Sunday, May 02, 2010

Who Knew Bankruptcy Paid So Well?

MORE than $263,000 for photocopies in four months. Over $2,100 in limousine rides by one partner in one month. And $48 just to leave a message. Explanations for these charges? Priceless. To date, Weil, Gotshal & Manges the lead law firm representing Lehman, has billed the Lehman estate for more than $164 million. With first- and second-year associates charging more than $500 an hour in some of these bankruptcy cases, according to court records, that can amount to some pretty expensive downtime. At several firms, including Weil and Milbank, Tweed, Hadley & McCloy, partners now charge $1,000 an hour or more for their bankruptcy services.

ON the evening of Sunday, Sept. 14, 2008, Mr. Marsal was sitting in his study in Westchester County, N.Y., when the phone rang.

Calling was Mark Shapiro, who ran Lehman’s restructuring practice. He told him that Lehman’s lawyers were preparing a bankruptcy filing and that the board wanted Mr. Marsal’s firm to oversee the bankruptcy and eventual liquidation after Barclays and others bought pieces of the firm.

Since receiving that call, Mr. Marsal’s firm has been billing $13 million to $18 million a month in fees and expenses for its work on Lehman, a 160-year-old name on Wall Street.

Mr. Marsal says the firm will most likely bill at $13 million a month through October, just after the second anniversary of Lehman’s collapse. After that, rates will begin to decrease, although Alvarez & Marsal will also earn an incentive fee at the end of the case, which could total more than $50 million.

“The size of this case justifies the size of the fees,” says Mr. Marsal, shrugging as he sits in a conference room at Lehman’s headquarters in Midtown Manhattan. Mr. Marsal and Mr. Suckow estimate that they have increased the potential recovery value for Lehman creditors by $4 billion to $5 billion in the last year.

IF anyone is a master of getting to yes, it’s Kenneth Feinberg. As a mediator, he brokered settlements in long-running product liability suits brought by those who said they were victimized by Agent Orange, asbestos and the Dalkon Shield. More recently, he managed to win praise on delicate assignments like determining how much the Sept. 11 Victim Compensation Fund should pay out — or what is an appropriate salary for an executive at a financial institution that the government propped up with taxpayer funds.

Mr. Feinberg is perplexed by why fees keep rising in the Lehman case, even though it’s no longer the chaotic affair it was in the weeks and months after the bankruptcy filing. “Now the emergency is over; it is more like a traditional bankruptcy,” he says. “Yet the fees are higher than ever.”

On a rainy summer day last year, Mr. Feinberg journeyed to the plush offices of Mr. Miller in the General Motors building in Manhattan. His pitch was simple: Cut 10 percent to 15 percent right off the top of the fees being billed.

Among the new fee rules being enforced are these: Air travel must be in coach class only. Ground transportation is limited to $100 a day, and only after 8 p.m. Hotel rooms are capped at $500 a night. Photocopy charges are limited to 10 cents a page. Late meals can’t be more than $20 each.


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