Deal Watch - The Blog

More than $108M in Lehman Brothers work fills lawyers' pockets

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Wed, 15 Jul 2009 15:48:28 -0400

Legal work related to the reorganization of Lehman Brothers Holdings Inc. has stuffed more than $108 million into law firms’ pockets.

That’s from a post by Zach Lowe on the Am Law Daily blog, a Daily Report affiliate. Lowe’s posting expanded on a Bloomberg News story about the fees paid to bankers, accountants and lawyers in the case—some $262.6 million for work done between Sept. 15, 2008, the date of Lehman’s bankruptcy filing, and June 30 of this year, according to U.S. Securities and Exchange Commission filings.

Eleven law firms—including one based in Atlanta (McKenna, Long & Aldridge); one with an Atlanta office (Jones Day) and another co-founded by a former Atlantan (McKee Nelson)—handled court-appointed work for Lehman or its creditors.

Here’s how the firms rank so far in total Lehman billings:

• Weil, Gotshal & Manges: $63,746,000

• Milbank, Tweed, Hadley & McCloy (lead counsel to creditors committee): $17,246,000

• Jenner & Block (court-appointed examiner): $6,703,000

• Curtis, Mallet-Prevost, Colt & Mosle (special counsel to Lehman on conflicts issues): $6,399,000

• McKee Nelson (special counsel to Lehman on tax issues): $3,993,000

• Jones Day (special counsel to Lehman on Asia-related issues): $2,919,000

• Quinn Emanuel Urquhart Oliver & Hedges (special counsel to Lehman on conflicts): $2,289,000

• McKenna Long & Aldridge (special counsel to Lehman on real estate): $1,473,000

• Bortstein Legal (special counsel on IT issues): $1,338,000

• Simpson, Thacher & Bartlett (special counsel on federal reporting and testimony): $1,248,000

• Reilly Pozner (special counsel on mortgage litigation and claims): $733,000

A peek at the interim compensation applications filed in the Lehman matter in U.S. Bankruptcy Court for the Southern District of New York shows 20 Atlanta lawyers billed hours on the case. All were from McKenna, with John G. Aldridge, senior counsel at the firm, posting the highest hourly rate at $625.

No Jones Day Atlanta lawyers are listed as billing on this matter; most were from the firm’s Hong Kong, Tokyo, Taipei or San Francisco offices.

The highest-billing lawyer with a local connection was William F. Nelson, a former King & Spalding-Atlanta tax partner who left the firm in 1999 to found Washington-based tax and finance boutique McKee Nelson. His hourly tab: $995.

Kilpatrick lawyer gets 'Transaction of the Year' award

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Wed, 15 Jul 2009 15:43:48 -0400

Paul M. Rosenblatt, a Kilpatrick Stockton partner on the firm’s bankruptcy and financial restructuring team, has received the 2008 Transaction of the Year award from the Chicago/Midwest Chapter of the Turnaround Management Association.

Rosenblatt advised AT&T, a member of the creditors’ committee in the bankruptcy of telecommunications provider Trinsic Inc.

The Turnaround Management Association, a 9,000-member organization based in Chicago, recognized Rosenblatt for his work during the bankruptcy sale process, which yielded a 25 percent enhancement in the final sales price of the Tampa, Fla.-based company’s assets.

Rosenblatt described the process of boosting the sales prices as a “tug of war” between what management of the debtor wanted, what the creditors wanted, and what was best for each.

“The debtor selected a stalking horse party who was offering $20 million,” Rosenblatt recalled. “The bid of $20 million was not sufficient to cover the debts that had to be paid in the bankruptcy estate. So we assisted in obtaining another party who was interested in bidding on the assets. There were several hurdles and roadblocks that we overcame to arrive at an auction process in which the parties bid against each other and the sale price ended up increasing by about 25 percent to $25.5 million … so all the debts that had to be paid could be paid.”

In a hearing at the conclusion of the sale, Southern District of Alabama Bankruptcy Court Judge Margaret Mahoney praised the legal team, including counsel for the creditors committee, for successfully handling a multitude of challenging issues.

DLA Piper, Greenberg lawyers ink $15M private equity deal

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Wed, 15 Jul 2009 12:59:00 -0400

With the help of a team of lawyers from DLA Piper, private equity firm Navigation Capital Partners has pledged to invest up to $15 million in interactive marketing agency Definition 6.

