Speaker 1: How bad was twenty twenty for the fossil fuel industry.
Speaker 1: As we'll hear on today's podcast, it was so bad
Speaker 1: that the go to law firm, the Handle's fossil fuel
Speaker 1: industry bankruptcy filings, had its best year ever. Hello, and
Speaker 1: welcome back once again two Parts per Billion, the environmental
Speaker 1: podcast from Bloomberg Law. I'm your host David Schultz. So
Speaker 1: one of the themes that we've been revisiting throughout the
Speaker 1: pandemic on this podcast has been how the economic repercussions
Speaker 1: of the virus have affected the energy industry. Loyal listeners
Speaker 1: of Parts Rebilion might remember last spring when we talked
Speaker 1: about how the price of a barrel of oil briefly
Speaker 1: went negative when demand went through the floor. Today, we're
Speaker 1: looking at the same story through a slightly different angle,
Speaker 1: and that angle is bankruptcy law. As a result of
Speaker 1: these super low prices, a lot of oil and gas
Speaker 1: companies and even some really big ones went bankrupt in
Speaker 1: twenty twenty. And according to Bloomberg Law reporter Rory Strom,
Speaker 1: there was one law firm that benefited hugely from all
Speaker 1: of this economic devastation. That firm is Kirkland and Ellis.
Speaker 1: And they've made themselves the go to law firm for
Speaker 1: a fossil fuel industry declaring Chapter eleven. Roy analyzed a
Speaker 1: database of bankruptcy filings who try to quantify just how
Speaker 1: much money Kirkland and Ellis made off of the wave
Speaker 1: of filings in twenty twenty, and I started off by
Speaker 1: asking him exactly what kind of information is in this database.
Speaker 1: So the database has been around since nineteen eighty and
Speaker 1: it was started by a professor at UCLA named Lynn
Speaker 1: Low Puckey who had sort of taken a more empirical
Speaker 1: approach to studying corporate bankruptcies. And so he made this
Speaker 1: database that tracks only publicly traded companies that filed bankruptcy
Speaker 1: with one hundred million dollars in assets in nineteen eighty
Speaker 1: and so to account for changes in the dollar since
Speaker 1: that time, it's still pegged to nineteen eighty currency. So
Speaker 1: I think today it's something like companies that have about
Speaker 1: three hundred and thirty million in assets. So these are
Speaker 1: we're talking about big companies that go bankrupt, not you know,
Speaker 1: sort of small startups. So let's get into the numbers here.
Speaker 1: You found that there was one firm, one law firm
Speaker 1: Kirkland analys that handled a huge amount of these very
Speaker 1: large bankruptcies. You know how huge are we talking and
Speaker 1: you know, what are the numbers here? So it depends
Speaker 1: a little bit on the timeline you look at. But
Speaker 1: if you look at us last year, Kirkland had a
Speaker 1: record year. They represented twenty three companies and there were
Speaker 1: fifty seven total to make it into the database last year.
Speaker 1: So twenty three companies, just to put into context, is
Speaker 1: close to the amount that Kirkland itself advised on over
Speaker 1: the last four years combined, and it's fairly close to
Speaker 1: the number of total companies that have made their way
Speaker 1: into the database on average over the past nine years.
Speaker 1: So they kind of outdid themselves, but they outdid everybody else.
Speaker 1: The statistic we focused on in the piece was that
Speaker 1: they represented more than forty percent of the companies added
Speaker 1: to the Big Database last year, and that was the
Speaker 1: highest market share of any single firm in any given
Speaker 1: year in the history of the database. Well, you went
Speaker 1: even further or even deeper into the data and you
Speaker 1: didn't just look at you know how you know how
Speaker 1: big Kirkland's bankruptcy practice is, but you looked at you
Speaker 1: know why it got that big, and there was one
Speaker 1: industry that you keyed in upon that really helped them
Speaker 1: get to where they were, and it was the fossil
Speaker 1: fuel industry, oil and gas companies, you know, coal mining companies.
