“Our catering service requires a credit card; client matter numbers no longer accepted. Seamless food ordering requires a credit card or a corporate card.”
“It’s not clear that we still have health insurance.”
“Dewey has cut off subscriptions, and expenses are no longer being reimbursed.”
“Everyone is pretty much packing up. Bankers boxes are on backorder in supplies.”
“Dewey is quietly removing the art from the walls. Perhaps it belongs to the creditors?”
These are some of the sad stories we’re hearing out of Dewey & LeBoeuf today. Let’s discuss the latest news and rumor coming out of the deeply troubled law firm….
Multiple UPDATES and new links, after the jump (at the very end of this post). The Dewey story is moving so quickly that we will do multiple updates to our existing posts instead of writing a new post every time there’s a little additional news to report. Otherwise half of the stories on our front page would be about Dewey, and there is other Biglaw news to report — e.g., the new profit-per-partner rankings from Am Law, salacious lawsuits against prominent D.C. law firms, etc.
We’ll start with the hard news and get progressively softer. First, partners are still leaving in droves. We mentioned almost a dozen of them yesterday (see here, including all the updates). Now there are more, as reported by Thomson Reuters News & Insight:
[P]artner defections continued, bringing the total to at least 92 since the start of the year.
Holland & Knight said on Tuesday that it had hired Stuart Saft, a New York real estate partner at Dewey, and Goodwin Procter announced it had hired Dewey lawyers Ilan Nissan and Christian Nugent as private equity partners.
We mentioned the hiring of Saft, former chair of Dewey’s global real estate practice, in an update to yesterday’s story. The news about Ilan Nissan and Christian Nugent is new, though. If their names sound familiar, they should be: we wrote about them last June, when they left O’Melveny & Myers to join Dewey. At the time, OMM was experiencing significant partner attrition — but it seems to have righted itself, while the S.S. Dewey has taken on water. So Nissan and Nugent had to move on to the good ship Goodwin.
Back to Reuters:
Cooley LLP also said Tuesday that it had hired Dewey partner Lyle Roberts as a partner in its securities litigation practice in Washington.
It won’t be long before Dewey partner departures hit the triple digits.
Second, and not surprisingly, the firm’s bonds are taking a hit — although perhaps not as much as one might expect. From Bloomberg:
The turmoil at Dewey has upended the firm’s plans to find a merger partner and sent prices of its bonds reeling. The privately placed debt, issued in 2010 to refinance older bank loans and once valued at 100 cents on the dollar, were seen to trade April 27 in the 60s, said Kevin Starke, an analyst at CRT Capital Group LLC.
“If the firm reorganizes, the loan and the notes could be money good, but if it liquidates, it will come down to the valuation of accounts receivable,” he said, referring to Dewey’s bills to clients for legal services.
What kind of recovery can Dewey creditors expect? On the subject of D&L debts, here’s an interesting comment posted on a prior thread (take with the proverbial grain of salt, since this commenter is anonymous):
Is Marty [Bienenstock] really a BK lawyer? How can he or anybody else believe that JP Morgan won’t pull the line today in light of last night’s memo? $75,000,000 will be drained out of the banks before the sun sets today. I don’t know if they can meet the next payroll with that money gone. We have $125,000,000 due to the debenture holders, $300,000,000 due on pensions, a bunch due to partners for their capital accounts, who knows how much due for vendors and leases. There is probably a $700,000,000 pit that has to be filled. That’s how much the firm grossed last year. We probably have about $200,000,000 in current A/R and WIP. So exactly how does anybody think this is going to work?
Any BK lawyer knows you have to do a sources and uses analysis to see where the money will be coming from and who you need to pay. There isn’t enough money coming in and too many people who need to be paid too much money. As people check out there will be no more A/R or WIP, just lease and other liabilities.
Once the firm gets pushed into BK, as some pissed off creditors will eventually do, a trustee will go after partners for fraudulent transfers and other improper acts. Leases can be rejected. Claims can be settled. But it’s going to cost the partners. Marty connived the firm to hire him at big bucks and somehow he believes he can BS the entire world now. Nobody bought his stupid [prepackaged bankruptcy] idea and there are no takers on his most recent load of crap.
It’s no wonder we’re in this mess. There are morons running the show.
In light of the foregoing, it seems to me that 60 cents on the dollar would be a nice recovery rate. Look at the Howrey bankruptcy. According to an Am Law Daily story from March 14 of this year, one year after Howrey’s dissolution took effect, the Howrey estate had $38.3 million in total assets and liabilities that could go as high as $107 million (with Citibank alone owed $40 million). It seems unlikely that Howrey creditors will get even 50 cents on the dollar.
(But I’m not a bankruptcy lawyer, and the Am Law piece is based on information as of January 31, 2012. Feel free to correct me about the Howrey bankruptcy, in the comments — or provide additional details about Dewey, if you have them.)
Third, let’s look at the human side of this story — what it’s like to be at Dewey during these dark days. We have emails to back up some of the rumors….