Editor’s note: A version of this story was originally published on August 4, 2022.
With assets of between $10 billion and $50 billion listed on its bankruptcy documents, Friday’s Chapter 11 filing by FTX Trading Ltd. may represent the biggest bankruptcy of 2022 so far.
But according to the experts, it won’t likely be the last.
Supply-chain problems, stock market declines, inflation, and a decline in consumer confidence have been straining corporate balance sheets for months. Lenders, meanwhile, are less inclined to grant extensions for repayment or impose more conditions on such requests, which top restructuring experts see leading to a boom in bankruptcies.
“No one really sees any stopping of supply-chain shortages. COVID is going to hang around for a while, and, obviously, the war in Ukraine continues to create all kinds of issues,” Kris Hansen, who cochairs the financial-restructuring group at Paul Hastings, said. “I think you’ll see more restructurings in Europe. I think you’ll see more restructurings here in the US, and as a result, you’ll see a lot more cross-border work as well.”
FTX filed for Chapter 11 bankruptcy on Friday after questions were raised about its capital, leading customers to flee the exchange. The company was valued at $32 billion last year and had attracted capital from big name investors, including Softbank, Sequioa, and Chase Coleman’s Tiger Global.
Despite the high-profile nature of FTX’s bankruptcy, such filings actually fell to a new low in 2022. As of end of October, there were just 312 corporate bankruptcy filings, down from 410 filings in 2021, and 640 in 2020, according to an S&P Global Market Intelligence report.
But experts who spoke to Insider said they expect to see more new Chapter 11-protection filings in the coming months. Conference-room negotiations between companies and their lenders, which tend to precede filings, have been picking up speed since summer, the lawyers said.
The work is highly lucrative for firms playing major roles in large bankruptcies, as many retail cases during the pandemic have shown. For just the roughly four-month window when Neiman Marcus filed for bankruptcy in 2020 and emerged with an exit plan, Kirkland secured more than $10 million in fees for its work representing the luxury-apparel retailer, according to filings in the case. When Weil, Gotshal & Manges represented J.Crew, the law firm sought about $13.6 million in fees for its work during a similar four-month period the same year.
Here are 16 top restructuring attorneys — representing companies, lenders, landlords, creditors, buyers, and other important stakeholders — who are expected to help their firms rake in tens of millions in fees as bankruptcies rise.
Sussberg often shows up early to address the bankruptcy courts in the high-profile Chapter 11 cases he’s representing, including for the crypto broker Voyager Digital and the apparel retailers JCPenney and Barneys New York.
JCPenney’s day-one hearing over video chat on a Saturday morning in May 2020 featured one of Sussberg’s characteristic opening pitches. JCPenney was still an icon of American retail, its nearly $5 billion in debt notwithstanding, Sussberg said. The company’s efforts to shore up its finances were mainly thwarted by the sudden onset of a pandemic, he added.
The retailer, represented by Kirkland’s elite restructuring team, was also ready with a restructuring arrangement, which had the support of top lenders. In a contentious but remarkably fast series of events, it sold just nearly six months later in a deal that kept the lights on.
“Our job is to bring a sense of calm and stability and to explain the underlying thesis supporting the company,” Sussberg said, speaking broadly about the firm’s role in advising debtor companies. “It’s incredibly important from a relationship standpoint that we become trusted advisors who can help folks see around the corner.”
Kirkland adds between 30 to 50 first-year associates every year to its restructuring team of about 200 attorneys. The firm has also made high-profile lateral hires including Christine Okike, a partner who joined it last year from Skadden, Arps, Slate, Meagher & Flom.
“The firm has a consistent and long-term approach to restructuring,” said Sassower, a top partner in Kirkland’s restructuring group who also sits on the firm’s executive committee along with Sussberg. “The firm pours a ton of resources into the restructuring group each year, regardless of where we are in the cycle.”
Sassower has served as lead counsel in major restructurings, including for Ascena Retail Group (which owns clothing brands like Ann Taylor), Macy’s, and Gulfport Energy.
“We don’t view restructuring as a zero-sum game. We look for the win-win — sometimes, it requires a great deal of creativity,” Sassower said. “We like it when our cases don’t end in a big litigation but rather with people shaking hands.”
Frost-Davies has a long practice of representing major creditors, including over the past 15 years, when she’s often represented lenders to retailers. Lenders play a vital role in the bankruptcy proceedings of retail companies, extending financing that can help them operate and pay bills during the filing, pull off a sale, and exit the proceedings with a plan.
She has represented large lenders like JPMorgan Chase, Wells Fargo, and Citizens Bank in major retail cases, as well as parties in energy cases, like the Agilon Energy Holdings II LLC bankruptcy in Texas. She frequently represents institutional investors and secured lenders across companies’ capital structures.
“I’ve worked in a variety of industries, and it’s an opportunity to really learn,” she said.
