Lehman bankruptcy a $1 billion payday for advisers

Fri Oct 15, 2010 5:07pm EDT

* Lehman fees cover bankers, lawyers, advisers

* Fees unlikely to be surpassed

* Freefall contributed to costs

By Caroline Humer

NEW YORK, Oct 15 (Reuters) - When Lehman Brothers collapsed, a whole lot of money vanished with it. Its bankruptcy, on the other hand, just keeps on paying.

Lehman's record-breaking bankruptcy has produced a staggering $1 billion in fees -- doled out to legions of lawyers, advisers and bankers over the past two years.

The financial firm has been paying out, on average, more than $40 million a month, and based on that rate, it passed the $1 billion mark last month. September's details will be in the monthly operating report due in mid-October.

A Lehman spokeswoman declined to comment.

The fees are a fraction of the $639 billion in assets that Lehman Brothers Holdings Inc LEHMQ.PK was running when it collapsed into bankruptcy in September 2008.

But it is still more than, say, the gross domestic product of Caribbean nation of St. Lucia, or the combined average salaries of 8,000 financial advisers.

Experts say that the fees, which continue to rise daily, come at the expense of creditors seeking to be repaid.

"If you are a creditor, every dollar that is going to (debtor) counsel is a dollar not going to a creditor," said Stephen French, a managing partner at Legalbill, a Tennessee company that advises companies on managing their legal bills.

But Bryan Marsal of Alvarez & Marsal, the advisory firm running Lehman in the United States, said in an emailed statement that his firm's work has improved recovery for creditors by more than $5 billion and that the size and complexity of the case justify the fees.

That has meant hiring an army of advisers and accountants not only in the United States, but to close up shops throughout Asia and Europe, where insolvency rules change in each country. Allowed claims from creditors in the case are expected to be about $365 billion. It expects to recover about $60 billion before expenses to pay creditors.

Lehman expects to emerge from bankruptcy during the first quarter of 2011. Then, it can start paying back creditors.

The company has worked on a reorganization plan that will put most of its remaining assets and operations into a newly created business called Lamco.

BREAKING IT DOWN

A look at the financial firm's August operating report breaks down who gets what.

Most of the bills come from Alvarez & Marsal. Law firms Weil Gotshal & Manges, in charge of the bankruptcy court process, and Jones Day, which handles litigation, also top the list.

The court-appointed examiner who conducted an investigation into the collapse of the firm, his law firm and his advisers cost nearly $100 million.

The company also pays the people who work for some of their creditors, such as the law firm Milbank Tweed Hadley & McCloy.

Others on the list: Bingham McCutchen, Bortstein Legal; Curtis, Mallet-Prevost, Colt & Mosle; Dechert; Gibson Dunn & Crutcher; Kasowitz, Benson, Torres & Friedman; Latham & Watkins; McKenna Long & Aldridge; Pachulski Stang Ziehl & Jones; Reilly Pozner; Simpson Thacher & Bartlett; Sutherland LLP; and Windels Marx Lane & Mittendorf.

Lehman's running tab beats the next closest bankruptcies: Enron and WorldCom, according to Lynn LoPucki, a professor at UCLA Law School and a visiting professor at Harvard Law School who studies bankruptcy fees.

"The question is, could you recover the same amount with lower professional fees and I think that you could. The professional fees in bankruptcy are extremely high and the reason is that people are spending other people's money," he said.

FREEFALL OR FREE-FOR-ALL

One reason some cases have high bankruptcy fees is that they are stuck in court, said Ken Buckfire, chief executive of restructuring firm Miller Buckfire & Co.

"Uncontrolled hard money bankruptcies like Lehman are just inevitably going to be very expensive, possibly because they had no plan when they went in," Buckfire said. "They had no planning and it was a free-for-all to try to grab as much value as they could. Inevitably, that required armies of lawyers all over the world arguing about everything." (Editing by Robert MacMillan)

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