Welcome to the Big Law Business Chronicle on the changing legal market written by me, Roy Strom. This week, we take a look at how Kirkland & Ellis’ bankruptcy practice has performed during a tumultuous year. Register now to receive this column in your inbox on Thursday morning.
Two weeks ago I closed the book on the reports I had done throughout 2020 highlighting the strength of the practice of capital markets. There was many winners in a practice fueled by insatiable demand for capital from U.S. companies amid the pandemic.
On a related note, I want to share annual data on the bankruptcy fees I have follow-up throughout the year. Bankruptcies increased as businesses closed and the price of oil fell in the spring and summer.
I wrote in July that Kirkland & Ellis was the biggest winner a slew of bankruptcies sparked by a pandemic, resulting in more than $ 145 million in fees for the work leading up to bankruptcy on behalf of 15 of the largest companies to seek court protection from creditors in 2020.
Well, most of the year-end data is the same, but the numbers are a lot bigger.
A database maintained by UCLA School of Law and Lynn LoPucki, a law professor there, shows that there were 57 bankruptcies filed by publicly traded companies with more than $ 330 million in assets last year. That’s the most since 2009, and more are expected next year, as debt incurred to withstand the pandemic matures for a large list of companies.
Last year, the 57 companies paid more than $ 380 million to their major law firms before filing for bankruptcy. Kirkland represented 23 of those companies and earned more than $ 200 million, according to a Bloomberg Law analysis of court documents, more than four times the amount earned by the next nearest law firm.
In 2019, Kirkland advised only two of the debtors listed in the LoPucki database, earning just north of $ 26 million for his work leading to their bankruptcy filing, according to a Bloomberg Law analysis.
For context, the 151st largest law firm in the United States in 2019 reported total revenue of $ 200 million, according to data from AmLaw.
Kirkland’s $ 200 million figure is just a fraction of the costs these 23 cases will bring in. This represents the work Kirkland did before the companies filed for bankruptcy, not the work the company has done for them since. In many cases, the costs incurred in bankruptcy eclipse those that led to it.
On the other hand, it is important to point out that the fee data only includes companies that represent the bankrupt company, known as the debtor, in these proceedings. While this is usually the most important role for law firms in bankruptcy, it is not the only one. A handful of other companies are working on each case representing creditors or other parties.
Most bankrupt law firms have had a solid year. Thomson Reuters Peer Monitor data shows that the demand for bankruptcy practices increased 3.2% from November 2019 to November 2020, the largest increase in demand among any practice groups.
The LoPucki database shows an even bigger increase. In 2019, 25 SOE deposits reached the threshold of approximately $ 330 million in database assets (or $ 100 million in 1980 dollars). These debtors paid $ 120 million to their major businesses. That’s about a third of what was paid in 2020.
According to a Bloomberg Law analysis, Latham & Watkins earned more than $ 45 million in 2020 for the work it did that led to the bankruptcy of the eight debtors it represented in the LoPucki database. Both of these numbers are good for second place among law firms.
Much has been written about the demise of retail businesses in a pandemic that has closed most storefronts. But the Oil and gas industry was the largest contributor to bankruptcy fees in the LoPucki database in 2020.
According to a Bloomberg Law analysis, 19 oil and gas companies filed for bankruptcy in the database and paid their law firms $ 132 million for the work leading up to their filing. Of that amount, more than $ 70 million went to Kirkland, which advised nine companies listed in the database as “oil and gas” companies.
There is more to the practice of Kirkland bankruptcy, and I hope to get there soon. But I don’t expect bankruptcy practices to slow down now that we are working on new timelines.
Bloomberg has reported there is a record level of debt owed by companies called “zombies” that could drift into restructuring. As of mid-December, more than 200 companies were not earning enough to pay their interest, reported Bloomberg, who meets the definition of “a zombie company.”
If conditions don’t improve for the living dead, the “LoPucki Watch” could be alive and well in 2021.
Worth your time
On the financing of litigation: Bill Strong of Longford Capital, a former Morgan Stanley executive who helped sell litigation finance to large investors, resigned as president of the Chicago-based litigation finance company. It comes as Longford also announced that it has raised more than $ 430 million in its third fund.
On Silicon Valley: Paul Weiss hired a team of four partners in San Francisco, including three associates from Orrick and one associate from Kirkland, reports my colleague Meghan Tribe. The hires come about six months after Paul Weiss chairman Brad Karp reported the the company’s intention to open an office in Silicon Valley following the hiring of Karen Dunn and Bill Isaacson, former Boies Schiller stars who have a list of California-based tech clients.
On side rentals: Latham and Watkins added a pair of capital markets partners by Clifford Chance to strengthen the practice of the firm in Latin America. Shearman & Sterling has hired a former White & Case partner, Heather Waters Borthwick, who handles the leveraged finance. And Ropes & Gray added two former federal prosecutors to its litigation practice.
It’s all for this week ! Thanks for reading and please send me your thoughts, critiques and advice.