Editor: Please tell us about your current practice and role as head of Proskauer’s Chicago office.
Marwil: Our Business Solutions, Governance, Restructuring and Bankruptcy Group is international in scope. Mark Thomas and I are the co-heads of the U.S. practice, which is very broad based and includes several business lines. I focus my practice on counseling clients in connection with companies in distress. I am one of many lawyers in the Chicago office who are experienced in representing a variety of parties – companies, borrowers, creditors’ committees and secured lenders – in workouts, restructurings and Chapter 11 cases.
Additionally, I serve as an independent fiduciary in situations of distress and fraud. I also represent distressed hedge funds, as well as distressed hedge fund managers, directors and investors. We are regularly involved in distressed M&A and have represented parties in Chapter 9 cases.
My role as head of the Chicago office is very fulfilling and has allowed me to become better acquainted with my colleagues and our other practice groups. In addition to my own practice in bankruptcy and restructuring, the Chicago office is home to many practices: labor and employment, health care and not-for-profit, whistle-blowing and retaliation, litigation and insurance litigation practices. The Chicago office offers a full slate of services and includes firm-wide assistance for our national and international clients.
Editor: What is the role of the Chicago office in relation to Proskauer’s overall strategy of global expansion?
Marwil: Our first goal in the Chicago office is to continually build our own capabilities as a full-service office for clients. We build strategically based on our current strengths, continue to develop new capabilities based on the needs of existing clients, and seek to identify new clients as their need for our services becomes apparent.
We are focused on expanding our presence in the Chicago market and building on the national reputations that all of our Chicago partners enjoy. We are able to attract exceptional partners because of the firm’s top-tier national and international reputation.
Editor: How is business in the Midwest?
Marwil: Chicago’s banking sector is smaller than it was just a few years ago but nonetheless seems to be very healthy. There are very few defaults and delinquencies in the commercial market. There seems to be plenty of money available to refinance fatigued lenders and to create opportunities for entrepreneurs and businesses in need of capital.
Corporate and transactional lawyers are generally busy, though it’s difficult to comment further on the overall health of the corporate law market or the current inventory of deals.
The market for distressed business matters is slow in the Midwest and nationally, as the economy is improving more than people think and interest rates remain incredibly low. Current interest rates enable companies in distress due to cash-flow or performance-default issues to, nonetheless, make their payments given the low burden. Further, lenders do not seem to be focused on valuation issues that may exist in their portfolio companies, but are much more interested in current interest and principal payments. Finally, with increased activity and opportunity in the healthy M&A, private equity and lending markets, the logical flipside is a dearth of activity on the distressed and the bankruptcy side.
However, Proskauer’s business solutions and bankruptcy lawyers have more than their fair share of business, both in Chicago and nationally. This is attributable to the excellent quality and skills of our lawyers, the strong relationships we’ve built over the years and our knack for seeing opportunities that others miss.
Editor: Given that the distressed market is slower, is the firm’s U.S. Business Solutions, Governance, Restructuring & Bankruptcy Group seeing increased activity in the business solutions and governance side of the practice?
Marwil: The title of our practice group is long and starts with Business Solutions because it reflects our mindset as business lawyers. We like to engage in situations at the early stages to help companies, boards, officers and management identify problems. We help the client solve those problems through business solutions, as well as legal solutions.
Knowledge of the law is certainly important to understand corporate governance, fiduciary duties, contracts and loan agreements, but we also pride ourselves on our focus on the underlying business areas, processes, issues and relationships. Because we have a combination of legal and business skills, our clients stand a better chance of avoiding the Restructuring and Bankruptcy part of the practice group’s name.
In a typical matter, we work with additional firm partners in other practice areas, such as labor and employment, ERISA, M&A, litigation, tax and general corporate matters. Our client teams are full-service and capable of counseling the client, whether the solution is a restructuring, an out-of-court workout or a Chapter 11 reorganization or sale.
Editor: We understand you have a strong reputation for providing sophisticated strategic advice to companies in distress. Can you tell us about some of your experiences?
Marwil: We’re currently counseling a lending client that extended credit to a middle-market business, and now the loan is in default. I’ve been counseling this client on how to deal with the default while maintaining, or even enhancing the business’s collateral and enterprise value. After significant efforts to negotiate a solution with the equity sponsor were unsuccessful, we came up with another solution: we executed a takeover of the company based on the rights we have under our loan agreement and under the Uniform Commercial Code. We exercised our voting rights under a pledge agreement with the private equity sponsor that we drafted when the loan was first written. While we did not take ownership or control of the stock, we voted those rights to remove the old board, which was composed of the private equity sponsors; elected an independent director to take over the board; and inserted new management.
We’re now in the process of working with new management and the independent director to rationalize and stabilize the business and, ultimately, grow its earnings, sell it in 12 to 24 months and fully repay the loan. That is one example on the lender side of using unusual tools in a transaction structure to get relief for our client.
In another example, last year we represented an international client with complex global operations that owed hundreds of millions in debt to more than a dozen lenders. The loan had been restructured once but again fell into default. The lenders were split as to whether a Chapter 11 case should be filed, but all wanted to sell or liquidate the company. We worked with a financial advisor and ultimately with the lenders to negotiate a restructuring of the lenders’ loans, the underlying secondary or mezzanine debt and the equity in the business. We also negotiated the company’s seller note obligations. Ultimately, we put together a restructuring plan with the agreement of all key parties and helped our client avoid a Chapter 11 filing. Today, the company is properly capitalized and healthy, though the private equity sponsor’s stake in the company is minimal as a result of the restructuring. That’s another situation where creative thinking and strong relationships led to a very well-thought-out and executed strategic plan for the restructuring.
Editor: Please discuss the elements of value within the services and creative solutions you’ve just described.
Marwil: Chapter 11 filings are enormously expensive. They involve costs for legal and other professional services to the bankruptcy estate, on behalf of the debtor and the creditors’ committee. There’s a conundrum involved in stating that a company is legally obligated to cover these costs under the bankruptcy code when, by definition, the company is insolvent and likely short on cash. In reality, the lenders ultimately pay these costs, especially when there is little to no value for unsecured lenders.
A decision to file Chapter 11 typically is made by a company after extensive discussion and negotiation with its lenders about a restructuring or sale solution, and how to finance the case to achieve that solution. The goal is to arrange a restructuring that enables the company to emerge, through a sale or reorganization, with a healthier, stronger balance sheet and, hopefully, in a position to grow value for the benefit of the stakeholders who have just agreed to the restructuring plan.
Editor: What opportunities do you see on the horizon in terms of industry expansion and legal developments in the Midwest?
Marwil: From an industry standpoint, we’re looking at healthcare, particularly the single-campus, not-for-profit hospitals across the country that are having a difficult time in competing for doctors and generating sufficient cash flow to maintain operations for the benefit of patients. We should see continued consolidation of those single-campus hospitals into the public company hospitals. I have worked on many such deals with my colleague Monte Dube, a top-ranked national health care M&A lawyer. In the four-and-a-half years we’ve been at the firm together, he and I have consistently worked together on bankruptcy or M&A projects involving hospitals in distress.
More generally, until interest rates go up, I don’t see a lot of work coming in that involves bankruptcy or companies defaulting on loans. However, when rates do increase, I expect a significant uptick in loan defaults and with it an increase in situations of distress.