DLA partner Joseph B. Alexander Jr. (pictured below) and associate Daniel P. Rollman, as buyer’s counsel, advised Navigation in its decision to take a controlling ownership share of Atlanta-based Definition 6.

Definition 6 is the third portfolio company for this private equity firm, which has $375 million under commitment and is focused on investing in middle-market companies. Alexander said he also helped NCP acquire its other two portfolio companies: Dallas-based Exeter Finance Corp. and Atlanta-based James Brown Contracting.

The Definition 6 deal, said Alexander, is a small one for NCP. The company’s investment in Exeter, an auto finance company, for example, was $60 million, he added.

Alexander said his client was interested in Definition 6 because “they believe strongly that businesses are going to look to the Internet to advertise, that interactive media is the wave of the future in terms of advertising dollars.”

Greenberg Traurig shareholder Stacey O. Gallant led the representation of Definition 6, along with shareholders Gary E. Snyder, Ronald W. Eisenman and associate Guillermo N. Wasserman.

The companies now share some top talent. After inking the deal, NCP appointed Managing Partner Larry Mock, Operating Partner O.G. Greene and Vice President Zuri Briscoe to Definition 6’s board of directors.

Definition 6, said Gallant, was interested in the deal because “they wanted the capital so they could expand the products and services offered to their customers and also potentially expand geographically.”

Gallant and Alexander said the deal closed quickly, in part because Navigation financed the transaction itself. The legal work took less than 60 days, Alexander said.

“In this economic climate, that’s kind of astounding,” Gallant said. “And that it actually closed.”

“This is one of the few deals that we’ve gotten started and closed,” Alexander said, explaining that he’s working on a few other potential deals for Navigation. “Until they get closed, though, you just kind of sit and hope. That’s the way it is right now.”

Lawyers help create venture fund, with a twist

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Thu, 09 Jul 2009 09:59:00 -0400

This is not your father’s venture capital fund.

Thanks to an atypical legal structure, the GRA Venture Fund—which recently raised $18.75 million in its first round of fundraising—can operate with a lower cost structure, offer investors state tax credits and offer more hands-on management by board members.

The GRA Venture Fund is part of the Georgia Research Alliance and its program designed to let the state partner with private investors to provide early-stage financing to start-up companies that grow out of the research and inventions created by the state’s universities. Its focus is on technology projects, with a likely emphasis on vaccines, according to David S. Phillips [photo, below right], a partner at Jones Day who, along with colleagues Milford B. Hatcher Jr. and John E. Zamer, advised both GRA and the fund.

But while funds such as this are not unique—other states, including Florida, have them, too—from a legal standpoint, said Phillips, “It’s really a different sort of animal.”

Unlike a typical venture capital fund, according to Phillips, the GRA Venture Fund has no general partner and no carried interest. In a typical fund setup, the general partner manages the fund and raises money for it in exchange for a 20 percent cut of the profits, referred to as carried interest.

To avoid those costs, Phillips said his team structured the fund as a limited liability company, or LLC, rather than as the more typical limited partnership.

The fund doesn’t need a general partner, he said, because the GRA will provide needed administrative, accounting and back-office support at no cost. Also, because the GRA already has a program, called VentureLab, designed to commercialize university research and inventions, the new fund’s goal is to provide a financial bridge for new companies coming out of VentureLab before they’d be mature enough to attract traditional venture capital. The GRA Fund money means there’s no need to hire a general partner to go out and chase more funds, Phillips said.

Also, the LLC structure means that management decisions typically made by the general partner will instead be made by a board comprised primarily of representatives of the investors, he said. The LLC allows board members to actively manage the fund without jeopardizing their limited liability—something that would be at risk if they participated in active management under a limited partnership structure.

“The fund is also a little unique in that the state Legislature passed state income tax credits for investors investing in the fund,” Phillips said. He explains that the providers of the first $30 million to the fund will get a 25 percent, or $7.5 million, state tax credit. There’s also a smaller credit for those who invest in any of the portfolio companies created through VentureLab and the fund.

The tax credits presented yet another legal twist, Phillips said, because many of the fund’s investors—which include Georgia Tech, the Medical College of Georgia and Georgia State University—already are tax exempt.