Speaker 1: What was going on there? Why was that the case? Yeah,
Speaker 1: So Kirkland Analyis is a little bit of history on
Speaker 1: the firm they're from. They're based out of Chicago. They've
Speaker 1: grown a lot in New York. They have one of
Speaker 1: the biggest private equity practices representing private equity companies in
Speaker 1: the world, and they opened an office in Houston around
Speaker 1: twenty fourteen, and that office has done a lot of
Speaker 1: work for oil and gas companies in Texas, part of
Speaker 1: the sort of shale oil boom. When you look at
Speaker 1: bankruptcies that are happening sort of by industry, really one
Speaker 1: of the newest trends that a lot of people talk
Speaker 1: about retail bankruptcies, you know, going through the roof as
Speaker 1: people shop online more. But another phenomenon happening in the
Speaker 1: market is that the price of oil has dipped over
Speaker 1: the past few years. So there was a big there
Speaker 1: was a big surge in oil and gas bankruptcies in
Speaker 1: twenty sixteen and Kirkland did a lot of work for
Speaker 1: those companies then, and of course last year there was
Speaker 1: another huge surge in oil and gas bankruptcies as demand
Speaker 1: for oil and fuel basically plummeted when the world shut down. Yeah,
Speaker 1: I mean, I think during the spring this is you know,
Speaker 1: very widely reported. But there was one time where you know,
Speaker 1: the price of a barrel of crude way negative, you know,
Speaker 1: and that must have led to a lot of the
Speaker 1: bankruptcies that that Kirkland advised on. Yeah, I mean, obviously
Speaker 1: that didn't last forever, but it was a huge shock
Speaker 1: to the industry and certainly led to just the general
Speaker 1: depressed price of oil. Right, And you know, how are
Speaker 1: they making all this money? Because that was one of
Speaker 1: the things you looked at was not just how many
Speaker 1: bankruptcies did they they advised on, but also how much
Speaker 1: in fees they received. And you know, some of these
Speaker 1: bankruptcies are in the tens of millions of dollars. Where's
Speaker 1: this money coming from? I thought that bankrupt companies couldn't
Speaker 1: pay their creditors. How are they paying law firms tens
Speaker 1: of millions of dollars? What's going on here? Yeah? The
Speaker 1: dollar figures that we looked at are what you could
Speaker 1: call pre filing fees. So law firms have to be
Speaker 1: accepted by a judge to represent these companies in bankruptcy,
Speaker 1: and they have to put forth a sort of some
Speaker 1: paperwork that shows here's who we are and this is
Speaker 1: what we've done for the company so far. And in
Speaker 1: that filing they will tell you how much money they've
Speaker 1: gotten from that company in the lead up to these cases.
Speaker 1: And Kirkland had earned more than two hundred million dollars
Speaker 1: combined just in the lead up to these cases. Of course,
Speaker 1: there'll be a lot more money spent while the court
Speaker 1: portion of the bankruptcy goes on. So I could see,
Speaker 1: you know, some people here saying that, you know, Kirkland
Speaker 1: is almost vulture like, that they're sort of capitalizing on
Speaker 1: other people's misery. What's the counter argument to that? You
Speaker 1: know what, how would Kirkland argue its case here? Sure? Well,
Speaker 1: first of all, bankruptcy, corporate bankruptcy is a tool that
Speaker 1: the law allows for good reasons. Right, we want companies
Speaker 1: to be able to sort of shed their burdens and
Speaker 1: in a court ordered way and sort of try to
Speaker 1: get themselves back on track and get going if they can,
Speaker 1: and to use that tool you need really experienced people
Speaker 1: who've done it before, and that's lawyers. So if it
Speaker 1: wasn't Kirkland advising these companies, somebody else would. And then
Speaker 1: the other point is that the fees in bankruptcy cases,
Speaker 1: they have been criticized, you know, by people who've looked
Speaker 1: into it. But at the same time, judges do approve
Speaker 1: every penny that a bankrupt company ends up paying out
Speaker 1: while they're in this process. And so every time Kirkland
Speaker 1: wants to collect a fee, they have to tell the
Speaker 1: judge what they did and who did it and for