Earlier in her career, Frost-Davies was a general litigator doing bankruptcy work. That developed over time into an insolvency practice, where she represented creditors in distressed environments.
Frost-Davies anticipates that companies will face more liquidity pressures in the coming months, she said. When a company’s enterprise value declines in a rocky economy, it can make it harder to secure certain types of loans that are issued based on that value, she said.
Supply-chain pressures and increased shipping costs have also put more pressure on companies, she said.
“What I love is to take something that is in absolute crisis and find a path forward,” she added.
Bernstein, a partner in Arnold & Porter’s bankruptcy and restructuring practice, has advised governments in connection with cross-border matters and US bankruptcies, including the government of Colombia in the Avianca Airlines bankruptcy in New York bankruptcy court.
Besides major airline cases, Bernstein, who often represents lenders and equity sponsors in bankruptcies, has also represented venture-capital firms like Andreessen Horowitz in the bankruptcy of Jumio Inc. and asset managers like Ares Capital in the bankruptcy of New England Confectionery Co., known for the creation of Necco Wafers.
“It’s illustrative of the kind of work that I’ve done for 25 or 30 years, representing various asset managers and private-equity funds in connection with their own portfolio companies,” Bernstein said.
Dillman advised in the restructuring of the apparel company Lucky Brand in 2020 and represented Sycamore Partners in the department-store chain Belk’s prepackaged proceedings last year. Simon has represented companies in major energy bankruptcies, including Weatherford International and Chaparral Energy.
Latham’s restructuring practice focuses on advising companies, as well as representing ad-hoc groups in the process and buyers looking to purchase distressed assets in mergers-and-acquisitions transactions. The firm has also been busy with the mass tort bankruptcy cases of companies including pharma company Mallinckrodt, which settled $1.7 billion in opioid claims as part of its bankruptcy.
In advising debtors, Dillman said the firm saw its role as being “an honest broker to help balance all of the different competing stakeholder interests.”
For the time being, the growth in private capital and direct lending has helped stave off some liquidity constraints among more established companies, Dillman said. But lenders are exercising caution about agreeing to the type of forbearance requests they were more inclined to indulge in the early months of the pandemic, he said.
“Now when they get those requests, I think lenders are looking at them carefully, and they’re often attaching more conditions to them than they did,” he said.
Hillman represents parties on the lenders’ side in restructuring, particularly those in the private-credit market. He has represented lenders involved in the bankruptcies of the coal-mining company Westmoreland Resource Partners, the oil-and-gas company Nine Point Energy, and Marshall Broadcasting Group Inc.
He said he expected restructuring to pick up given the oft-discussed macroeconomic conditions prompting fears of a recession. But in the near term, Proskauer’s proprietary tracker of private-credit defaults, with a portfolio of 900 active loans worth roughly $145 billion, showed a default rate of just roughly 1% as of the second quarter of 2022.
“Deteriorating macroeconomic conditions take some time to have an effect on borrowers and businesses, so there’s a bit of a lag,” Hillman, who coheads Proskauer’s private-credit-restructuring group, said. “A lot of borrowers were able to raise capital, refinance debt, so they still have access to liquidity.”
But the slump in new Chapter 11 filings doesn’t mean attorneys aren’t busy, since companies often restructure their debt out of court, he said.
“Many of the restructurings I’m involved with are the result of conference-room negotiations instead of courtroom brawls,” he said. “And that’s a trend that’s going to continue in the next cycle, especially in the private-credit market, where there are fewer stakeholders. It’s easier to assemble the group, whether on a Zoom conference call or in a real conference room, and find a path to consensus.”
Cornish, a partner on the firm’s restructuring team, has a decades-long practice in which she’s represented companies, creditor groups, and buyers in bankruptcies. Along with Basta, who cochairs the firm’s restructuring group, Cornish has represented companies, such as in the Sears bankruptcy, and other parties in major cases.
During the pandemic, Cornish has also represented buyers including SPARC Group, the joint venture between the mall owner Simon Property Group and the licensing company Authentic Brands Group, in acquiring retailers including Brooks Brothers and Lucky Brand Dungarees out of bankruptcy. Cornish is also a member of the firm’s management.
Basta, who is representing Revlon in its Chapter 11 case, has also previously advised the casino and hotel group Caesars Entertainment Operating Company in its Chapter 11, and Barneys New York in an out-of-court arrangement.
Paul, Weiss has about 55 restructuring attorneys in New York, but its variety of attorneys from other practices, including its finance, litigation, and M&A groups, frequently advise on restructuring issues. In a given month in the Revlon bankruptcy, for instance, about 30 lawyers at the firm could expect to work on that case, Cornish told Insider.
“That case also requires litigators, finance lawyers, tax lawyers, employee benefits lawyers, and lawyers from all different disciplines from the firm working on that case,” Cornish said.
Schrock, who cochairs the restructuring department at Weil, has represented major retailers and others in bankruptcy proceedings, including J.Crew Group Inc., Sears Holdings Corp., and Aéropostale Inc.
