Dollars fly in utility’s bankruptcy

EFH’s trip through Chapter 11 will likely match the cost of Enron’s

DALLAS — Energy Future Holdings, the largest power utility in Texas, has paid its lawyers and financial advisers $600,000 a day for each and every one of the 831 days — including weekends and holidays — since it filed for bankruptcy in April 2014.

As a result, the Dallas power company’s attempt to shed massive debt through Chapter 11 of the U.S. Bankruptcy Code has become one of the most expensive corporate restructurings in U.S. history.

Data obtained by The Texas Lawbook shows that the legal and financial adviser fees and expenses in the EFH corporate restructuring will pass $500 million this month. Bankruptcy experts say the price tag will likely reach $700 million — the final cost in the Enron Corp. bankruptcy — before it is over.

Federal court records show that more than 380 business lawyers and more than 240 financial advisers and business consultants have billed EFH thousands upon thousands of hours for work they’ve done on the bankruptcy, some of them charging as much as $1,400 an hour.

While very few of the advisers are from Texas, a handful of Houston lawyers, including corporate M&A expert Andrew Calder of Kirkland & Ellis, have been working EFH’s bankruptcy for two years. Kirkland & Ellis and Calder referred requests for comment to EFH.

EFH officials declined to comment for this article, but EFH

General Counsel Stacey Doré previously told The Texas Lawbook that she is dismayed and frustrated by the high fees.

“When you actually see the numbers, it’s astonishing,” Doré said in an interview last year.

The Texas Lawbook reviewed more than 450 filings in the bankruptcy case and found that EFH has compensated the professional consultants involved in the corporate restructuring more than $420 million in fees and expenses since the company filed for Chapter 11 protection 27 months ago. In addition, the legal and financial advisers are owed another $75 million in deferred payments, which will be paid at the end of the case.

“By any measurement, this is a very expensive bankruptcy — probably one of the five most expensive bankruptcies in U.S. history,” said Lou Strubeck, a bankruptcy partner at Houston-based Norton Rose Fulbright.

EFH officials declined to comment for this article, but Doré previously told The Texas Lawbook that she is dismayed and frustrated by the high fees.

“When you actually see the numbers, it’s astonishing,” Doré said in an interview last year.

Because of federal bankruptcy court procedures, EFH is essentially helpless to limit fees. Bankruptcy law leaves the decision about what legal and financial advisers should be paid up to the judge in the case.

Bankruptcy judges in Delaware, where the EFH case is being handled, regularly approve lawyer fees exceeding $1,000 an hour and seldom require lawyers or financial advisers to reduce their charges, lawyers say.

Legal experts say the EFH fees will almost certainly reach $700 million in fees and expenses if the bankruptcy continues into next spring, which is likely. As a comparison, the final fee and expenses in the insolvency of Houston-based Enron Corp. was $700 million. Advisers in the Lehman Brothers case, the most expensive bankruptcy ever, reported more than $2 billion in fees and expenses.

“One reason fees get so high in bankruptcy cases like this is that it requires a lot of specialists in areas such as tax, employment, environmental and regulatory to get involved,” Dallas bankruptcy law expert Daniel Winikka said.

Winikka said EFH or the fee examiners committee could technically challenge the rates as excessive, but he and other lawyers say such efforts rarely succeed.

“Besides, the fee examiners would get to bill EFH for the time they fight to reduce fees and the lawyers and financial advisers get to charge EFH for the time they would spend defending the fee requests,” Winnika says. “All of that results in EFH paying more fees.”

Texas Lawbook research shows that 72 of the lawyers working on the bankruptcy are charging EFH $1,000 or more per hour. Another 90 lawyers are charging $800 to $975 an hour.

Only a tiny fraction of the attorneys and bankruptcy experts — less than 60 of the 600 paid professional advisers, according to court records — on the EFH payroll are based in Texas.

For example, EFH hired Chicago-based law firm Kirkland & Ellis to handle its bankruptcy. While most of Kirkland’s 91 lawyers are based in Chicago or New York, one notable exception is Andrew Calder, who heads Kirkland’s Houston office.

Calder, whose hourly rate is $1,325, has billed EFH several hundred hours so far, according to court records. He also led earlier efforts to sell Oncor to the Hunts, which failed because of state regulatory requirements.

Doré, in an interview last year, said Kirkland’s work on the bankruptcy has been extraordinary.

For a longer version of this article, please visit TexasLawbook.net.