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Bankruptcy Court Awards Full Amount of Financial Advisory Firm’s Contested Transaction Fee

By Justin R. Alberto

On November 20, 2012, Judge Brendan L. Shannon of the United States Bankruptcy Court for the District of Delaware approved a financial advisory firm’s transaction fee in the PJ Financing Company bankruptcy cases as correctly calculated pursuant to the terms of the engagement letter and reasonable under Bankruptcy Code section 330. In re PJ Financing Co., Case No. 11-10688 (BLS) (Bankr. D. Del. Nov. 20, 2012).

PJ Financing Company and its affiliated debtors (collectively, the “Debtors”) filed voluntary petitions under chapter 11 of the Bankruptcy Code in March 2011. Shortly thereafter, the Debtors filed an application to retain CBRE Capital Advisors, Inc. (“CBRE”). CBRE’s proposed retention was “hard-fought” by the Office of the United States Trustee and the special servicer for the Debtors’ secured lender. As a result, the retention was only approved after substantial modifications to the terms of CBRE’s engagement.

With CBRE’s help, the Debtors’ bankruptcy cases were ultimately a success and resulted in a full recovery for unsecured creditors. Post-confirmation, CBRE filed a final fee application seeking allowance of monthly advisory fees in the amount of $1,316,129, a transaction fee of $570,060, and $138,541 in expenses, which expenses included attorneys’ fees in the amount of $114,879. The Reorganized Debtors objected, contending that CBRE miscalculated the transaction fee and that the attorneys’ fees were not “actual and necessary” expenses pursuant to section 330 of the Bankruptcy Code.

The Court disagreed with the Debtors’ arguments and awarded the full amount of the fees and expenses sought by CBRE. Specifically, the Court found that CBRE “re-tranched” approximately $80 million of prepetition obligations in exchange for three new debt instruments that carried revised rates and maturities. The Debtors had argued that only $52 million of debt was re-tranched because that amount represented the difference between the prepetition debt and what appears to have been an arbitrarily selected portion of the new notes. The Court further held that the “new equity” component of the transaction fee properly included the total amount of equity raised rather than the amount actually used, which was approximately $5 million less. Combining the re-tranched debt and new equity totals, the Court agreed that CBRE is entitled to a $570,060 transaction fee pursuant to the terms of the revised engagement letter. Finally, considering the contentious retention and lengthy reorganization process, the Court found CBRE’s expenses, including legal fees, entirely reasonable and appropriate under section 330 of the Bankruptcy Code.

A copy of the Court’s opinion can be found here.

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