When Larry Lattig, president of Mesirow Financial Consulting, heard the news he had won the 2013 M&A Advisor’s Turnaround Consultant of the Year award, his response was the not-atypical “Who me?” But disbelief turned to gratitude as he reflected on the team of professionals he had built over the years: “The people I work with are very good at what they do. And their being very good at what they do allows me to be good at what I do.”
Lattig recalls a time during two of his largest restructurings when the group provided particular support: “While we were doing Patriot Coal and American Airlines, Mesirow Financial was also the financial advisor to the examiner in ResCap, which was a huge bankruptcy; it was part of General Motors. If it were not for [my staff] and their ability to handle [the ResCap] case, I wouldn’t have had the resources or the time to do American after the Patriot. So I would consider this an award to a lot of smart people.”
In November 2011, AMR Corporation, the parent company of American Airlines, filed Chapter 11. The company would eventually merge with US Airways Group on December 9, 2013, and form American Airlines Group.1 Prior to bidding on the American Airlines restructuring, Lattig was lured by one of the biggest market opportunities at the time for a pure restructuring. His company had also been involved in representing unsecured creditors in the bankruptcies of United Delta and Hawaiian Airlines, so it was a natural fit for Mesirow. And as a Dallas resident and frequent flyer logging more than 6 million miles on Dallas/Fort Worth-based American Airlines, Lattig had a personal interest in the company.
From the beginning of his involvement, Lattig noticed an unwillingness of all parties to concede anything — or communicate. “The people who run airline businesses don’t like each other very well,” he says. “So starting from that context, you had one airline that was bigger than the other that would look at the market and say, ‘Why would we want to merge with those guys?’ U.S. Airways is far more aggressive and more willing to take risks, and more progressive. What you end up with is two entities that don’t want to talk.”
But this scenario is not unusual in merger transactions, Lattig says. “If somebody walked into your operation today and said, ‘We’re a competitor of yours and we want to buy you,’ the first reaction from you is going to be, ‘no,’ and it’s going to be because you don’t have any idea of what the deal is and you know that you want to stay independent,” Lattig explains. “Once you can get past that to an honest platform where the parties involved can look and see what’s best for the business, that’s the point at which you can make that decision.”
From a professional standpoint, the creditor’s committee in the American Airlines case was the most unique body Lattig has represented. The nine members, including three indentured trustees, two trade creditors, three union representatives and a corporate pensions insurer, all had diverging interests. Lattig recalled many moments of doubt throughout the negotiation process.
During one particular meeting in New York City, where about 70 people packed into a room, the group was 15 minutes in to proceedings when they reached a consensus: There wasn’t a reason to move forward. “We just didn’t have all of the information, didn’t have the time, all kinds of excuses,” Lattig says. Complicating matters was a Department of Justice antitrust lawsuit to prevent the merger.
The committee’s turnaround, legal and investment advisors (i.e., Mesirow, Jack Butler of Skadden, Arps, Slate, Meagher & Flom; and William Q. Derrough of Moelis, respectively) broke through resistance by becoming the intermediary, the “honest broker”, by asking questions, looking at information from both sides and presenting an opinion, Lattig says. He compliments Butler and Derrough for their persistence and hard work. “To get all [parties] aligned toward what’s best for the airline took a lot of discussion and negotiation,” he adds.
Perseverance paid off with a Justice Department settlement that entailed US Airways and AMR agreeing to divest a number of gates and implement some operational changes. This resolved U.S. regulators’ opposition to a merger between AMR and US Airways Group, paving the way for a roughly $16 billion merger in January that created the world’s largest airline. Impressively, the creditors got a return in excess of 100%. “The equity holders don’t normally get a return at all in a bankruptcy,” Lattig says.
Prior to the American Airlines restructuring, Lattig led the Mesirow team to play a significant role in structuring settlements with Patriot Coal creditors. On July 9, 2012, Patriot Coal and all but two of its wholly owned subsidiaries filed voluntary petitions for reorganization under Chapter 11 in the Bankruptcy Court for the Southern District of New York.2 The eventual restructuring of the St. Louis, MS-based coal mining company had distinct elements due to the intrinsic hierarchy (i.e., leadership and rank-and-file) within the union structure. “Unions, even in this company, have lost a great deal of their power in the last five or ten years, and one of the things that you need to recognize in order to deal with a union is they’re not going to give up any more power.”
Moving forward from that context, Mesirow and his team furthered the effort to assist Patriot Coal in emerging from Chapter 11 reorganization in December 20133 as a well-capitalized company that would continue to provide a competitive product to the electric utility and steel industries.
