Reuters: Bankruptcy News: UPDATE 1-Dewey & LeBoeuf lender deadline draws near-source

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UPDATE 1-Dewey & LeBoeuf lender deadline draws near-source Apr 24th 2012, 22:35 Tue Apr 24, 2012 6:35pm EDT * Law firm has drawn down $75 mln on credit line - source * Dewey negotiating with lenders - source * Other firms have rejected Dewey merger proposals - sources By Caroline Humer and Leigh Jones NEW YORK, April 24 (Reuters) - Law firm Dewey & LeBoeuf is facing a deadline in less than a week to renegotiate terms of its $100 million credit line with lenders as it scrambles to stay afloat, a source familiar with the situation said on Tuesday. The firm, which has lost about 70 partners out of 300 since the start of year, owes roughly $75 million to the bank group, according to one source, who was not authorized to discuss the situation publicly. The negotiations are ongoing with an April 30 deadline looming, this person said. When the debt comes due, the lenders can ask to be repaid, which could put the firm into default if it fails to make the payments. The bank group is led by JPMorgan Chase and includes Citi Private Bank, Bank of America Corp and HSBC Holdings PLC, two sources said. JPMorgan, Bank of America, Citi and HSBC declined to comment. Representatives for Dewey did not respond to messages seeking comment. Dewey, struggling with high debt and partner defections, has hired bankruptcy attorney Albert Togut of law firm Togut Segal & Segal and is working on its restructuring options, two sources familiar with the situation said on Tuesday, confirming a Reuters' report from last week. Togut did not respond to a message seeking comment on Tuesday. Reuters reported on April 19 that among the options Dewey has considered is a prepackaged bankruptcy that would include a merger with another law firm. Law firm Greenberg Traurig LLP said in a statement that it had "preliminary discussions" relating to lawyers from Dewey, but reached no agreement. Dewey could be having trouble finding a merger partner. A leader of a major law firm said his firm met with Dewey's management earlier this year to discuss a possible merger, but the debt situation made such a deal untenable. "It was just too complicated," said the firm leader, who declined to be identified so as not to jeopardize a relationship with Dewey. Three other law firms have been approached by Dewey but decided not to go ahead with a deal, a different source familiar with those discussions said. Dewey's substantial debt load, its approaching lender deadline and the high number of fleeing lawyers could make a prepackaged bankruptcy hard to pull off, experts said. In a prepackaged bankruptcy, creditors must approve the details of the restructuring plan prior to filing a bankruptcy petition. A prepackaged arrangement would allow the firm to emerge quickly from bankruptcy. Howard Ressler a New York bankruptcy partner at Diamond McCarthy, who has worked on the bankruptcies of law firms Dreier and Howrey, said most law firms that have filed for bankruptcy have liquidated. "It's an unusual situation. I'm not aware of any law firm bankruptcy in which there was a prepack Chapter 11 case filed," Ressler said. However, he would not rule out the possibility of a prepackaged bankruptcy for Dewey without knowing the details. Peter Zeughauser, a law firm consultant, said that it was "highly unlikely" that Dewey could pull off a prepackaged bankruptcy and merger. "Dewey's leaders are likely perpetuating the idea to buy time to stave off creditors while they scramble to collect accounts receivable so they can compensate partners and explore different possibilities," he said. A rare example of a successful law firm restructuring was Ruden McClosky, which in late 2011 filed for bankruptcy and then announced a deal to sell itself to another firm. At its peak in 2006, Ruden had about 200 lawyers. Last year, Dewey hired a number of high-profile, highly compensated attorneys. It has been unable to pay many of its longer-term partners full compensation in recent months, according to two partners who have left. Dewey is saddled with large debt, including about a $125 million bond, a rare liability for a law firm. But with partners increasingly jumping ship, the ability to pay off its debt becomes more difficult. "A partnership is only as good as the partners who are there, and Dewey seems to be facing what is somewhat similar to a run on a bank with its partners departing," said Stephen Lubben, a law professor at Seton Hall University School of Law and an expert on bankruptcy. Link this Share this Digg this Email Reprints

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