Speaker 1: how long. And I mean it's worth noting that one
Speaker 1: that there are experts, like fee experts, people who are
Speaker 1: sort of they are consulted on by courts and asked
Speaker 1: to say, what do you think of these fees? And
Speaker 1: an argument they make a lot of times for big
Speaker 1: firms is that they have handled so many of these
Speaker 1: cases and they have big enough teams and enough experience
Speaker 1: that really they're more efficient than almost anybody else. Finally,
Speaker 1: you know, let's say I've seen Kirkland and Ellis and
Speaker 1: they're just you know, raking in the cash here and
Speaker 1: maybe I want to try to do that myself. First off,
Speaker 1: how would I do that? And second of all should
Speaker 1: I do that? Is this something that can be replicated
Speaker 1: or is it something that even should be tried to
Speaker 1: be replicated. Yeah, so on the rep on this, whether
Speaker 1: this can be replicated, point, I think it's worth I
Speaker 1: love sports, and as I kept thinking about batting averages,
Speaker 1: baseball batting averages, and so Kirkland was the first firm
Speaker 1: since nineteen eighty one to have represented forty percent of
Speaker 1: these companies, which would be like batting four hundred in baseball,
Speaker 1: which is a course of historic. So you're saying kirk
Speaker 1: Beer basically saying Kirkland is the Ted Williams of bankruptcy lock.
Speaker 1: That's yeah, exactly right. He was the last one to
Speaker 1: hit four hundred, and he did it, you know, decades ago.
Speaker 1: And so there was there was only one other law
Speaker 1: firm to have ever advised on forty percent of these
Speaker 1: cases in a single year. Happened in nineteen eighty one
Speaker 1: when there was only five cases in this firm represented
Speaker 1: two of them. So Kirkland got the edge just by
Speaker 1: like point one point one percent or something to set
Speaker 1: that record. But my point about that is that there's
Speaker 1: not that many Ted Williams out there, so whether this
Speaker 1: will be replicated even by Kirkland is probably unlikely. I
Speaker 1: think twenty twenty was just kind of a crazy year.
Speaker 1: That was Roy Strom, a reporter with Bloomberg Law. Check
Speaker 1: out our website to find the awesome interactive story Roy
Speaker 1: and his colleagues put together where you can visualize exactly
Speaker 1: how much money Kirkland made and where it all came from.
Speaker 1: And if you want more environmental news, check us out
Speaker 1: on Twitter. We use the handle at environment, just bad
Speaker 1: at environment, nothing else at environment. I'm at David B. Schultz.
Speaker 1: If you want to yell at me about anything or
Speaker 1: give me any words of encouragement, I'll take either. Today's
Speaker 1: episode of Parts for Billion was produced by myself, David
Speaker 1: Schultz Parts for billiand was created by Jessica Coombs and
Speaker 1: Rachel Dagle, and our executive producer is Josh Block. Thank
Speaker 1: you everyone so much for listening. Hi. This is Adam Allington,
Speaker 1: the hosting producer of Uncommon Law from Bloomberg Law. It
Speaker 1: isn't hyperbole to say that the murder trial of George
Speaker 1: Floyd is likely to be one of the most significant
Speaker 1: court cases in a generation. In fact, in the nine
Speaker 1: months since Floyd's death at the hands of a Minneapolis
Speaker 1: police officer, the name George Floyd has become synonymous with
Speaker 1: a growing movement for police reform, as well as a
Speaker 1: mass of racial reckoning that has spread to all corners
Speaker 1: of American society. As the trial unfolds, the Uncommon Law
Speaker 1: podcast will be reporting on the trial in real time
Speaker 1: or quasi real time. Given the amount of interest in
Speaker 1: this case and the impact it's sure to have, we
Speaker 1: felt that it was important to be part of that discussion.
Speaker 1: So if you find yourself interested in this case, either
Speaker 1: in terms of social justice, or because of the legal
Speaker 1: theories and precedents that touches on, or just because you
Speaker 1: might be on your own journey learning about issues of
Speaker 1: race and racism, then I think this is the podcast
Speaker 1: for you. Just clicked down and subscribe wherever you get
Speaker 1: your podcasts. Thank you, M M.