to prevent them from taking in big fees. The creditors argue that the money should be used to rescue the failing companies, not to line the pockets of Wall Street bankers. Bankruptcy court judges, too, often limit the size of the paydays.
But bankruptcy advisers respond that they earn the money, especially now.
Restructuring advisers spend their time adjusting troubled companies' business plans, cutting deals with creditors and courts, and planning and negotiating the sale of assets. Their jobs are arguably more complex, and probably more important, than the roles of the traditional investment banker, who advises a company on whether to buy another company and how much to pay.
Since the last big economic downturn, in the early 1990's, the bankruptcy business has changed fundamentally. It is no longer just a matter of working out new financing. "The cases have gotten so big, and all of these cases have many more problems than before," Harvey Miller said. "Ten years ago, all you had to do was deleverage the company and that was it."
More than ever, companies seeking bankruptcy reorganization suffer from a web of corporate problems, not only an overload of debt. Scandal, potential legal liabilities and complex accounting sometimes push companies over the line.
The latest crop of companies in reorganization is beholden to a much expanded array of constituencies with interests in the outcome, including banks — with collateral and without — bondholders, shareholders, suppliers, partners and vulture capitalists who buy debt from others at distressed prices.
As a result, the work is ever more complex.
"The business of restructuring is now a professional business" with people whose careers are devoted exclusively to it, said Mr. Newman, who started in the business in 1966, while he was director of the corporate finance group at Ernst & Young. "It has professional lawyers, professional bankers, professional accountants and professional distressed players. It used to not be like this."
Mr. Newman and Henry Miller are the elder banking advisers of this small but growing restructuring circle, partly because they have specialized in it for so long.
Mr. Newman, 58, became very active in reorganizations in 1976, while still at Ernst & Young. There, he would work on the bankruptcies of companies like Eastern Airlines and Texaco during the 1980's. He headed the reorganization group at Chemical Bank for two years before jumping to Blackstone in 1991. He has been adviser to debtors or creditors in bankruptcies including Caldor, Dow Corning, R. H. Macy, Loehmann's and Marvel Entertainment.
"Art is the dean of financial advisers," said Steven G. Warshaw, the former president and chief executive of Chiquita, which underwent a successful reorganization — led by Blackstone — and emerged from bankruptcy court in March. The company was hurt by a glut of bananas and a long battle over European banana import quotas. Blackstone helped form a settlement among five groups of creditors that reduced Chiquita's $950 million debt load by $700 million. Instead of the money owed them, holders of senior notes received 88 percent of the equity in the reorganized company.
Henry Miller, who is 57, made his name in the 1980's as the head of the private finance group at Lehman Brothers, mainly working for airlines. Their problems in the late 1980's propelled him into bankruptcy workouts. In the 1990's, he ran the restructuring groups at Salomon Smith Barney, Prudential Securities and, most recently, at Dresdner Kleinwort Wasserstein. He has worked on the reorganizations of Pathmark Stores, Montgomery Ward and Trans World Airlines, among others.>>
nytimes.com |
