Saw the Spirit bankruptcy and it got me wondering what advisors make on RX work like that. How can I guesstimate RX fees?
Is it based on debt figures? Monthly retainer? Some combination? I imagine it’s different advising creditors as well.
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The debtor bankruptcy fee structure I saw had a fixed monthly advisory fee, a bankruptcy exit fee, and a % fee based on new debt raised.
This could look something like:
$150,000 monthly advisory fee
$5,000,000 bankruptcy exit fee
1% fee on new secured debt raised
2% fee on new unsecured debt raised
3% fee on new mezzanine debt raised
thats not as much as i would have expected given the size of the firm, i am assuming a big chunck of it is going to come form the debt raised portion of it. but either way major coup for PWP since they are the sole IB advisor and it was pre-packaged
Yeah but I'm sure the MDs at PWP will be getting a nice bonus from this.
150k for 6 months of work (have no idea how long they've been negotiating) = $900k
Success fee of $5,000k
1% of $840,000k of secured notes = $8,400k
So PWP is looking at at least ~$14M in fees.
Sure that might seem low but there's limited risk in a prepack compared to general M&A. There's also less work and more negotiation that goes into RX that's handled by counsel.
Overall, buyside and rx engagements are probably the most efficient / largest bang for your buck type of IB fees there are.
Keep your eyes peeled on the docket for the motion to employ PWP as advisor to debtors, this should include the engagement letter as an exhibit, which should include the fees
Might be a dumb question, but since this was a pre-pack, do they also advise the creditor side? I am assuming the fact that they agreed to a mutually agreed process means they are in sync on terms. I've been wondering where the complexity in this deal is because it seems very straightforward and not a lot of profits for the advisors(talking only about the IB advisor)
Creditor side almost always has a different Advisor
Nope, creditor side will generally have a different advisor due to conflict of interest. Creditor-side is also often split up into multiple groups, not just one.
The transaction looks simple because it's a pre-pack. This just means all of the complex discussions happened BEFORE Chapter 11 and a solution was reached, supported by many (but potentially not all) creditors. If you then ask why do a Chapter 11 in the first place, it's because of multiple reasons, including but not limited to 1) no taxation on COD income, 2) ability to cramdown a POR on impaired nonconsenting creditors, 3) ability to reject leases, 4) ability to pay tax liabilities over time... etc.
the real fees made are by the law firms and restructuring advisors (alvarez & marsal, alix, etc.)
xx
I'd say it really depends on the issues at hand.
But generally: lawyers >= bankers > financial advisors, and it really depends on what the core issue is and the parties involved.
Sure, there will be instances like FTX where financial advisor (A&M) came out ahead at $267MM, banker (PWP) at $50MM, and lawyer (S&C) at $225MM. However, think about the ungodly amount of uplift A&M had to undertake due to sheer lack of corporate controls and processes / operations, on top of the usual reporting and liquidity management work, and it makes sense.
Where did you see that A&M and S&M made that much?!
agreed, my experience was working with a company with ~$4bn in funded debt and kirkland and one of the financial advisors had an army of associates working on the deal. was also an unique scenario where a ton of law expertise was needed (rx, litigation, m&a, tax, regulatory, etc.)
xx
For those curious:
(i) Retainer: $225,000 / month
(ii) Restructuring fee: $14,000,000 (assuming the transaction is a pre-pack)
(iii) Financing fees:
(x) 1.0% of the face amount of secured debt issued
(y) 1.5% of the face amount of unsecured debt issued
(z) 4.0% of the face amount of any new equity or equity-linked securities issued
(iv) M&A fee: $6,000,000 upon the completion of an M&A transaction
It is also important to note that an aggregate cap was placed on [(ii) + (iii)] of $20,000,000 if no M&A transaction happens or $23,000,000 if an M&A transaction does occur.
If I'm missing or misunderstanding any details, let me know!
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