Delphi’s Bankruptcy Bill is $200m

As evidenced by court filings, Delphi Corp. has racked up about $200 million in both legal and accounting bills since it filed for Chapter 11 in October 2005. Experts said the tab could reach $300 million before the company emerges from bankruptcy by the end of 2007.

With Delphi spending $12.5 million per month, the Troy-based auto supplier's bankruptcy is on track to become one of the ten most expensive in U.S. history, said Lynn LoPucki, a professor of bankruptcy law at the University of California-Los Angeles who tracks Chapter 11 costs.

United Auto Workers leaders have intensely disparaged the fees paid to teams of lawyers, accountants, turnaround experts and other firms that specialize in bankruptcies. Particularly infuriating to the union is that Delphi workers agreed to reduced pay and benefits to help the company emerge from bankruptcy.

"Bankruptcy is big business," UAW President Ron Gettelfinger told WJR-760 radio in Detroit on Monday. "One of these days, people will wake up and see what's happening here. We need to reform the bankruptcy laws. These guys are making a ton of money in this bankruptcy. Literally, it's obscene."

The auto supplier’s Chapter 11 will easily end up as the most costly in the history of the auto industry. Even the Saturn fuel filter manufacturer could attest to that fact. But other bankrupt auto suppliers also have cumulative enormous bills. Federal-Mogul Corp., Collins & Aikman, and Dana Corp have all reported more than $100 million in bankruptcy expenses.

On June 27, U.S. Bankruptcy Judge Robert Drain approved $49 million in fees and $3.3 million in expenses sought by Delphi's 38 law firms, accountants and consultants for the four-month period ending Jan. 31, 2006. Overall, Drain has approved $184 million in fees and $13 million in expenses at Delphi.

Delphi has hired 39 firms. A 39th firm hired by Delphi late last year, Detroit-based W.Y. Campbell & Co., on Tuesday submitted its first bill, for $500,000 for its advice. The highest bills have been submitted by Delphi's lead bankruptcy law firm, Skadden, Arps, Slate, Meagher & Flom LLP, which has been paid $44 million for 15 months of work.

Since being hired in June, PriceWaterhouseCoopers LLP has billed about $21 million. One FTI Consulting employee charged the company $185 for a taxi taken in from the Newark, N.J., airport to his home. Also, Delphi hired Legal Cost Control Inc. to help reduce its legal and accounting fees. That firm billed the company $481,000 for the past four months. But the auto supplier said the bankruptcy expenses are appropriate.

Drain has taken some steps to limit expenses, including limiting meal reimbursement to $20 for professionals, keeping photocopy expenses to ten cents per page and limiting the number of attorneys at hearings. But a review of billing records showed firms often bill Delphi for expensive meals and lawyers’ court appearance.

LoPucki said Tuesday that Delphi's bankruptcy costs were extremely high based on an economic modeling program, a review of 74 major bankruptcies over a six-year period, he created with a colleague.

LoPucki added that his study showed that bankruptcy fees in U.S. cases increased an average of 8.6 percent yearly between 1998 and 2004. He also said cases filed in New York or Delaware, where many companies are incorporated, are more expensive. Delphi, which is headquartered in Troy, filed in New York. "Based on where Delphi is today, they are clearly going to be in the top ten. These are very high costs," she concluded.

Experts suggest that large-scale corporate bankruptcies may be increasingly unlikely as the costs of court-overseen restructuring continue to skyrocket.