California Business Bankruptcy Blog : California Business Bankruptcy Lawyer & Attorney : Klein DeNatale Law Firm : Bakersfield, Kern County, Central California

Taking the concept of personhood for entities a little too far, the attorney for the non-TARP lenders in the Chrysler bankruptcy case said in court yesterday that his "clients" had received death threats over their refusal to reach a deal regarding a workout.  How exactly do you kill a hedge fund? 

Ok, some of his clients may be individuals, but it is still amusing.

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You may recall my post from last week where I asserted that a 30 to 60 day timeframe was an optimisitic estimate for Chrysler's exit from Chapter 11.  According to a Reuters story, at least one firm agrees with my assessment:  Moody's Investment Services.  In making his announcement at the White House last Thursday, the President indicated that the intent was for Chrysler to exit Chapter 11 after 30 to 60 days.

But Moody's said the proceeding could be hotly contested and drawn out because of the bankruptcy code that ensures procedural fairness for all creditors with an interest in the bankruptcy estate.

. . .

At this point, it is difficult to make any predictions other than that the process is likely to take considerably longer than the 30 to 60 days projected by the administration . . .

Those creditors referred to include the pensioners I mentioned last week.  As I indicated, there seems little hope that the Chrysler bankruptcy case will be a quick affair.  Prepare to dig in.

UPDATE:  At least two other commentators agree with my assessment of the tough sledding Chrysler has ahead of it:  Mark Roe at the Wall Street Journal and Steve Jakubowski at the Bankruptcy Litigation Blog.  For a contrary position, see Stephen Lubben's analysis at the Credit Slips blog.

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A survey conducted by the Greater Bakersfield Chamber of Commerce reveals a surprising resiliency and optimism in the Kern County business community.  Given the continuing general economic woes, I would have expected responses much more negative than these:

How do you think economic conditions in Bakersfield/Kern County will change in the next six to 12 months?

Significantly better: 4.4 percent

Somewhat better: 41.7 percent

About the same: 32.9 percent

Somewhat worse: 18.3 percent

Significantly worse: 1.8 percent

No response: less than 1 percent

Which statement best describes how you are feeling about your business?

My business is thriving: 20.8 percent

My business is down but I am going to make it: 55 percent

My business is really struggling but I think we'll survive: 13.2 percent

I am concerned that my business may not survive: 5.6 percent

Other: 4.4 percent

No response: 1 percent

While those who believe that things will get "significantly better" over the next six to twelve months are justifiably few and far between, there are a surprising number (41.7%) of local business owners who believe things will get somewhat better, and a large number (32.9%) who think things will at least not get any worse.  In total, 79% of those polled think the economy will remain the same if not improve.  That is good news about the morale of our local community.  Let's hope that morale turns into hard numbers by the end of the year.

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There is a story this morning that may interest Kern County oil producers.  Independent oil and natural gas exploration and production company Energy Partners, Ltd., has filed for Chapter 11 bankruptcy protection in the Southern District of Texas.  Energy Partners has negotiated a pre-packaged bankruptcy with a committee of its senior noteholders.  According to its Chief Restructuring Officer, Alan Bell:

During the past year, an extraordinary confluence of factors led to our need to pursue this financial restructuring, including the impact of hurricanes, the collapse of the credit markets, sharply declining commodity prices and a resulting deficiency in the company's borrowing base.

Not to mention decreased demand for gas due to consumers reducing consumption.  When one considers the multitude of "bad news" that has impacted the energy industry over the last year it was probably a blessing in disguise that gas prices spiked to record levels.  Without that extra cash in hand, there could have been even more energy sector bankruptcies by now.  Of course, this may just be the tip of the ice berg.  Time will tell.

Positively, however, the Energy Partners bankrutpcy represents the ideal for any business seeking to reorganize under the Bankruptcy Code.  By thoroughly planning for the bankruptcy and bringing its senior noteholders on board in the pre-petition planning process, Energy Partners has virtually ensured a smooth trip through Chapter 11. 

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President Obama announced today that the Federal government and Chrysler have developed a Chapter 11 bankruptcy strategy that involves financing by the government and investment by Fiat.  The filing was largely caused by the failure of the government and Chrysler to reach a deal with bondholders.  A discussion in the New York Times, which can be found here, of how a potential Chapter 11 filing by Chrysler might shake out under the plan includes the intention that Chrysler would exit Chapter 11 in 30 to 60 days.  President Obama described the bankruptcy as a "surgical" process. 

Given that the Chapter 11 of United Airlines took three years, I do not see how Chrysler emerges with a plan of reorganization in place after only 30 to 60 days no matter how well thought out the plan is.  There are simply too many constituents involved--including, among others, unions, retirees, suppliers, and dealers--for the process to go this smoothly.  For example, no doubt each of the stakeholders will have serious objections to the modification or rejection of their respective contracts with Chrysler, especially those dealing with pensions and health care.  I do not think it is a question that all of the stakeholders will benefit from the filing and will emerge with the new company.  But 30 to 60 days is just too optimistic a timeframe for finalizing all of the details that the plan will need to sort out.  I would like to hear your thoughts on how quickly Chrysler will emerge from bankruptcy by commenting below.

