Creditors' Committee Beauty Pageant:

Peter Lattman captures the atmosphere at the outset of Chapter 11 bankruptcy case, as professionals vie for their piece of the action:

We just returned from the U.S. Trustee's Calpine bankruptcy confab at New York's Grand Hyatt hotel and were sorely disappointed. The California utility, which filed for bankruptcy at the end of December, only served ice water; last year's Delta meeting featured coffee and soda (did Delta borrow from its airplane beverage carts?).

U.S. Trustee Diedre Martini organized the gathering to form the Calpine creditors' committee, which will represent the unsecured creditors during the bankruptcy. By our estimate there were over 250 people filling the hotel's ballroom.

You'd think that a get-together of people owed money by Calpine would be a solemn affair, but it felt more Kiwanis Club than Creditors Club. That's because most of the people in the room weren't creditors; they were the lawyers, bankers, and consultants who make their livings off the carcasses of bankrupt companies like Calpine.

And this is one tight-knit group. After Martini and CEO Bob May delivered 10 minutes of bland introductory remarks, they adjourned the meeting for two hours to select a committee. At that point a party broke out. The various advisors lingered, glad-handing and networking their way through the room. We even ran into a few hedge fund managers working the crowd, trying to handicap their investments.

I've always thought that there would be at least one good novel about Chapter 11, perhaps John Grisham with a touch of Tom Wolfe thrown in.

Lattman's WSJ Law Blog is definitely off to a great start--lots of interesting stuff over there. He also has a blawg roundup on business, bankruptcy, and white-collar crime issues.


Also from the WSJ, see this interesting article on the "Third-Year Dilemma" of law firms, describing the high frequency with which associates leave large law firms during their third year of practice and what some firms are doing about it.

Cyrus (mail):
Regarding the Third-Year Dilemma: Will someone please explain to me how anyone can possibly claim that "the average big law firm doesn't start recouping its cash flow investment in an associate until about midway through an associate's fourth year"?

If associates get paid $125-135K/year, but bill 2000 hours at $250-300/hour, simple math shows that there's a profit of $350K. Cut out another $75K for secretaries, office space, etc., and another $25K for bonuses, and you still have a profit of over $250K (which is well more than the associate's salary). How is there not a profit here?

The entire model of partner profit involves taking a good chunk of the money earned by associate work. (That's not a complaint. I think it's fair, since they bring in the business, the experience, make all the hard decisions, and put in their share of the grunt work to get to where they are. But it's a fact of life.)

Seriously. Do people think partners are stupid? Or are there partners making this claim that think everyone else is?
1.7.2006 1:27pm
Guest2 (mail):
I think midway through the 4th year is an exaggeration. My guess is that most associates in most firms start becoming profitable by the end of their second year. The reason why they're not profitable sooner, despite the hours they put in, is that a lot of their time has to be cut from bills because they take way too long to do things, and often what they do needs to redone by someone senior.
1.7.2006 8:44pm
Houston Lawyer:
Never estimate the amount of time a firm must invest in a young associate. Everything that they do could be done faster, better and with less supervision by someone more senior. After three years or so, they actually become useful people to have around.
1.9.2006 12:53pm
Dan M (mail):
The $75k figure for overhead is also may too low. The number is more like $225k+ per attorney at most large law firms if you allocate expenses evenly among all attorneys. Factor in a realization rate around 90% or lower for very junior associates plus a lag in collection time and you're at around the 3rd year before you start making money off junior associates. Incidentally, the trend is to leverage off senior associates and junior partners- their rates are higher.
1.10.2006 2:55pm