To avoid using up the available $7.5 million in tax credits with funds from investors who can’t benefit from the credits, Phillips said his team created a parallel fund for tax-exempt investors, allowing only those who can use the exemption to invest in the main fund.

Some of those main fund investors, who also serve on the board or as trustees, include: David Ratcliffe, an attorney who is chairman and CEO of Southern Co.; F. Duane Ackerman, a former BellSouth Corp. chairman and CEO; and Frederick E. Cooper, a former Jones Day lawyer and executive at Flowers Industries who is a longtime leader in the business and Republican communities in Georgia.

Phillips said the fund’s legal structure also was crafted to meet the requirements of the state’s seed capital statute. So far, Phillips said, the state’s seed capital fund has invested $7.5 million, assisted by a team of Bryan Cave-Powell Goldstein lawyers led by Frank A. Crisafi and Riccarda N. Heising.

The goal, Phillips said, is to attract three times the state’s investment from the private sector. Coupled with the tax credits, the fund has the potential to provide more than $100 million in venture financing and to invest in a wide variety of technologies and inventions.

“This was not a plain vanilla deal,” Phillips said.

Take this job and love it

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Tue, 07 Jul 2009 13:54:20 -0400

If you’ve ever had a yearning to hold the financial fate of companies and individuals in the palm of your hand—all while wearing a black robe—now may be your time.

There’s an opening for a judge on the U.S. Bankruptcy Court for the Middle District of Georgia in Macon. The new judge will fill the spot to be vacated by U.S. Bankruptcy Judge Robert F. Hershner, who retired this spring but was immediately recalled to the bench pending the start of a search for his replacement.

The job currently pays $160,080 per year. Among the job requirements: membership in good standing in the bar of the highest court of at least one state; a reputation for integrity; a minimum of five years of law practice experience; and not being related by blood or marriage to any judge on the 11^th U.S. Circuit Court of Appeals.

The 11^th Circuit judges will vote on and ultimately appoint the successful candidate to a 14-year renewable term.

Interested candidates may obtain an application by contacting James P. Gerstenlauer, circuit executive for the 11^th Circuit, at (404) 335-6535, by visiting www.ca11.uscourts.gov/humanresources, or by contacting any federal clerk of court in Alabama, Florida or Georgia. The application deadline is July 13.

Danowitz firm files Chapter 11 for granite company

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Tue, 07 Jul 2009 13:51:41 -0400

Granite & Marble Concepts, Inc., has filed for Chapter 11 reorganization in the US Bankruptcy Court for the Northern District of Georgia.

The company, which is based in Marietta, is represented by Edward F. Danowitz Jr. of Danowitz & Associates, and lists between $1 million and $10 million in both assets and liabilities.

The company’s three largest unsecured creditors are Cobb Commercial Bank in Kennesaw, with a bank loan of $1.2 million, and two Italian companies to which Granite & Marble Concepts owes about $200,000 each.

MMM helps O4 land $15M

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Mon, 06 Jul 2009 13:48:08 -0400

Morris, Manning & Martin attorneys Edward D. Hirsch, William Winter and Christopher S. Maxwell, helped software provider O4 Corp. in its deal to land $15 million in Series A financing.

The lender is ABS Capital Partners, with offices in Baltimore, Boston and San Francisco. ABS was represented by Michael Silver and Mahvesh Qureshi, both with Hogan & Hartson’s Washington office.

O4, whose North American headquarters are in Atlanta, makes software that helps consumer product suppliers automate their field sales, marketing and merchandising and to direct store delivery operations via a mobile software system that links head-office management with representatives in the field.

Healthcare REIT launches at-the-market offering

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Wed, 24 Jun 2009 10:32:37 -0400

Continuing a trend among airlines and real estate investment trusts that began last fall, Omega Healthcare Investors, Inc., has just completed plans to raise up to $100 million over the next two years via an at-the-market stock offering.

At-the-market or ATM offerings, also known as continuous offerings, controlled equity or equity shelf programs, allow a company, via a specific type of registration with the Securities and Exchange Commission, to make incremental stock offerings rather than launching a single large sale of shares.

The SEC filings allow the company to have necessary paperwork “on the shelf,” so to speak, which, if consistently updated, may be used repeatedly for each new incremental filing.

The primary advantages of this method, according to Eliot Robinson, the Bryan Cave Powell Goldstein partner who represented Omega, a Hunt Valley, Md.-based long-term care REIT, is that ATMs allow the company to make offerings when market conditions are most favorable. Also, unlike a single large offering, ATMs don’t flood the market and are less likely to push down share value.

