Delphi bankruptcy bill: $200M
Wednesday, July 11, 2007
Delphi bankruptcy bill: $200M
It may grow to $300M, making it one of top 10 costliest ever
David Shepardson / Detroit News Washington Bureau
WASHINGTON -- Delphi Corp. has racked up nearly $200 million in legal and accounting bills since it filed for bankruptcy in October 2005, and the tab could reach $300 million before it emerges by the end of the year, a Detroit News review of court filings shows.
With the Troy-based auto supplier spending $12.5 million per month, Delphi's bankruptcy is on track to become one of the 10 most expensive in U.S. history, said Lynn LoPucki, a professor of bankruptcy law at the University of California-Los Angeles who tracks Chapter 11 costs.
United Auto Workers leaders have vehemently criticized the bonanza of fees paid to teams of lawyers, accountants, turnaround experts and other firms that specialize in bankruptcies. Particularly galling to the union is that Delphi workers agreed to reduced pay and benefits to help the company emerge from Chapter 11.
"Bankruptcy is big business," UAW President Ron Gettelfinger told WJR-760 radio in Detroit on Monday. "One of these days, people will wake up and see what's happening here.
"We need to reform the bankruptcy laws. These guys are making a ton of money in this bankruptcy. Literally, it's obscene."
Delphi's Chapter 11 will easily end up as the most expensive in the history of the automotive industry, but other bankrupt auto suppliers also have amassed huge bills.
Federal-Mogul Corp., Dana Corp. and Collins & Aikman have all reported more than $100 million in bankruptcy expenses.
Toledo-based Dana's fees could reach $180 million by the end of the year. The trustee and judge overseeing the Dana case have questioned some of the bills, such as $300 cab rides taken by lawyers and expensive dinners in London.
On June 27, U.S. Bankruptcy Judge Robert Drain approved $49 million in fees and $3.3 million in expenses sought by Delphi's 38 law firms, accountants and consultants for the four-month period ending Jan. 31, 2006.
In total, Drain has approved $184 million in fees and $13 million in expenses at Delphi.
Delphi has hired 39 firms
None of those firms has submitted bills to the court for the past six months, which means the running tab for Delphi's Chapter 11 has likely surpassed $250 million.
A 39th firm hired by Delphi late last year, Detroit-based W.Y. Campbell & Co., on Tuesday submitted its first bill, for $500,000 for its advice on whether to sell a business unit.
The highest bills have been submitted by Delphi's lead bankruptcy law firm, Skadden, Arps, Slate, Meagher & Flom LLP, which has been paid $44 million for 15 months of work.
Drain has taken some steps to curb expenses, including limiting meal reimbursement to $20 for professionals, keeping photocopy expenses to 10 cents per page and limiting the number of attorneys at hearings.
But a review of hundreds of pages of billing records shows firms often bill Delphi for expensive meals and are still sending numerous attorneys to court hearings or conference calls.
Delphi's fee committee also has turned up some questionable expenses. One lawyer charged exactly eight hours for every day she worked -- between five and 10 days each month -- while Cadwalader Wickersham & Taft requested $10,000 in travel expenses for two lawyers without detailing any expenses. KPMG didn't appear to be billing its travel time at half its normal rate -- as is customary in bankruptcy court.
One FTI Consulting employee charged Delphi $185 for a taxi taken in June 2006 from the Newark, N.J., airport to his home.
Last year, Delphi hired Legal Cost Control Inc. to help reduce its legal and accounting fees. That firm billed Delphi $481,000 for the past four months.
PriceWaterhouseCoopers LLP has billed about $21 million since being hired in June 2006. While the bulk of work done by PWC has taken place in the United States, Delphi has also paid for work done by PWC employees in Morocco, India, Korea, Germany, Mexico, Turkey, France, China, Poland, Australia, Romania, Hungary, Czech Republic, Portugal and Italy, PWC's billing statements show.
Delphi didn't return calls seeking comment, but the company has previously defended the bankruptcy expenses as appropriate.
Delphi's cost called very high
LoPucki, the UCLA professor and Detroit native, said Tuesday that Delphi's bankruptcy costs were extremely high based on an economic modeling program he created with a colleague. That program is based on a review of 74 major bankruptcies over a six-year period.
