Bankruptcy: grave-dancing bankers and lawyers gird for fee bonanza

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The only investment bankers getting fees these days are the ones that chief executives never want to see. On Tuesday, the boutique firm, PJT Partners reported that its group revenues were up 11 per cent for the first nine months of the year. The growth came even as two of its key businesses, conventional M&A advice and private equity fundraising have dipped sharply, the latter by a whopping 50 per cent. 

Shareholders should thank PJT’s restructuring group. This works with companies who have run out of money or are about to do so. Corporate creditors are also clients. Recent situations PJT has been involved with include WeWork, Carvana and Revlon. 

PJT does not break out restructuring-based revenue but said overall deal advisory fees were up 24 per cent even as the M&A portion declined. One rival, Houlihan Lokey recently reported restructuring revenue up 17 per cent for the most recent quarter.

Fees charged by restructuring bankers and lawyers have exploded just as corporate borrowing costs have spiked and liquidity has evaporated. For the handful of advisers that specialise in busted companies, the bonanza will be significant at a time when merger and IPO specialists are largely idle.

The messy bankruptcy of cosmetics group Revlon produced roughly $250mn in professional fees for a 10-month assignment. That shocked even jaded industry observers. PJT, according to court filings, billed $26.9mn to the company as its investment banker. Revlon’s law firm, Paul Weiss, billed nearly $60mn with partners charging more than $2,000 per hour for their efforts.

PJT, however, only had a core team of a dozen or so on the case, unlike the multiples of that figure among the lawyers. PJT was paid monthly retainer fees, fees for arranging exit financing and then a final $15mn “success” fee. 

Financial sponsors and hedge funds active in distressed debt have sounded alarms about so-called “fee creep.” There are many reasons a company should avoid bankruptcy. The eye-watering cost is high up that list.

The Lex team is interested in hearing more from readers. Please tell us what you think of the bankruptcy fee bonanza in the comments section below.