“These deals have become a lot more prevalent since last fall, particularly in certain industries, and these include REITS,” said Robinson, who worked on the deal with Bryan Cave associates Terry Childers and Jody Arogeti. “It’s also been common with airlines—you saw this with Delta last winter.”

Omega entered into separate equity distribution agreements with three banks: UBS Securities LLC, Deutsche Bank Securities Inc. and Merrill, Lynch, Pierce, Fenner & Smith, Inc., each as sales agents or principals. The banks are represented by Skadden Arps Slate Meagher & Flom partner David J. Goldschmidt.

Robinson said his client has good relationships with all three banks. “The banks follow the trading and generally have a good idea when there are institutions that are looking to accumulate a block [of shares], and this provides an opportunity for the company to place the block directly with a buyer,” he said. “It … may be harder for the buyer to accumulate these shares in bits and pieces, and from the buyer’s perspective, these trades don’t move the market up.”

Robinson said that Omega, which, as of the close of the first quarter of 2009 owned or held mortgages on 255 skilled nursing and assisted living facilities in 28 states, planned to use the net proceeds of the sales for working capital and general corporate purposes.

DLA Piper tops list of firms in private equity, VC deals

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Tue, 23 Jun 2009 11:18:00 -0400

Yes, Virginia, there is a living, breathing private equity and venture capital law practice—even in these miserly economic times.

So says the Dow Jones Private Equity Analyst’s latest ranking of law firms based on the number of deals closed in 2008. Six of the players on that 72-firm list have Atlanta offices: DLA Piper is the most highly ranked local, taking second place on the nationwide list, just behind Wilson Sonsini Goodrich & Rosati.

The other Atlanta-connected firms and rankings are Jones Day (16); Paul Hastings Janofsky & Walker (18); Duane Morris (44); Morris, Manning & Martin (tied with Ice Miller at 49) and Greenberg Traurig (51).

According to information from DLA Piper, Atlanta attorneys worked on venture capital deals valued at $290.2 million in 2008.

“Atlanta’s got a lot of … emerging growth companies, but not a lot of private equity in the city,” said Jeffrey M. Leavitt, a partner in DLA Piper’s office here. “I think one of the reasons we ranked so high is we can leverage the contacts of our other offices around the country.”

DLA Piper did not disclose its largest deal because, according to Leavitt, the client occupies a competitive technology space and wanted to keep the transaction quiet. He said that one of the marquee deals for the Atlanta office involved $55 million in Series B financing for Suniva, a solar-power chip company.

Leavitt said the Atlanta office’s client base in the venture capital/private equity arena is about 85 percent technology and 15 percent life sciences companies. He said he anticipates a jump in life sciences work, given the state’s active outreach to that sector via organizations such as the new Global Center for Medical Innovation and the Georgia Research Alliance.

According to the Dow Jones ranking, DLA Piper negotiated and closed a total of 894 private equity and venture capital deals in 2008.

Jones Day, which closed 174 private equity and venture capital deals last year, listed its largest deal as advising Ospraie Management LLC in its $2.8 billion acquisition of ConAgra Trade Group, a subsidiary of ConAgra Foods.

The largest deal of the 153 that Paul Hastings handled involved its representation of Madison Dearborn Partners in a now-terminated $42 billion acquisition of BCE Inc. with Providence Equity and the Ontario Teachers’ Pension Plan. A firm spokeswoman said that 66 Atlanta lawyers worked on those deals.

Duane Morris, with a total of 53 deals, represented Atlantic Industrial Inc. and private equity firm Sterling Capital Partners when Atlantic was acquired for more than $250 million.

Morris Manning, with 47 deals, represented a transportation-focused business services company in a $27 million expansion round with multiple investors. Greenberg Traurig, with 46 deals, did not disclose its largest deal.

Brown Steel, Case Engineered Lumber seek Chapter 11s

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Mon, 22 Jun 2009 15:11:00 -0400

Two Georgia companies associated with the construction industry petitioned for Chapter 11 bankruptcy protection on Thursday: Brown Steel LLC and Case Engineered Lumber, Inc.