Other Notable Assignments
Lattig’s most memorable assignment isn’t a big one. He represented the creditors in the bankruptcy of a chain of convenience stores based in Richmond, VA. After three months in bankruptcy, the debtor’s financial advisor went to the court and disclosed that all financial information provided by the debtor had been fraudulent and the principal of the company had been funneling money to Pakistan as a member of the Taliban. The advisor added that the individual owned his own plane and would be flying back to Pakistan that day. “We took over the operation of the convenience stores and ended up doing a lot of work to restructure them, and sold them to somebody in order to pay the creditors,” Lattig said.
One other interesting case entailed representing the creditors in the bankruptcy of Chrysler. Unlike most of the assignments Lattig had, the bankruptcy only lasted 63 days. “I spent almost every one of those 63 days in court because the federal government was running the case, and that’s where all the action was. The people that I wanted to get information from were always there, too,” Lattig explains.
Lattig’s industry wisdom in the restructuring world as well as his keen understanding of the inner workings of companies came early, in his 20s, first as a “loan guy” at GE Capital and then as a buy-side M&A professional at Figgie International. “In the six years that I worked there, we bought 40 companies in many businesses. I bought a thermometer company, a casket company, a sporting goods retailer, a custom golf club maker, a sportswear maker and a guard service. [Figgie] wound down and ended up in a bankruptcy years later, but the point was I had the opportunity as a very young business guy to see a lot of businesses and the ways that they operated.”
He went on to become the CFO of a high technology company for 11 years until the company was eventually sold, and his position was eliminated. “One of my auditors suggested to me that I should go into the restructuring business. He says, ‘You’ve taken a restructuring charge every quarter, you should be an expert.’ So I went to KPMG, and I met a guy named Ralph Tuliano, and Ralph and I had similar philosophies.”
The two teamed up in 2004 to acquire the corporate recovery practice of KPMG, which had spun off of most of its consulting practices as a result of the Sarbanes-Oxley Act, and form Mesirow Financial Consulting. They’ve been together for 15 years now, with Tuliano as CEO and Lattig as president.
When Lattig first entered the turnaround space, he would typically be one of two candidates vying for a project. He’s now one of a dozen trying to win a case. He believes the competitiveness has hurt the industry. “Like any business, when you increase the number of competitors, there are less factors to compete on; the intrinsic factors become less important, and the price factors become more important. And price factors are shallow driven. You get what you pay for, especially in this business. There are companies that charge very low rates on an hourly basis so they can get a number of assignments. That spreads their resources too thin, in my opinion.”
As to what is heating up the competition, Lattig says one major factor is the evolution of players in the space from primarily accounting firms representing creditors to investment bankers to financial advisory firms, which Lattig defines as “anyone who’s ever picked up a pencil.” When asked if a decrease in total commercial bankruptcy filings is to blame, the turnaround veteran points out that some bankruptcy statistics can be misleading. He believes the number of cases with assets over $100 million are significantly lower because the debtors are borrowing more money. Lattig maintains a sense of humor about the increasing pressure. Enjoying a cigar outside of his home in Dallas, he quips: “If you want to include a line at the end of this that says send business to this guy, I would appreciate that.”
While some members of the turnaround field may view today’s excess of liquidity as positive, Lattig sees it as negative, since it tempts advisors to add more debt in a distressed situation. “At the heart of my turnaround abilities is the desire to transform the company, not the amount of debt it has. I’m not a proponent of, ‘You need $50 million to go forward or you get a lousy business.’ I’m a big proponent of, ‘Let’s fix the business and then worry about what we need.’ I think it’s a huge challenge to not take the easy way out.”
The other hurdle Lattig sees is resistance to the cost of filing a bankruptcy and associated expense of hiring a high-quality turnaround professional, as evidenced by an increase in pre-packaged bankruptcies. Though he believes fees should be in scale, company leaders need to consider what they are getting for their money. If a turnaround advisor is simply offering to secure additional dollars to keep the operation buoyant for the short-term, Lattig says debtors are not getting value for their investment. But if the advisor is suggesting fundamental changes to a business to make it stronger and more sustainable then the price should be relative — a point which Lattig believes it’s incumbent upon turnaround advisors to convey through marketing. “I don’t think many people think of that any more. And it’s our job to make people look at that.”
1. AMR Corporation. Wikipedia. Available at: http://en.wikipedia.org/wiki/AMR_Corporation (Last accessed on August 25, 2014).↩
2. Patriot Coal. Wikipedia. Available at: http://en.wikipedia.org/wiki/Patriot_Coal (Last accessed on August 26, 2014).↩
3. Barclays, Deutsche Said to Arrange Patriot Coal’s Exit Financing. abfjournal: Available at: https://www.abfjournal.com/dailynews/barclays-deutsche-to-finance-patriot-coals-approved-ch-11-exit/ (Last accessed August 26, 2014).↩
Jill Hoffman is editor of ABF Journal.