Source: The American Banker
 
Henry S. Miller, the restructuring specialist who recently broke away from Dresdner Bank AG to form an independent firm, is planning for the day when corporate bankruptcy filings drop.
 
One possibility is a merchant banking fund that would invest in distressed companies, "so we are not completely dependent on the restructuring advisory work," Mr. Miller said.
 
But that is not on the immediate horizon, he said, nor does it need to be. Indeed, there is no shortage of companies in distress, and for the first time in quite some time Mr. Miller and his associates can compete for the task of helping just about any of them.
 
Last month Mr. Miller, Kenneth A. Buckfire, and Martin F. Lewis, and some 40 colleagues formed their own firm, Miller Buckfire Lewis & Co. LLC, after seven years at Dresdner Kleinwort Wasserstein and its predecessor firm Wasserstein Perella Group, where he founded the restructuring practice in 1995.
 
Conflicts led to the split. A client that files for bankruptcy cannot use as a restructuring adviser a banking company that has lent it money or underwritten its securities in the preceding three years.
 
"Last year there were 20 potential transactions where our parent company was a lender and so we couldn't be engaged. That became, as far as we were concerned, an intractable problem," Mr. Miller said.
 
The firm plans to provide valuation and debt-capacity analysis, business plan development, capital structure design, plan formulation and negotiation, and private equity and debt placement services to distressed companies and their key constituencies. It has more than 20 active client assignments, including Kmart Corp. Polaroid Corp., Sunbeam Corp., and ICG Communications.
 
Miller Buckfire is one of the four biggest in the business, along with The Blackstone Group, Houlihan Lokey Howard & Zukin, and Lazard LLC. But a couple of new twists have been added: Institutional investors are louder voice at the bargaining table, and more mainline investment banks, lacking activity in other areas, are trying to elbow into the restructuring business.
 
Mr. Miller expresses some annoyance with both trends.
 
First, there are the institutional investors. Banks currently put up only one-third of the investment in corporate loans, with institutions accounting for the rest, Mr. Miller said. Capital from institutional investors eases liquidity in the market when the loans are made, but these same investors complicate matters when a company files for bankruptcy or needs to be restructured, he said.
 
The increasing number of parties with different agendas makes restructuring debt much more difficult today, Mr. Miller said. Some institutional investors are prohibited from taking equity and therefore push for a bankruptcy filing and the breakup of a borrower's businesses. Banks tend to be more concerned with maintaining long-term relationships with borrowers, he said.
 
Then there are the investment banks. A lack of underwriting and merger advisory assignments has Wall Street looking for work elsewhere, and many investment banks are seeing opportunities in providing restructuring advice to ailing clients. Mr. Miller says, however, restructuring deals take much longer than the typical M&A deal.
 
"You need enormous patience," he said. "The typical M&A banker looses his mind 27 minutes into a restructuring meeting." Some M&A deals can be put together in a weekend, but "our deals can take years," he said. "It's just an entirely different mindset."
 
Miller Buckfire might have less work to do if the group stayed with Dresdner. Mr. Miller said conflicts of interest that arose because his group was part of a much larger German banking and insurance conglomerate prevented them from getting assignments and drove them to independence.
 
Conflicts do not seem to hamper everyone, however. "Almost all restructuring bankers from time to time run into conflict," said Joseph J. Radecki Jr., the managing director of the leveraged finance group at CIBC World Markets. But "the market is of sufficient breadth that we can avoid those deals and still have a significant business," he said.
 
But according to Mr. Miller, his group's conflict problems were amplified in 2001 when Dresdner bought Wasserstein Perella and merged it with its investment bank, Dresdner Kleinwort Benson. (The German insurer Allianz Group bought Dresdner later that year.)
 
Miller Buckfire is taking all of Dresdner Bank's restructuring business. In exchange it will refer clients looking for M&A advisory services and private equity and high-yield debt placement services to Dresdner, which will receive a portion of the group's profits for an undisclosed period. Miller Buckfire is staying in the same building but moving to another floor.
 
The new firm expects to receive a broker-dealer license from the National Association of Securities Dealers this month.