Who Handles an AIG Bankruptcy Filing?

And More from Meltdown World
Posted

For those following the fallout from the meltdown, let’s get you up to speed with a little legal news from the front lines.

Boom times for Weil? Wow. What a difference a couple of days make. The once-vaunted- then- lightly-diminished bankruptcy department at Weil Gotshal has had a nice stretch. First, Weil and its eminence grise, Harvey Miller, were tapped to handle the Chapter 11 filing for Lehman. Now, let’s just say that if AIG files, we wouldn’t be surprised to see the name of Weil’s Marcia Goldstein’s on the filing. Why? Weil’s Goldstein (pictured) handled the Worldcom bankruptcy back when Anastasia Kelly was Worldcom’s general counsel. Kelly has run the legal department at AIG since 2006. (Notably, after leaving WilmerHale in 1995, Kelly became GC at Fannie Mae.) Weil would confirm only that, as of now, AIG is a client of the firm.

More distress for Lehman? Over at Fortune’s Legal Pad blog, Roger Parloff poses the following question: Will bankruptcy laws cushion the impact of Lehman’s insolvency on our financial system or inadvertently exacerbate the problem? Parloff explains:

An ordinary bankruptcy petitioner, like an airline or a steel mill, gets immediate protection from its biggest creditors by the operation of law: as soon as it files for bankruptcy, an “automatic stay” takes effect which prevents those creditors from going forward with lawsuits and seizing the debtor’s assets. Metaphorical runs on the bank are prevented, and management gets time to organize its affairs in a way that will, theoretically, maximize value for all creditors, and maybe even allow the company to reemerge in sound health. . . .

With a financial institution, however, the automatic stay offers no protection against many of its most important creditors. In a trend that began in 1978 and was greatly expanded in amendments passed in 2005, most financial contracts — including securities contracts, swaps, repurchase agreements, commodities contracts, and forward trades — are unaffected by automatic stays.

A Merrill shareholder suit? Reuters reports that Gregory Nespole, a plaintiffs lawyer at Wolf Haldenstein Adler Freeman & Herz, which happens to have at least three cases pending against Bear Stearns, plans to file an investor lawsuit over the proposed buyout of Merrill Lynch, contending the terms of the $50 billion deal are inadequate for Merrill stockholders.

But after checking in with our friends at Deal Journal, we’re not so sure about the merits of a Merrill shareholder suit. After all, BofA is paying $29/share for Merill, a nearly 70% premium to Friday’s close and a 9% premium to where Merrill shares traded before last week’s slide.

Davis Polk handles the credit facility: On Sunday night, a group of ten global banks and securities firms — including JPMorgan, Morgan Stanley, Goldman and BofA — announced a $70 billion loan program that financial companies can tap to help ease the credit shortage that threaten global financial markets. We had the lead role in drafting the term sheet for the $70 billion credit facility and are now representing the Consortium as document counsel.

Davis Polk partners Donald Bernstein, Lawrence Wieman, Laureen Bedell and Bjorn Bjerke took the lead in drafting the term sheet for the credit facility. (According to a source close to Davis Polk, the firm is also counsel to Citi — Lehman’s biggest bondholder — on matters relating to the Lehman bankruptcy, and the firm has “a material role in the AIG matter.”)