Brown Steel, based in Newnan, manufactures and fabricates structural and plate steel for commercial and industrial customers. G. Frank Nason IV of Lamberth, Cifelli, Stokes, Ellis & Nason represents the company, which in its petition, filed in U.S. Bankruptcy Court for the Northern District of Georgia, estimates that it has between $1 million and $10 million in both assets and liabilities.

This reorganization is not Brown Steel’s first debt-fueled trip to court. Colonial Bank of Alabama, represented by Kevin B. Getzendanner of Arnall Golden & Gregory, sued the company in Coweta Superior Court on June 11. According to the complaint, which seeks a receiver and injunctive relief, Brown Steel defaulted on more than $5.6 million in loans from the bank.

According to a report in the Newnan Times-Herald, other suits against the company include claims that Brown Steel owes $103,000 to AIM Steel Inc.; more than $47,000 to Georgia Powder Coating; in excess of $27,000 to The Fastenal Company and nearly $24,000 to Southland Manufacturing.

Nason, the company's bankruptcy counsel, said Brown Steel did not dispute the debt to Colonial; the company's bankruptcy petition lists Fastenal and Southland among its 20 largest unsecured creditors. Nason said his client does dispute the AIM Steel and Georgia Power Coating claims. "In fact, we think they owe [Brown Steel] money," he said.

He said Colonial's action, which seeks to have Brown Steel's receivables assigned to the bank, was one of the factors pushing his client to seek reorganization. That suit and other debt-related litigation against Brown Steel has been stayed pending the outcome of the Chapter 11 petition.

"Our goal, really, is to get the protection of the bankruptcy court, work out a budget that will allow us to continue the business as a going concern and sell the business," he said, explaining that the company planned to use cash collateral from receivables to keep going. "We think it has value as a going concern."

The other reorganization petition filed in the Northern District by Flowery Branch, Ga.-based Case Engineered Lumber, lists assets of less than $50,000 and between $10 million and $50 million in liabilities. Barbara Ellis-Munro of Ellenberg, Ogier, Rothschild & Rosenfeld represents the company, which supplies engineered floor and roof systems to homebuilders and lumber dealers.

Marathon auction yields sweat, bad food—and, finally, a deal

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Wed, 17 Jun 2009 11:05:00 -0400

The food was substandard and the air conditioning inadequate, but the view—ah, the view was spectacular.

Jeremy Silverman should know. When he and Gary Marsh, both partners at McKenna Long & Aldridge, were helping HD Supply Inc. place its $17 million winning bid for ORCO Construction Supply Inc., they spent about 16 straight hours in a too-warm conference room overlooking the sparkling blue waters of San Francisco Bay and the famous Ferry Building, home to a farmers’ market, Scharffen Berger Chocolates and artisanal cheese maker Cowgirl Creamery—all purveyors of the kind of gourmet fare Silverman wasn’t getting.

That conference room, in the Bay Area offices of law firm Howard Rice Nemerovski Canady Falk & Rabkin, was the setting for an intense auction that ran, Silverman said, from about 9:30 a.m. on May 13 to 1:30 a.m. on May 14, then restarted just four-and-a-half hours later. But it resulted, earlier this month, in a deal—and in economic times like these, that probably makes a few hours of perspiration and culinary deprivation worthwhile.

The deal springs from the Chapter 11 reorganization of ORCO, a Livermore, Calif.-based supplier of products and equipment for the construction industry represented in its bankruptcy by lawyers from Howard Rice. McKenna’s clients, HD Supply and its White Cap Construction Supply business, which provide specialty hardware, tools and materials to contractors, bought ORCO at auction in a Section 363 sale.

According to bankruptcy court records, ORCO’s price tag was $17 million, subject to a working capital adjustment based on the actual amount of accounts receivable and inventory, which pushed the final price to $15.75 million. HD Supply financed the cash purchase itself.

“There were a lot of different points during the deal when things could have gone a number of different directions,” said Silverman. “HD Supply just has an incredible team on the business side and on the legal side. … Extremely talented people, really dedicated to the company and the process, as evidenced by the auction.”

Two days before filing for reorganization in the U.S. Bankruptcy Court for the Northern District of California, Silverman said, ORCO signed a purchase agreement not with his client but with a so-called “stalking horse” bidder, construction supply company ACSP LLC.

But, Silverman explained, the court approved the ACSP transaction subject to a series of bid procedures designed to assure that the estate would get the highest value for the assets—which meant that other bidders could try to trump the stalking horse bid. “There were multiple bids and multiple interested parties,” Silverman said.