The computer program also found that Skadden Arps billed for far more hours than other law firms in comparable cases.
LoPucki said that his study showed that bankruptcy fees in U.S. cases rose an average of 8.6 percent yearly between 1998 and 2004.
He also said cases filed in New York or Delaware, where many companies are incorporated, are more expensive. Delphi, which is headquartered in Troy, filed in New York.
"Based on where Delphi is today, they are clearly going to be in the top 10. These are very high costs," LoPucki said.
Enron's bankruptcy was the first to top $300 million in fees and remains the most costly by far, at $800 million, by one estimate.
Delphi reported $17 billion in assets when it filed for bankruptcy in October 2005, making it the fifth largest bankruptcy in U.S. history by revenue and 13th largest by assets.
Skadden Arps notes in court records that it has voluntarily shaved several million dollars off its bills. It cut its most recent four months of bills by 8.3 percent, or $1.2 million. The bills are justified by the "unique circumstances surrounding these unusually large and complex cases," Delphi's lead bankruptcy attorney, Jack Butler, wrote in a court filing.
Butler also noted that the bankruptcy court has thrown out 8,300 claims seeking $8.1 billion from Delphi after objections were raised by Skadden attorneys.
Experts suggest that large-scale corporate bankruptcies may be increasingly unlikely as the costs of court-overseen restructuring continue to skyrocket.
On Saturday, Delphi formally canceled its financing deal led by Appaloosa Management LP and Cerberus Capital Management LP to buy up to 70 percent of Delphi when it emerges from bankruptcy.
Appaloosa said it is in talks with Delphi to reach a similar deal, though without Cerberus, which dropped out in April.
Delphi's board is set to meet Monday and may approve a new financing deal. Drain will hold a hearing July 19 to approve the new labor agreement with the UAW and could approve an amended financing deal. Delphi said it hopes to have the deal in place by the end of July.
Delphi hopes to reach deals with its five other smaller unions by Aug. 16, the date of another court hearing. It is in "active bargaining" with its second- and third-largest unions.
You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
Delphi bankruptcy bill: $200M
It may grow to $300M, making it one of top 10 costliest ever
David Shepardson / Detroit News Washington Bureau
WASHINGTON -- Delphi Corp. has racked up nearly $200 million in legal and accounting bills since it filed for bankruptcy in October 2005, and the tab could reach $300 million before it emerges by the end of the year, a Detroit News review of court filings shows.
With the Troy-based auto supplier spending $12.5 million per month, Delphi's bankruptcy is on track to become one of the 10 most expensive in U.S. history, said Lynn LoPucki, a professor of bankruptcy law at the University of California-Los Angeles who tracks Chapter 11 costs.
United Auto Workers leaders have vehemently criticized the bonanza of fees paid to teams of lawyers, accountants, turnaround experts and other firms that specialize in bankruptcies. Particularly galling to the union is that Delphi workers agreed to reduced pay and benefits to help the company emerge from Chapter 11.
"Bankruptcy is big business," UAW President Ron Gettelfinger told WJR-760 radio in Detroit on Monday. "One of these days, people will wake up and see what's happening here.
"We need to reform the bankruptcy laws. These guys are making a ton of money in this bankruptcy. Literally, it's obscene."
Delphi's Chapter 11 will easily end up as the most expensive in the history of the automotive industry, but other bankrupt auto suppliers also have amassed huge bills.
Federal-Mogul Corp., Dana Corp. and Collins & Aikman have all reported more than $100 million in bankruptcy expenses.
Toledo-based Dana's fees could reach $180 million by the end of the year. The trustee and judge overseeing the Dana case have questioned some of the bills, such as $300 cab rides taken by lawyers and expensive dinners in London.
On June 27, U.S. Bankruptcy Judge Robert Drain approved $49 million in fees and $3.3 million in expenses sought by Delphi's 38 law firms, accountants and consultants for the four-month period ending Jan. 31, 2006.
In total, Drain has approved $184 million in fees and $13 million in expenses at Delphi.
