Korva is a scroll of the internet’s best ideas.
$273 million in bankruptcy fees
The two-year war
The fight ran between the private equity firms and several factions of creditors: junior bondholders, first and second lien bondholders, and bank loan holders. The sides came close to deals many times before one finally went through.
The fees paid by the Caesars estate were almost double what people paid in fees on the Facebook IPO. Kirkland and Ellis, the law firm, took $79 million of them alone.
The comeback
Caesars then did stage a comeback. With the debt slate wiped clean, it no longer had to pay roughly $2 billion in interest, and it could invest in the business and use the economic recovery to turn it around. The value created by that recovery was seized by the creditors, and Apollo and TPG lost money on the investment.
Why are bankruptcy fees so enormous?
A big Chapter 11 case involves lawyers, bankers, and advisors for the debtor, and separate professionals for each creditor group. The estate pays many of these bills, and fees count as administrative expenses paid ahead of most claims. Bankruptcy courts must approve the professional fees paid from the estate.
How does bankruptcy wipe out debt?
A Chapter 11 plan can convert debt into shares or into smaller, new obligations. Each class of creditors votes on the plan. A class accepts it if holders of at least two-thirds in amount and more than half in number of those voting agree. The judge then confirms the plan, and the old claims are replaced by it.
Why do creditors capture a recovery's gains?
Creditors who take stock in the reorganized company own its future growth. Prior shareholders are typically wiped out in the plan unless creditors are paid in full. So a recovery after the plan is confirmed benefits the new owners. In this case, those owners were former lenders.
More from The Wall Street Skinny
