IDD Daily Updates and Restructuring Alert Weekly Updates, our email alerts
Fasten Your Seatbelts
Harvey Miller, the godfather of bankruptcy, says it's going to be a bumpy ride. Why this wave of restructurings will be different.
March 4, 2008
Harvey Miller, a veteran of the bankruptcy world, may be the Zelig of modern finance. The senior partner with the international law firm of Weil, Gotshal & Manges worked with and was tutored by renowned bankruptcy attorney and scholar Charles Seligson.
Miller has been on bankruptcy cases involving a wide range of businesses, from airlines to New York garment center businesses to REITs, and was even involved with the workout of New York City during the 1970s. Mayor Abraham Beame hired Weil, Gotshal to represent New York City during its crisis and restructuring.
After graduating from Brooklyn College, Miller studied at Columbia University School of Law. He has taught and lectured at Yale Law School, Columbia University Law School and New York University Law School. He was a member of Weil's management committee and created Weil's business finance and restructuring department.
Harvey Miller
Miller developed a taste for opera when he was stationed in Germany after the Korean War. In Frankfurt he saw a local opera company's performances and, later, a federal district judge with a subscription to New York's Metropolitan Opera sold Miller his first tickets to performances there. These days, Miller is on the board of directors at the famed opera house and lately, he says, he has been thrilled by Renee Fleming's performance in Verdi's Otello.
Looking back over his career in bankruptcy, Miller points out recurring themes in many distressed companies: "The numbers change, the nomenclature changes, but nothing else changes. It is all a game of leverage."
Asked how he got into bankruptcy Miller responds, "Accidentally. I had not taken creditor's rights in law school. I had signed up for it and found it boring and [thought] that I would probably never be involved in that kind of situation. Once I got involved in the process it was interesting to me because it exposes you to clients immediately, which was a big thing because if you worked on securities transactions you never saw the client. In reorganization cases, there was a real story, a narrative. There were real people that you dealt with and within a fairly short period of time it had a beginning, a middle, and an end. You were involved with all parts of the drama."
The godfather of bankruptcy recently sat down with IDD for a wide-ranging interview.
IDD: Are we about to enter a new wave of bankruptcies?
MILLER: I believe you are seeing the very, very beginning. Lenders were so anxious to get the business in the past few years that they were willing to excise from standard loan and credit agreements covenants that gave the lender a certain level of control and oversight. Borrowers had to maintain ratios like assets to debt and so on. Credit agreements became cov-lite. Even when you violated some of the covenants, if they existed, you could cure it by giving equity securities. PIK [payment-in-kind] arrangements, equity participations, automatic suspensions of covenants for periods of time helped a borrower avoid reality. We have been going along for the last three or four years in an economic circumstance where defaults did not occur.
IDD: Did we put off what naturally should have been an uptick in bankruptcies?
MILLER: Yes, definitely. When things got really bad and a liquidity crisis loomed because of the huge amounts of liquidity in the marketplace somebody would refinance [the distressed business]. Some entity would come along -- a hedge fund or a mezzanine lender -- and say "Hold it, you don't have to call a default and you don't have to go into bankruptcy because that will be the worst thing to happen as it will expose everybody to the fact that this was a bad company." So, you got refinanced. Now the refinancing, generally, was at a higher interest rate and tighter conditions. It may have included some second-lien financing. You took, basically, a sick animal and imposed on that sick animal refinancing with all the fees that go with a refinancing and probably a higher interest rate because the risk was higher. However, it deferred the adjustment that should have been made six months or a year ago.
Find out more information about people mentioned in this article from our People Database:
For more information on related topics, visit the following:
