Bankruptcy services companies find growth in downturn

By Bijoy Anandoth Koyitty - Analysis

BANGALORE (Reuters) - Investment bank Lehman Brothers Holdings (LEHMQ.PK) filed for bankruptcy in September 2008 and since then it has been hounded by 175,000 potential creditors with a total claim value exceeding $9 billion.

A wave of big-ticket bankruptcies followed in its wake - taking down companies as varied as Washington Mutual, Circuit City and Nortel Networks.

However, at its headquarters in Kansas City, executives of software maker Epiq Systems Inc (EPIQ.O), which runs a bankruptcy software and services unit, were seeing a sea of opportunities in the daunting reorganization Lehman was faced with.

"It is one of the few companies that do well when other companies are not," said John Carraux, an analyst at Punch & Associates Investment Management, which holds Epiq stock.

Epiq's bankruptcy services unit offers software and related services that simplify tasks associated with Chapter 11 restructurings, Chapter 7 liquidations and Chapter 13 individual debt reorganizations.

Eventually, Epiq did manage to clinch the Lehman job - the largest bankruptcy in the history of United States with more than $600 billion in liabilities.

The company followed that up with key account wins such as Lyondell Chemical Co, Nortel Networks Inc and Smurfit-Stone Container Corp.

Epiq, along with Kurtzman Carson Consultants LLC (KCC), leads the fast-growing Chapter 11 restructuring segment. KCC agreed on Monday to be acquired by Computershare Ltd (CPU.AX), as the world's biggest share registrar expands into areas such as bankruptcy.

Companies offering broader bankruptcy services include Crawford & Co-owned (CRDb.N) Garden City Group, Bankruptcy Management Solutions -- in which Ocwen Financial Corp (OCN.N) holds a stake, and AlixPartners.

Key services offered by these firms include identifying creditors and processing the claims, notifying parties concerned about key dates and deadlines, running administrative work related to bankruptcy-exit plans and executing payments to creditors.

Bankruptcies these days have become long-winded due to the complex nature of holdings in a corporation, and require professional help with managing the avalanche of documents.

Elizabeth Vrato, a business development executive with Garden City Group, said critical issues involving liquidity and covenants have resulted in an uptick in business, ranging from out-of-court restructurings and asset sales to Chapter 11 filings and the length of the workday.

"Restructuring nowadays is sort of like a marathon," Vrato said. "It's not for the short-winded."

SPURT IN CHAPTER 11

According to the Administrative Office of the U.S. Courts, Chapter 11 filings jumped 60 percent in 2008. Overall bankruptcy filings rose 31 percent during the period.