Irvine-based New Century Financial Corp.’s bankruptcy has been a boon for law and other professional services firms.
New Century reported more than $9 million in legal, accounting and other professional fees since it filed for bankruptcy in early April to the end of May. The company’s fees are about $150,000 a day.
That could be just the start. A bankruptcy law expert predicts New Century will spend more than $100 million in court costs once all is said and done.
The subprime mortgage lender filed its first operating report with the bankruptcy court in late July. It covers the two months through May 31.
June and July are yet to be reported.
New Century’s bankruptcy has become a big business, according to filings made in Delaware’s bankruptcy court.
A long list of lawyers, investment bankers, compensation experts and crisis consultants are employed in the case, some charging rates nearing $800 per hour.
Detailed billing reports, running in the hundreds of pages, show a heavy dose of meetings, phone calls, e-mails and document review by New Century’s legal team.
On top of the hourly billing, expenses for the company range from take-out meals for lawyers to $1.25 per page charges for faxes.
The legal fees aren’t likely to get much scrutiny from the business-friendly bankruptcy court in Delaware, said Marc Winthrop, founder of Newport Beach-based Winthrop Couchot Professional Corp., a law firm that specializes in bankruptcies.
“Delaware courts are fairly liberal when it comes to granting fees,” he said.
And New Century’s costs aren’t out of line for big corporate bankruptcies.
The company has a ways to go to top the fees of some other notorious cases.
Auto supplier Delphi Corp. is spending close to $12.5 million per month on its case, filed in New York. Delphi already has spent nearly $200 million in fees for its bankruptcy, filed in late 2005.
Enron Corp. was the most expensive case yet, with an estimated $800 million in fees.
Based on New Century’s assets at the time it filed for bankruptcy, there’s an 80% certainty that the lender’s court costs will exceed $48 million at the end of the case, said Lynn LoPucki, a bankruptcy law professor at the University of California, Los Angeles, who tracks court costs.
LoPucki’s prediction for the final bill: about $105 million.
New Century’s costs thus far “aren’t too unusual,” LoPucki said.
Winthrop agreed: “The (expenses) are not excessive compared to other cases.”
The company’s case is complicated by a federal criminal probe into New Century’s collapse, Winthrop said.
Cheaper Here
Had the New Century case been filed in Orange County, it could have cut some costs, according to LoPucki. Shipping bankruptcy cases out of state usually adds another 20% to the bill, he said.
Local law firms that deal in bankruptcy matters are likely to cap their rates closer to $500 or $600 per hour. In Delaware, the going high-end rate for legal work tends to run from $750 to $900 per hour, Winthrop said.
New Century’s legal team is at the low end of that range.
Los Angeles-based O’Melveny & Meyers LLP charged New Century $1.4 million in legal bills relating to the bankruptcy case in April, according to court records. That doesn’t include $353,000 it’s billing New Century for work done relating to government probes during the period.
The law firm, which has a Newport Beach office, had more than 60 people, including nine partners charging more than $700 per hour, working on the case in April. One partner in the Los Angeles office charged $175,000 for the month.
Richards, Layton & Finger, a Delaware-based law firm that is acting as co-counsel along with O’Melveny & Meyers, charged $276,000 in April and $259,000 in May.
Los Angeles-based Sheppard, Mullin, Richter & Hampton LLP, which has a Costa Mesa office and is acting as special corporate and litigation counsel to New Century, charged $123,000 for three months of work.
Among other notable billers, Lazard Freres & Co., which is acting as New Century’s investment banker, charged $200,000 for its services in April. Compensation Design Group, a San Francisco-based firm that helps companies determine executive payment plans, charged $60,000 for a month’s work.
Holly Etlin, a restructuring consultant who took over the chief executive role at New Century from cofounder Brad Morrice in June, is charging the company $695 per hour for her work. Another 11 employees of Etlin’s firm, AlixPartners LLP, have worked on the lender’s case.
Costs related to New Century’s bankruptcy stand to take a sizable chunk of whatever assets remain at the company once all is said and done.
New Century, which a year ago was the country’s second-largest subprime lender, is in the process of selling off its businesses. It already has laid off a majority of its workers and has worked to auction off assets.
The company sold off its most valuable remaining asset,its loan servicing business,for about $188 million in May.
Another part of its company,its business originating mortgages,failed to receive any bids in another bankruptcy auction.
