The (Monthly) Cost of Bankruptcy

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 (GGP). 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 (click to enlarge) are the monthly retainer fees that firms such as Evercore (EVR) ($400,000 a month in its reorganization of nationalized General Motors), Lazard (LAZ), Blackstone (BX) 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 (CNS) would like to invest in the IPO of Simon Property (SPG) 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.

Comments

[Heaven, Hel...:]

Good article. This has long been a point of contention in corporate bankruptcies as creditors watch value from the estate erode/inure to the benefit of such advisors. In the extreme case, some of these very same advisors "advised" the company on their debt-financed expansion plans which ultimately lead to their bankruptcy. To top it all off, these advisor fees trump all creditors during the bankruptcy process, i.e., in effect have a super-priority lien senior to even the debtor-in-possession financing. Outrageous fees which get paid before anybody else gets paid. As Brando said at the end of Apocalypse Now, "the horror......the horror".

Aug 12 08:46 AM

[TeresaE:]

Once again, the spoils go to the vultures.

Accountants, advisors and lawyers are the only winners in bankruptcy-personal or commercial.

And they know it and every deal is cut with their own bottom line in mind.

Once you realize Congress - and most elected officials at all levels of government - are primarily lawyers. Followed closely, in Michigan, California, Ohio etc, by union members (or worse union stewards), you begin to realize how this shit continues to grow in audacity.

They all benefit, and they run the show.

Is it any wonder we are as screwed up as we are? Lawyers and accountants making business decisions never work as planned.

Aug 12 09:43 AM

[Robert Mart...:]

I urge SA readers to check out the link Tyler included to Zero Hedge. The description of Robert Manzo's role in the Chrysler bancruptcy is equal parts hilarious and disturbing:
zerohedge.blogspot.com...

Great research.
Rob

Aug 12 09:44 AM

[PainfullyAware:]

The Complexity Of Corruption Is Vast.

It may not be long before "Truth Is A Detriment To Your Well Being".

Dissent is building - the news is "Militia Recruitment" is seeing accelerated numbers. The Spin Is "Racism For A Black President". I personally feel it is because of "Lack Of Representation In DC".

It has been well publicized that our "Representatives" do not read the legislation they sign into law.

There are much greater things to be "Angry" about than the color of our "President's Skin".

Race Based Arguments Are Mentally Minuscule And Without Valor.

Aug 12 03:23 PM

[dybydx:]

i dont find the fee high. sure 400k a month seem like alot, but we're talking about reorg of trash like Government Motors.

besides most bankruptcy proceedings of that scale doesnt last more than 1 yr. in the case of GM, its less than 2mths. $30M is a small fee to pay given the work involved.

everyone knows that US has one of the most litigious environment and it costs a fortune to do anything.

Aug 12 09:08 PM

[wheelbarrel...:]

LOL sure 30 million - what a great deal we got from the lawyers for a pre-packaged BK, you must be a lawyer!


On Aug 12 09:08 PM dybydx wrote:

> i dont find the fee high. sure 400k a month seem like alot, but we're
> talking about reorg of trash like Government Motors.
>
> besides most bankruptcy proceedings of that scale doesnt last more
> than 1 yr. in the case of GM, its less than 2mths. $30M is a small
> fee to pay given the work involved.
>
> everyone knows that US has one of the most litigious environment
> and it costs a fortune to do anything.

Aug 13 12:34 AM