All those interested parties met at the Howard Rice offices for the auction, along with representatives from Wells Fargo Foothill Inc., ORCO’s largest secured creditor, members of the unsecured creditors’ committee and various financial advisors.

“All of these dozens of people convened … it was pretty strange, actually,” Silverman recalled, noting that each bidder was sequestered in its own conference room. “For the most part, the process was kept separate and secret. … We never saw any of the other bidders. Instead, the financial and legal representatives of the estate would basically go from room to room conducting the negotiations.”

Silverman and Marsh, along with in-house counsel for HD Supply, Atlanta-based Jim Brumsey, senior corporate counsel for M&A/securities, and Orlando, Fla.-based Ken Veneziano, vice president-legal, along with three of HD’s strategic business team members, all worked the bid from their conference room.

HD Supply, which once was owned by The Home Depot and now is owned by three private equity funds, submitted the highest bid. That bid then went before the bankruptcy court for approval.

“At the sale hearing, there were probably 25 lawyers there or on the phone,” Silverman said. The roster included lawyers from his firm and from Howard Rice, as well as the Wells Fargo counsel and lawyers for creditors including landlords, software licensers and various equipment companies with which ORCO had done business. “It was kind of astonishing.”

Some of those creditors—including, according to the court file, Enterprise Rent-a-Car and General Electric Capital Corp.—filed objections to the sale. Because of those objections, Silverman said, the deal was “literally being negotiated during recesses from the hearing.”

Howard Rice lawyer Neil W. Bason prepared the sale order. A copy of that order, in the court file, is covered with handwritten changes and addenda. “It was all moving very quickly,” Silverman said. “There wasn’t time to type it up, so [HD in-house counsel] Jim Brumsey was hand writing the changes so we could get the order signed by the judge before anybody walked out of the courthouse that day.”

The handwritten contract amendments did their job, and the deal closed on June 1.

First, we pay all the lawyers

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Wed, 17 Jun 2009 10:05:09 -0400

Caraustar Industries, Inc., which filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Northern District of Georgia on May 31, already has racked up substantial legal fees.

The Austell, Ga.-based recycled paperboard and packaging company has hired King & Spalding as debtors counsel. The firm’s disclosure of compensation, filed by partner James A. Pardo Jr., discloses that between Jan. 1 and May 31, Caraustar paid King & Spalding more than $1 million for services rendered, about $40,500 for expenses and a $250,000 general retainer.

As for the price of legal work going forward, Pardo’s declaration says that the current standard hourly rate for attorneys in the firm’s Atlanta office ranges from $255 to $900 per hour; paralegals and legal professionals are billed out at $115 to $275 per hour.

The rates for lawyers and paraprofessionals expected to be most active in the case include Pardo, at $815 per hour; partner Mark M. Maloney at $640; associates Michelle L. Carter and Jessica S. Jackson at $440 and $310, respectively, and senior paralegal Missy Heinz, at $245.

SunTrust makes speedy stock offer to raise $1.5B

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Wed, 10 Jun 2009 10:11:27 -0400

As SunTrust Banks Inc. General Counsel Ray Fortin tells it, in the course of a single, hectic weekend, a phalanx of lawyers and investment bankers managed to put together the bank's recent offering of 124.2 million shares of common stock—resulting in more than $1.5 billion in new capital.

“It did move fast,” he said. “We had a shelf registration statement which permitted us to do this, and we moved it pretty quickly.”

A team of lawyers from King & Spalding, led by partner Keith M. Townsend, represented the bank. The underwriters' lead counsel was Mark J. Welshimer at Sullivan & Cromwell in New York.

The impetus for the offering was the federal government's so-called stress test on the nation's 19 largest banks, including SunTrust, to determine how they would fare if the economic situation worsens. “The Fed indicated that we needed to raise $2.2 billion in common equity,” Fortin said. “We were well capitalized, but they wanted to change the composition of capital.”

Under the terms of the stress test, completed May 7, the bank had 30 days to submit a plan to raise capital, and until Nov. 8 to carry it out. But SunTrust, which like many other financial institutions was hit with soured real estate loans and resulting lower share prices, moved much faster than that.

