Millions in fees add up in first 5 months of Puerto Rico’s bankruptcy
SAN JUAN — The bill that the Puerto Rico government will foot for professional fees during the first five months of its bankruptcy process exceeds $77 million as of Sept. 30, according to court filings submitted Friday.
The commonwealth, moreover, would have already covered more than $37 million of the total amount.
As government officials warn about a looming liquidity crisis after Hurricane Maria, a $400 million cash reserve remains in place for expenses related to Puerto Rico’s bankruptcy cases under Title III of the federal Promesa law.
With rates mostly ranging from $300 to $1,300 per hour, spending in professional services during the first five months of Puerto Rico’s bankruptcy is almost half of what Detroit incurred during its year-and-a-half-long restructuring process. According to the Wall Street Journal, the city disbursed around $178 million in lawyers and consultants between 2013 and 2014.
Puerto Rico’s bankruptcy—which surpasses in both size and complexity that of Detroit—still finds itself mostly in its initial stages. Parties are still hashing out discovery efforts and a court-ordered mediation between the government and its creditors has yet to produce results. As Title III cases continue to move forward, the potential overall cost in professional fees for the commonwealth’s coffers is mind-boggling.
The rules of the game call for the debtor—in this case, the commonwealth and four public entities, so far— to pay for the compensation of Title III-related “professionals” retained by the government, the financial control board established by Promesa and the statutory committees. The firm Luskin, Stern & Eisler—which itself seeks $327,147 in compensation for the period—periodically validates the billing before the court gives its approval.
So far, over two dozen entities have asked federal judge Laura Taylor Swain to authorize payment for services rendered during the first interim period, which ran from May 3 to Sept. 30. In accordance with the approved calendar, the last day to submit fees for the five-month period was Friday, Dec. 15. Parties may object fees applications, while the judge may hold hearings over the matter. Filings for fees corresponding to the next period must be submitted by March 19.
Over $22M related to fiscal board
The Proskauer Rose law firm, which represents the fiscal board in Title III proceedings, billed roughly $15.9 million in fees, plus $495,671 in reimbursable expenses. Of this amount, it has already received $14.8 million, or 90% of the compensation along with all the expenses claimed. Under its contractual arrangement, Proskauer attorneys charge $730 per hour for their services.
Locally, O’Neill & Borges, a Puerto Rican law firm retained by the board, invoiced $310,554 at an average rate of $197 per hour. Former resident commissioner, Pedro Pierluisi, works at the firm, registering about eight hours at $390 each. According to the court filings, Pierluisi has advised on the mediation process and motions submitted by creditors and the commonwealth government, among other aspects.
The board’s lead financial consultants, McKinsey & Co. and Ernst & Young, have requested $5.12 million and $1.17 million, respectively, for the first interim pay period.
Over $30M related to commonwealth gov’t
Although Title III of Promesa provides that the board is the sole representative of Puerto Rico and its entities in bankruptcy proceedings, the commonwealth government has its own brigade of lawyers and consultants who actively participate in the cases.
The government’s lead legal adviser, O’Melveny & Myers, invoiced a combined $16.3 million for the five-month period, of which it has received $14.8 million. That is at an average rate of $718 per hour, although one of the firm’s most active lawyers in the Puerto Rico Title III cases, John Rapisardi—who represented the federal Treasury in the restructuring of General Motors, Chrysler and Delphi—charges between $900 and $1,100 an hour.
Greenberg Traurig, another law firm retained by the commonwealth that mostly works on the Electric Power Authority (Prepa) Title III case, reported $3.53 million in requested fees and expenses, at an average of $697 per hour. Financial advisors Deloitte’s invoices totaled more than $7 million during the May-Sept. period.
Another financial advisory firm that the commonwealth has retained is Ankura, which requested approval for a total of $4.4 million during the first period.
The hourly rates charged by the firm range from $330 for associates to $900 for its president, Kevin Lavin, who previously acted as emergency manager of Atlantic City, N.J., during the city’s fiscal crisis.
Also working for Ankura as senior managing directors are brothers Juan Carlos and Fernando Batlle, both former officers at the Government Development Bank (GDB) under Gov. Luis Fortuño, as well as Jorge San Miguel, who also worked under the same administration as an adviser.
Fernando Batlle and San Miguel are among the firm’s professionals who have worked the most hours on the Puerto Rico matter. The former worked more than 530 hours at a rate of $800, while San Miguel registered about 268 hours, at $620. Juan Carlos Batlle worked 83 hours at a rate of $620.
One of the key disputes in Puerto Rico’s bankruptcy revolves around who is entitled to the sales tax money tied to the Sales Tax Financing Corp. (Cofina by its Spanish acronym): the central government or the entity’s creditors. In a bid to solve the issue, the board appointed two “agents,” each representing both sides and who will litigate the matter until it is solved.
Bettina Whyte, who serves as Cofina’s agent, charges $1,100 per hour and submitted for approval a total of $285,852 for her services from Aug. 3 to Sept. 30. Of this amount, $259,406 has been paid.
Whyte, in turn, has attorneys, the Willkie Farr & Gallagher law firm, which requested $4.8 million in compensation, at an average rate of $924 per hour. Of this amount, it has been paid almost $4 million. The Cofina agent’s municipal restructuring advisers, Klee, Tuchin, Bogdanoff & Stern, filed $603,838 in fees and expenses for the same period, at a rate of $1,044 per hour.
The Official Unsecured Creditors Committee Creditors (UCC), on the other hand, was appointed as the agent that will represent the government in the so-called “Cofina-commonwealth dispute.” The committee has also actively sought in court to be allowed to investigate Puerto Rico’s debt.
From June 26 to Sept. 30, Paul Hastings LLP, legal advisers of the UCC, billed roughly $9.35 million in fees, with an average rate of $965 per hour, plus $133,270 in expenses. Of this amount, it has been paid just over $2.74 million. The committee’s financial consultants, Zolfo Cooper, solicited almost $2.7 million.
Another committee in the Title III proceedings, the Official Retirees Committee, add another $3.3 million in fees and expenses for the five-month period. The Jenner Block law firm lead its advisers, with $2.1 million, followed by financial advisers FTI Consulting ($665,729), local law firm Bennazar, García & Milian ($286,933), actuaries Segal Consulting ($228,780) and information agent Marchand ICS Group ($12,443).
The financial consultants, meanwhile, of the team of judges in charge of the mediation process, Phoenix Management Services, billed $802,662 for services rendered until Sept. 30.
Other professionals who filed interim fees applications include Nilda Navarro, local counsel for the Cofina agent ($36,418); and local counsel of the UCC, Casillas, Santiago & Torres and O’Neill & Gilmore ($175,843 and $48,479, respectively).