Puerto Rico’s legal fees in bankruptcy cases reach $1.1 billion
By The Star Staff
Puerto Rico’s legal fees to professionals in its Title III bankruptcy cases have reached $1.1 billion, according to a court report.
The Fee Examiner, the law firm Godfrey & Kahn, recommended the payment of about $194 million in interim and professional fees for the period of Feb. 1, 2023 to May 31, 2023, bringing the amount in professional fees to $1.1 billion in the six years of litigation in the Title III bankruptcy processes, of which only the Puerto Rico Electric Power Authority’s (PREPA) restructuring has yet to be completed.
The report recommended the court’s approval, in conjunction with a hearing on Thursday, of more than 45 interim applications and two final applications. With the PREPA claims estimation hearing set for Tuesday and a plan confirmation hearing in July, the next omnibus hearing is Aug. 30. The PREPA plan provides for the filing of final fee and expense applications within 120 days of the plan’s effective date, according to the Fee Examiner.
The law firm also recommended that the court approve, without adjustment, the final fee application of McKinsey & Co. Puerto Rico Consulting Inc. as consulting services provider to the Financial Oversight and Management Board for Puerto Rico.
Through March 15, 2022 that application requests a total of $75 million in compensation. As the Fee Examiner first reported to the court in March 2018, McKinsey has presented a particular challenge for the Title III review process because of its flat fee pricing model. McKinsey does not maintain daily or hourly time records, does not separately request reimbursement of expenses, and has not assigned hourly billing rates for any of its timekeepers. Those considerations led the Fee Examiner, early in the proceedings, to ask for permission to separate McKinsey from participation in the Title III mandated fee review process. The court declined to do so, instead asking the Fee Examiner to propose a different procedure to evaluate McKinsey’s considerable fees.
Thus, beginning on Oct. 31, 2018, the Fee Examiner periodically recommended court approval of McKinsey fees on an interim basis based on an alternative methodology. This included personal site visits, interviews with the oversight board general counsel, chairperson and executive directors, and estimated blended hourly rates based on the information McKinsey provided.
Some of the professionals are working on flat fees, something that posed complications because Congress did not include bankruptcy provisions allowing professionals in the case to be compensated in such a way. Still, the Fee Examiner recommended that Moelis & Co. would be paid a flat fee of $250,000 per month for the first three months of its engagement and $150,000 per month thereafter. CitiGroup Global Markets also requested monthly flat fees of $1.2 million for Citigroup’s Commonwealth and PREPA workstreams, plus $275,000 per month for its Highways and Transportation Authority workstream.