Delphi has hired 39 firms
None of those firms has submitted bills to the court for the past six months, which means the running tab for Delphi's Chapter 11 has likely surpassed $250 million.
A 39th firm hired by Delphi late last year, Detroit-based W.Y. Campbell & Co., on Tuesday submitted its first bill, for $500,000 for its advice on whether to sell a business unit.
The highest bills have been submitted by Delphi's lead bankruptcy law firm, Skadden, Arps, Slate, Meagher & Flom LLP, which has been paid $44 million for 15 months of work.
Drain has taken some steps to curb expenses, including limiting meal reimbursement to $20 for professionals, keeping photocopy expenses to 10 cents per page and limiting the number of attorneys at hearings.
But a review of hundreds of pages of billing records shows firms often bill Delphi for expensive meals and are still sending numerous attorneys to court hearings or conference calls.
Delphi's fee committee also has turned up some questionable expenses. One lawyer charged exactly eight hours for every day she worked -- between five and 10 days each month -- while Cadwalader Wickersham & Taft requested $10,000 in travel expenses for two lawyers without detailing any expenses. KPMG didn't appear to be billing its travel time at half its normal rate -- as is customary in bankruptcy court.
One FTI Consulting employee charged Delphi $185 for a taxi taken in June 2006 from the Newark, N.J., airport to his home.
Last year, Delphi hired Legal Cost Control Inc. to help reduce its legal and accounting fees. That firm billed Delphi $481,000 for the past four months.
PriceWaterhouseCoopers LLP has billed about $21 million since being hired in June 2006. While the bulk of work done by PWC has taken place in the United States, Delphi has also paid for work done by PWC employees in Morocco, India, Korea, Germany, Mexico, Turkey, France, China, Poland, Australia, Romania, Hungary, Czech Republic, Portugal and Italy, PWC's billing statements show.
Delphi didn't return calls seeking comment, but the company has previously defended the bankruptcy expenses as appropriate.
Delphi's cost called very high
LoPucki, the UCLA professor and Detroit native, said Tuesday that Delphi's bankruptcy costs were extremely high based on an economic modeling program he created with a colleague. That program is based on a review of 74 major bankruptcies over a six-year period.
The computer program also found that Skadden Arps billed for far more hours than other law firms in comparable cases.
LoPucki said that his study showed that bankruptcy fees in U.S. cases rose an average of 8.6 percent yearly between 1998 and 2004.
He also said cases filed in New York or Delaware, where many companies are incorporated, are more expensive. Delphi, which is headquartered in Troy, filed in New York.
"Based on where Delphi is today, they are clearly going to be in the top 10. These are very high costs," LoPucki said.
Enron's bankruptcy was the first to top $300 million in fees and remains the most costly by far, at $800 million, by one estimate.
Delphi reported $17 billion in assets when it filed for bankruptcy in October 2005, making it the fifth largest bankruptcy in U.S. history by revenue and 13th largest by assets.
Skadden Arps notes in court records that it has voluntarily shaved several million dollars off its bills. It cut its most recent four months of bills by 8.3 percent, or $1.2 million. The bills are justified by the "unique circumstances surrounding these unusually large and complex cases," Delphi's lead bankruptcy attorney, Jack Butler, wrote in a court filing.
Butler also noted that the bankruptcy court has thrown out 8,300 claims seeking $8.1 billion from Delphi after objections were raised by Skadden attorneys.
Experts suggest that large-scale corporate bankruptcies may be increasingly unlikely as the costs of court-overseen restructuring continue to skyrocket.
On Saturday, Delphi formally canceled its financing deal led by Appaloosa Management LP and Cerberus Capital Management LP to buy up to 70 percent of Delphi when it emerges from bankruptcy.
Appaloosa said it is in talks with Delphi to reach a similar deal, though without Cerberus, which dropped out in April.
Delphi's board is set to meet Monday and may approve a new financing deal. Drain will hold a hearing July 19 to approve the new labor agreement with the UAW and could approve an amended financing deal. Delphi said it hopes to have the deal in place by the end of July.
Delphi hopes to reach deals with its five other smaller unions by Aug. 16, the date of another court hearing. It is in "active bargaining" with its second- and third-largest unions.
You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
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