If Chrysler is to emerge in 30 to 60 days, it will be largely due to Jones Day's Corrine Ball, whose representation of Chrysler is discussed here. 

An interesting side note to the announced plan is the inclusion of GM's financing unit, GMAC, as the lender for new Chrysler purchases.  GM, on the verge of collapse itself, will now have a stake in Chrysler without spending any cash.

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Bankruptcy filings continue to increase despite the supposed restrictions on such activity BAPCPA was intended to impose.  As summarized by Jonathan Hayes over at the Bankruptcy Prof Blog:

Total petitions filed in March were 131,000, a 28% increase over February which totaled 102,000 and a 47% increase over the 89,000 filed in January.  That is 323,000 for the quarter compared to 296,000 for the fourth quarter of last year or a 9% increase.  Based on the first quarter, we're looking at 1,292,000 for the year 2009.  

Prepare to stay busy for a very long time.  Read a more detailed analysis of the numbers here.

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If you are a bankruptcy practioner that represents retail Chapter 11 clients, then legislation that is now before the Judiciary Committee may interest you and your clients.   The bill, titled the "Business Reorganization and Job Preservation Act of 2009," would undo some of the damage done by BAPCPA.  As Bob Eisenbach of Cooley Godward's In the Red: the Business Bankruptcy Blog notes:

The bill would repeal changes made by BAPCPA relating to (1) the deadline to assume or reject non-residential real property leases, (2) utility deposits, (3) the Section 503(b)(9) administrative claim, and (4) reclamation.

Quoted at the National Association of Credit Management web site, Congressman Jerrold Nadler (D NY), the sponsor of the legislation, explained the rationale behind the bill:

In an economy as depressed as ours, we must be cognizant of the many difficulties facing American businesses and avoid placing unnecessary hurdles in their paths. . . . The Business Reorganization and Job Preservation Act of 2009 will remove some of the obstacles now hindering struggling businesses and inject a much-needed economic boost during this time of severe recession. It's essential that we give retailers, which are often the job-providers of our communities, the means to reorganize and stay in business. 

As anyone who has represented a business affected by the BAPCPA changes knows, landlords and lenders have the ability to lock tenants into new leases while trying to make their way through a reorganization process, which can cause a business great difficulty.  The proposed changes in the bill would reinsitute the flexibility that debtor's previoulsy had pre-BAPCPA.  Of particular importance is the repeal of the maximum 210 day fixed deadline for the assumption/rejection of non-resedential real property leases.  The bill reinstates the pre-BAPCPA practice of 60 days, with extenstions of time for "good cause."

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A couple weeks ago I pointed you to the story of the bankruptcy partner at Kirkland & Ellis seeking approval of an $1,100/hr fee in the Tronox Chapter 11.  Attorneys at Sidley Austin were seeking approval for a similar fee in the Delaware Bankruptcy Court in the Tribune Co. Chapter 11 (No. 139 in the Docket).  The Court refused to approve the $1,100/hr fee, but instead approved a reduced fee of $925/hr based on the lead partners subsequent amended declaration.  ABA Journal link here.  Sidley's rates for the Tribune case range from $575 to $925 per hour for partners and $240 to $650 per hour for associates. 

Gosh, only $925/hr.  So sorry to inform those of you out there that raised your rate to $1,100/hr based on my prior post--looks like $925 is the ceiling...for now.

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I remember when earning $18.50 an hour seemed like a lot of money to me.  My first professional job as a draftmen for a major aircraft manufacturer paid $11.58 an hour (based on my $24,100 starting salary in 1998).  But I see that even now, in my relatively lucrative law firm postion, I must be woefully underpaid.  This is true if the folks at Kirkland & Ellis are to be believed regarding the value they ascribe to their services.  K&E has sought approval for a PER MINUTE fee of $18.50, or $1,100 an hour.   The ABA Journal reports that:

The law firm is seeking the fee for its representation of titanium dioxide-maker Tronox Inc.

Two other law firms are seeking nearly as much, requesting hourly rates in excess of $1,000, according to the story. They are Sidley Austin, in the restructuring of the Tribune Co., and Skadden, Arps, Slate, Meagher & Flom, representing Circuit City.

Bankruptcy law professor Lynn LoPucki of the University of California at Los Angeles told the wire service that fees for lawyers and other professionals in bankruptcy cases are growing at four times the rate of inflation.

“As the economy gets worse, the bankruptcy lawyers are charging more,” LoPucki told Bloomberg. “It seems that each month one sets a new record for hourly billing rates. $1,110 is, to my knowledge, a record for the debtor’s bankruptcy counsel.”

Is it time to revisit your hourly rate? 

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