August 25. 2023

Mayer Brown Looks to Reignite Debtor’s Practice After Largest Company-Side Restructuring in Firm History


For Mayer Brown global restructuring debtor practice lead Louis Chiappetta, the successful emergence of GWG Holdings from Chapter 11 meant more than a successful client outcome, the resolution of $2.1 billion in debt and the end of a tumultuous 16-month process that saw the debtor’s entire board of directors quit amid a Securities and Exchange Commission investigation and allegations of fraud by 27,000 secured creditors.

It also marked a turning point for Mayer Brown’s debtor’s practice, to which Chiappetta arrived in 2019 from Skadden, Arps, Slate, Meagher & Flom. The company’s largest debtor-side representation ever—with the next-largest debtor case occurring over a decade ago—GWG Holdings marked Mayer Brown’s resurgence as a player in representing major debtors.

“I came from Skadden, which did a lot of high-profile, large bankruptcies. This shows Mayer Brown can do just as large, complicated bankruptcies as the Kirklands, Skaddens and Lathams, and we can do it a little cheaper than them,” Chiappetta said. “It’s the same people. I’m the same attorney I was when I was there.”

Indeed, Mayer Brown has staffed up its restructuring practice with lawyers from major debtor-side law firms in recent years. Restructuring partner Adam Paul arrived from the Chicago office of Kirkland & Ellis in August 2019, the same month Chiappetta came from Skadden. Former Kirkland associate Jamie Netznik joined in 2019 as well and made partner in 2022.

Mayer Brown’s bankruptcy lawyers were notably cheaper than the leading debtor-side firms until recently. In a December GWG Holdings bankruptcy filing, Mayer Brown declared an hourly rate increase that saw top-billing partners raise rates from $1,635 to $1,940, with top-billing associates going up from $1,135 to $1,250. That put Mayer Brown within $100 an hour of top-billing associates and partners at Kirkland, Skadden, and Latham, according to recent filings in the respective bankruptcies of BlockFi, Endo International and Celsius Network.

To date, Mayer Brown has been approved for more than $28 million in fees in the GWG Holdings bankruptcy.

No Employees, No Board, No Liquidity

GWG Holdings, a company that invested in life insurance settlement policies, obtaining rights to policies in exchange for taking over the payment of policy premiums, was already a client of Mayer Brown when its financial woes began. “Prior to us coming over, Mayer Brown would farm out this work,” Chiappetta said of his and Paul’s arrival.

In 2017, GWG Holdings merged with Beneficient, a company that provided wealthy people with loans against their stakes in private equity and venture capital funds. After the pivot, GWG sold another $1.3 billion worth of life insurance bonds, using the money to increase its exposure to Beneficient’s alternative assets rather than continuing to purchase more policies.

However, according to Wall Street Journal reporting and a 2021 SEC investigation, incorrect accounting methods led Beneficient to make loans to its own subsidiaries and count the fees and interest as revenue. That forced the company to restate its financials; when it did, the Beneficient portfolio that GWG Holdings counted on for revenue showed losses instead of gains.

GWG Holdings filed for Chapter 11 bankruptcy protection in April 2022 with no liquidity and more than $2 billion in funded debt. With that, Chiappetta went to court to represent Mayer Brown’s biggest debtor client in firm history.

At the first day hearing, Chiappetta had expected Credigy, a lender who had lent against GWG Holdings’ policy portfolio, to be GWG Holdings’ first DIP lender.

Then the chair of Quinn Emanuel Urquhart & Sullivan’s bankruptcy and restructuring group phoned into the hearing to outbid Credigy’s proposed DIP terms on behalf of Vida Capital.“Susheel Kirpalini blew up the Credigy DIP from a taxi cab in New York,” Chiappetta recalled.

Credigy ultimately waived some of its fees to become one of three DIPs in the bankruptcy.

The first month of the case occurred during the SEC investigation, prompting United States Bankruptcy Judge Marvin Isgur of the Southern District of Texas to ask the debtor’s attorneys to pursue rumors about dishonesty in GWG Holdings’ management. “We go out and interview individual directors with (chief) restructuring officer Jeffrey Stein and ‘Two Dollar’ Steve Reisman (of Katten Muchin Rosenman),” Chiappetta said.

Following the appointment of chief restructuring officer Jeff Stein and a special committee to investigate GWG Holdings’ management, “that committee concluded the prior regime was less than truthful in one of their disclosures to the SEC,” Chiappetta said. “That led to the resignation of the CEO, the CFO, and all of the legacy directors. By early November of 2022, there were no employees.”

All that remained of GWG Holdings was independent directors Jeffrey Stein and Anthony Horton, $2 billion in funded debt, a 40% stake in Beneficient’s alternative asset portfolio and 27,000 “pissed off” bondholders, per Chiappetta, who counted as secured creditors. Several creditors were lead plaintiffs in lawsuits against the company and many had competing views on what should be done with GWG Holdings’ assets. “To say the relationship was contentious is like saying oxygen is necessary,” Chiappetta said.

Ultimately, between Mayer Brown representing GWG Holdings, CRO Jeff Stein being elevated to CEO of the company, and Akin Gump Strauss Hauer & Feld representing the bondholders committee, Stein advanced a plan in which the company would emerge from bankruptcy with two trusts, creating one trust to wind down the shares of Beneficient and another to monetize litigation claims against GWG Holdings’ former directors and officers.

“Three parties with knives at each other’s throat for 14 months walked into the confirmation hand in hand,” Chiappetta said. “We spent six days mediating in front of Judge David Jones and we had a 99% acceptance rate across all class creditors.”

Judge Isgur congratulated Mayer Brown partner Tom Kiriakos on the consensus the team achieved, saying he “never dreamed we would get to this hearing and there would be no opposition.”

As a firm that hadn’t led a major company’s restructuring in recent history, Mayer Brown hopes to use the GWG Holdings bankruptcy as proof of the firm’s competency and sophistication. “You push the Mayer Brown button and no matter what gets thrown at us—we negotiated the second DIP over four days during the Fourth of July holiday,” Chiappetta said. “That was not a pleasant four days, but this showcased to our existing clients and other clients that there’s nothing we can’t handle.”

Outside of major debtor-side cases, Chiappetta said demand is high in the bankruptcy practice with activity picking up in sectors like automotive, energy and commercial real estate. The firm is handling roughly equal amounts of work in court and out of court, with most of Chiappetta’s work occurring out of court. “We have filed more cases in the first half of 2023—I mean the bankruptcy bar—than in all of 2023,” he said. “As a market, we are pretty hot right now.”

Reprinted with permission from the August 25, 2023 edition of The American Lawyer © 2023 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

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