“In those cases where we were able to get to a good outcome for stakeholders while preserving jobs for the thousands of families that depend on these companies. Without a doubt, those are the most rewarding and important accomplishments for our practice,” Schrock said. “Likewise, keeping companies out of Chapter 11 and undergoing extremely complicated workouts is very satisfying.”
Schrock said he anticipated more out-of-court negotiations, known as workouts, in the coming months.
“Lenders largely were able to refinance any distressed credit throughout 2021, but with tightening monetary conditions, we expect to see many more workouts later in 2022 and into 2023,” he said.
Pachulski Stang Ziehl & Jones, known as the largest restructuring boutique firm in the US, has some 80 attorneys advising on high-profile bankruptcies, representing companies, creditors’ committees, and other constituents.
Sandler, who cochairs the firm’s creditors’ committee practice group, has represented creditors’ committees in the bankruptcies of Barneys New York, The Weinstein Co., and J.Crew.
He has also represented parties like the equity committee in the 2020 bankruptcy of the home-goods company Tuesday Morning Corp., helping to put together an arrangement that led to even its unsecured creditors getting paid in full, he said.
“In a retail case, it’s extremely rare for old equity to get reinstated — and to have that happen during the pandemic was truly a remarkable result,” Sandler said.
Pachulski has represented companies in bankruptcy such American Suzuki Motor Corp., and Sizzler International. He also represented creditors’ committees in major cases like the Neiman Marcus Chapter 11 filing.
He said he expected to see more restructurings and bankruptcy filings coming from companies in traditional sectors.
“Retail, restaurants, and businesses like them are what Chapter 11s are made for,” he said. “There’s a real reorganization there, as compared to a liquidation, for many of those businesses.”
Lauria, who leads the firm’s restructuring practice, has advised in the bankruptcies of the energy company Dynegy Inc. and the car-rental giant Hertz and represented bondholders in the bankruptcies of the auto-parts company Visteon Corp. and the amusement-park chain Six Flags Inc.
He previously told Insider that he expected to see a “mind-blowing” jump in restructurings in the coming years, prompted by a likely wave of refinancings of previously cheap debt expected to grow more costly.
One of Lauria’s recent Chapter 11 accomplishments was his and his firm’s representation of Hertz through a major restructuring last year, which saw its debt load slashed and creditors fully repaid, Lauria said. One of the major challenges in that case was the roughly $10 billion in debt relating to its US fleet of vehicles. The team prioritized addressing the financing of its fleet, a move that put the company in a good position when consumers picked up travel again later in the pandemic, Lauria said.
“The principal utilization of that financing was to refresh the fleet to be able to continue buying new cars,” Lauria said, “so that the Hertz fleet didn’t become noncompetitive when the market came back.”
With respect to companies emerging in the tech sector like crypto startups, Lauria said he expected to see more of a “liquidation boom” than a beeline to bankruptcy courts.
“Crypto has always been a little bit like the tulip-bulb craze — I guess it was in Holland,” he said. “I actually don’t think there’s a real asset there at the end of the day, and it’s very hard to reorganize when you don’t have a real asset.”
LeHane, a partner at Kelley Drye, typically represents landlords like Brookfield, Jones Lang LaSalle, and large single-tenant landlords like National Retail Properties. He has represented parties in the major bankruptcy proceedings of JCPenney, J.Crew, Toys R Us, and the Chuck E. Cheese parent company CEC Entertainment.
LeHane said he expected to see more pressure on companies in consumer-dependent industries.
“With interest rates ticking up, companies focused on home goods might be in trouble,” LeHane said. “Because the interest rates going up leads to a decrease in people buying new homes or financing improvements and additions.”
Carr, who chairs Kelley Drye, has represented unsecured creditors in the bankruptcies of Fuddruckers and The Limited and indenture trustees in the bankruptcies of Lehman Brothers and Caesars Entertainment.
Hansen, a cochair of the firm’s restructuring group, advises investors, creditors, and committees in Chapter 11 cases. In the JCPenney bankruptcy, he advised an important lender group, back when he was at his previous firm Stroock & Stroock & Lavan LLP.
He has also represented creditors’ committees in the bankruptcies of the newspaper chain McClatchy Co. and KV Pharmaceutical Co. and noteholders in numerous other bankruptcies.
Paul Hastings has stayed busy through the lull in filings, in part because it serves a broad market beyond bankruptcies, creditors, and ad-hoc committees in Chapter 11, Hansen said. The firm also advises a broad group of distressed investment firms and has advised on transactions like exchange offers and financing involved in such offers, he said.
“You have a whole infrastructure of investors that are built up around investing, investing in alternative, and distressed assets,” he said.
16 Top Bankruptcy Lawyers Poised to Earn Millions As the Economy … – Business Insider
Editor’s note: A version of this story was originally published on August 4, 2022.