Detroit retiree firm defends pay, says it ate $6M bonus
Detroit — A firm representing city retirees during Detroit’s landmark bankruptcy defended its fees Thursday, saying it ate a $6 million bonus that was promised if the city successfully exited bankruptcy court.
The filing by global financial adviser Lazard for the first time pinpointed the pay cut the firm accepted during closed-door negotiations ordered after Mayor Mike Duggan’s administration complained that high fees could derail the city’s restructuring plan.
The city’s bankruptcy lawyers and consultants face a deadline Thursday to justify fees. Firms representing the city and retirees charged about $170 million and U.S. Bankruptcy Judge Steven Rhodes is determining the reasonableness of fees in the biggest municipal bankruptcy in U.S. history.
Lazard was represented publicly by Ron Bloom, the former Obama administration auto czar. In the filing Thursday, Lazard said it accepted a 37 percent pay cut, which slashed the firm’s fees to $5.56 million, down from $8.44 million.
Lazard had a contract that paid the firm $175,000 a month plus a $6 million “success fee” payable if Detroit successfully exited bankruptcy court. The city emerged from bankruptcy in early December.
The Segal Group Inc., a New York-based human resources and benefits consulting firm, also submitted a filing Thursday to defend its fees.
The firm, which provided actuarial services to both the retiree committee and city, said that when asked to cut its fees, it met in mediation with the city and “quickly agreed to a reduction of $99,000.”
“We believe that our billed amounts, coupled with the agreed-upon reduction of $99,000, were appropriate professional fees for sophisticated, high-level work that contributed significantly to the Retiree Committee’s acceptance of the Plan of Adjustment and to the successful resolution of the bankruptcy in a timeframe much shorter than initially anticipated,” the filing reads.
The retiree committee retained Segal in September 2013 to provide consulting. The group was initially responsible for providing financial analysis of the proposed changes to the pension and retiree health care benefits and to educate the committee on the impacts.
“As the bankruptcy progressed, our role was significantly expanded to include advising the city and serving as the pension expert at trial,” Margery Sinder Friedman, an attorney for Segal notes in the filing.
“We gave the Detroit bankruptcy engagement the highest priority, forfeiting other client opportunities.”
The firm also notes that prior to agreeing to cuts in mediation, it had already provided a “substantial discount” in its fee structure.
In its six-page filing, Segal listed rate concessions and other discounts tied to unbilled staff and travel time. Segal noted concessions of 14 percent in its overall bill of $3.9 million, not including the $99,000 reduction.
More firms are expected to file paperwork defending the reasonableness of fees charged during the case.
The bankruptcy bill totaled $170.2 million before a state reimbursement of $5.29 million, which brought the total paid from the city’s general fund to $164.91 million.
Among the top paid professionals are the city’s lead law firm, Jones Day, at $57.9 million; investment banking firm Miller Buckfire, $22.82 million; restructuring firm Ernst & Young, $20.22 million; and operational restructuring firm Conway MacKenzie, $17.28 million.
Dentons US LLP, a law firm that represented the official committee of city retirees, received $15.41 million.
The city’s two pension funds paid attorneys at Clark Hill $6.25 million and financial advisers at Greenhill & Co. $5.71 million.
The filing shows bankruptcy mediators were paid $980,000, though none of the money went to federal judges who served on the mediation team. Most of the money went to mediator Eugene Driker’s law firm.
Staff writer Christine Ferretti contributed