Fortin said the bank submitted a capital plan and in May launched an at-the-market transaction, meaning that SunTrust could release small amounts of shares into the market, an approach which ultimately yielded about $258 million. SunTrust also sold some Visa shares for a net after-tax gain of $70 million. But eventually, Fortin said, “We just decided to get it all done.”

So, he said, SunTrust executives consulted with the bank's board and with investment bankers at Morgan Stanley, Sandler O'Neill, SunTrust Robinson Humphrey and Goldman Sachs. Starting on the last Friday in May, in-house lawyers from SunTrust, with the King & Spalding team and counsel for the underwriters, put the deal together and launched the common stock offering four days later, on June 1.

“Because we were in the capital-raising mode, we had already been discussing with the underwriters and our board the various capital-raising options, so all we really did was change the methodology of how we'd do it,” he said. “We were already in the process, so that's another reason it moved relatively quickly.”

SunTrust's shelf registration statement—documents filed with the Securities and Exchange Commission that outline the basics of stock offerings a company might wish to pursue in the future—also helped speed the process. That's because when the bank decided to launch this latest offering, it did not need to start from scratch with the SEC, and instead needed only to produce a prospectus supplement to describe exactly what it was doing, Fortin said.

Fortin called the most recent stock offering a success because shares from the new offering sold for roughly what existing shares were trading for on the open market. That's a good result, he said, because normally such shares would be purchased at a discount when sold in large blocks to institutional investors. On June 1, the opening date of the new offering, shares began selling at about $13; by June 5, the last day of the offering, prices had risen to almost $17, according to Google Finance.

Now, Fortin said, SunTrust needs to raise about $100 million more to meet its obligations under the Federal Reserve's Supervisory Capital Assessment Program, known as SCAP. He said the bank was looking at a variety of ways to do that.

“We have … an exchange offer where we are offering to buy with cash some of our preferred stock,” he said. “That's outstanding, and that is actually going to produce some gains and thereby produce some capital. There's also additional discussions with the Fed as to … things that they will allow to be treated as capital, such as tax-loss carry-forwards.”

A tax-loss carry-forward, he said, allows the bank to apply tax losses in one year to earnings in another, thereby lowering its tax burden.

“We're highly confident that we are basically done,” he said of the bank's mandate to comply with the stress test. “We now are very, very, very solidly capitalized. You know we have enough capital to go through what the Fed called the most adverse scenario and still be well-capitalized. So we're in great shape.”

Corporate bankruptcies expected to rise in U.S., world

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Tue, 09 Jun 2009 10:15:56 -0400

The number of corporate bankruptcies in the United States is projected to rise by 45 percent this year, with worldwide business insolvencies expected to increase by 35 percent, according to a new study published today.

It's a situation that the study's sponsor, Paris-based credit insurer Euler Hermes, referred to as a “burial ground” for business.

The Euler Hermes International Insolvencies Outlook paints a dark and gloomy picture of the future of global business, at least in the near term. The study predicts dramatic increases in business bankruptcies for a number of European and Asian countries—75 percent in the Netherlands, for example; 71 percent in Hong Kong. Other locales may fare better. The study projects only a 10 percent increase for Canada this year and a decrease of 8 percent for Brazil.

More than 43,500 U.S. companies declared bankruptcy in 2008, according to the study, second only to France, with 57,650, among the list of 29 countries examined by Euler Hermes and its chief researcher, Karine Berger.

The outlook for 2010 is a bit less grim: Business insolvencies in the U.S. are projected to see a year-over-year decline of 4 percent; 10 other nations also may see declines.

Global study predicts 'burial ground' for business

editor.nospam@nospam.dealwatchblog.com (Janet Conley) — Thu, 04 Jun 2009 11:11:00 -0400

It’s a situation that the study’s sponsor, Paris-based credit insurer Euler Hermes, referred to as a “burial ground” for business.

The Euler Hermes International Insolvencies Outlook indeed paints a dark and gloomy picture of the future of global business, at least in the near term. The study predicts dramatic increases in business bankruptcies for a number of European and Asian countries—75 percent in the Netherlands, for example; 71 percent in Hong Kong. Other locales may fare better. The study projects only a 10 percent increase for Canada this year and a decrease of 8 percent for Brazil.

The outlook for 2010 is a bit less grim: Business insolvencies in the U.S. are projected to see a year-over-year decline of 4 percent; 10 other nations also may see declines.