Wave of Bankruptcies Boosting Demand for Talent
Treasury Secretary Henry Paulson issued a recent warning that recent market turmoil had “seriously impacted” the economy and that more U.S. financial firms would go bankrupt, according to the AP. Paulson says the $700 billion bailout package would take several weeks to put in place and it would not mean an end to bankruptcies. Moreover, the current wave of bankruptcies is likely to be much more litigious, according to Reuters. This comes as creditors of bankrupt companies seek to recover money in more innovative ways, the report states, citing a top bankruptcy and restructuring expert. Reuters quotes Lisa Donahue, Co-Head of the Turnaround and Restructuring Practice at business advisory firm AlixPartners, as saying a big uptick in litigation over bankrupt companies’ collapses could continue for years. Meanwhile, U.S. consumer bankruptcy filings surged 28.6% nationwide in September versus the same period in 2007, according to the American Bankruptcy Institute.
Executive search firm, A.E. Feldman, says the surge in bankruptcies is creating opportunities for candidates with expertise in underwriting, restructuring, and loan workouts. Business valuation jobs are also opening up. Amid the onslaught of bankruptcies, law firms are also seeing a steady increase in demand for legal services. Legal Times says the legal fees generated for firms helping to clean up the mess could reach into the hundreds of millions. The report goes so far as to suggest that billable hours in subprime litigation will surpass those accumulated during the accounting scandals of recent years. As a result, A.E. Feldman says legal jobs are opening up for candidates with excellent academic credentials and a demonstrable track record as top firms bet that bankruptcy and restructuring work will be one of their most promising avenues of growth.
Bankruptcies Rising
U.S. consumer bankruptcy filings increased 28.6% nationwide in September compared to the same period a year ago, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). “The continued rise in personal bankruptcies reflects high consumer debt, made worse by energy costs and the weak housing market, trapping many households in homes they can neither afford nor sell,” said ABI Executive Director Samuel J. Gerdano. “We expect consumer bankruptcies to exceed 1.1 million new cases by year end.”
The ABI also announced the total number of U.S. bankruptcies filed during the first six months of 2008 increased 29.2% compared to the same period a year ago, citing data released by the Administrative Office of the U.S. Courts.
Bankruptcies More Litigious
The current wave of bankruptcies is likely to be much more litigious, according to Reuters. This comes as creditors of bankrupt companies seek to recover money in more innovative ways, notes the report. Another driver for the surge in lawsuits will likely come from the various tiers of creditors that hold a company’s debt, since today companies have several tiers of secured lenders, each holding different tranches, or levels, of debt. Reuters quotes Donahue as saying in bankruptcy there is a hierarchy of which lenders get repaid first, so creditors in lower tiers will look for other ways to make money.
“This wave will be more litigious because so many constituents are out of the money. There are hedge funds all the way down in tranche 5, and there’s no way they are going to get anything from the bankruptcy, so they have an incentive,” Donahue said.
In the Reuters report Donahue also notes that creditors — or even the bankrupt companies themselves — may get more creative in whom they target for lawsuits, pursuing everyone from private equity investors to the bankrupt companies’ trading counterparties.
Bolstering Legal Teams
Law firms around the country are gearing up for the increase in bankruptcy filings. Many have already begun expanding their ranks, hiring bankruptcy attorneys and restructuring specialists.
Manatt, Phelps & Phillips, the national law and consulting firm, announced that the firm has formalized its recently expanded Distressed Asset practice group to include lawyers from the firm’s nationwide banking, litigation, regulatory, real estate and transactional practices. Clayton Gantz, Co-Administrative Partner of the firm’s San Francisco office, and Co-Chair of the group, says Harold Reichwald, a partner in Los Angeles, co-chair the group, says, “Given our large real estate finance, development and land use practices, and a history as one of the banking industry’s top service providers in the regulatory and capital markets space, Manatt is in a unique position to help clients meet the challenges presented by today’s combination of dynamic real estate, economic and credit market conditions.”
Manatt says it has represented buyers in over 45 non-performing loan portfolio purchases, from initial asset-level due diligence and pricing, contract negotiation, closing and conveyancing, to post-acquisition servicing, including workouts, foreclosures and creditors’ rights litigation.
Law firm, Crowell & Moring, also announced it is expanding its distressed group. The firm says it added three financial services and bankruptcy attorneys in order to deepen its ability to handle the full range of debt restructuring and corporate reorganization matters. Crowell & Moring says its Financial Services Group has seen significant growth and is among its fastest growing practices.
“The credit crisis means that our clients will have an increased need for sophisticated restructuring counsel over the next several years. Our new bankruptcy attorneys enhance our ability to meet the full range of client needs on the most complex matters,” says William M. O’Connor, chair of Crowell & Moring’s Financial Services Group.
A.E. Feldman’s legal and finance divisions are also on top of the latest developments in the financial markets and is constantly researching industry and economic trends. The recruiting firm invites both corporations and job seekers to contact its President, Mitch Feldman and its highly specialized team of executive recruiters directly to talk about the array of issues they are facing and what solutions are available.
