How many consultants does it take to run up a $223.15 dinner bill at Mo's Crab and Pasta Factory in Little Italy?
The answer, researched by the firm of Ernst & Young one night in January, is three. Firm partner Mark Hopkins and two other consultants consumed $193.15 worth of food and drink at the Baltimore restaurant, left a $30 tip and charged it all to their client, Merry-Go-Round Enterprises Inc., court records show.
The feeding in Merry-Go-Round's bankruptcy case is under way.
One of the biggest local Chapter 11 filings in recent years, the case has generated a mini-industry of legal research, business analysis, meetings, travel, copying, phoning, faxing and dining.
With $213 million in debt, the Merry-Go-Round filing isn't in a league with billion-dollar bankruptcies such as those of R. H. Macy & Co. and Pan Am Corp. But for Maryland, "it's a mega case," said Lawrence D. Coppel, a Baltimore bankruptcy lawyer who isn't involved in the Merry-Go-Round filing.
It was Jan. 11 when the Joppa-based fashion chain sought protection in U.S. Bankruptcy Court in Baltimore.
The tally through April, according to recent court filings, is: a dozen law firms, four accounting firms, 85 lawyers, 40 accountants and 32 management consultants altogether making more than 2,000 phone calls, eating 140 meals, taking dozens of plane and train rides and billing for thousands of hours of work.
Cost is $2.6 million
Cost: about $2.6 million.
And that's only what Merry-Go-Round itself is going to pay.
Under bankruptcy rules, the company foots the bill for its own professional advisers as well as for lawyers and consultants representing committees of shareholders and creditors. But individual stockholders, creditors and landlords have hired their own guns.
"People have said the bankruptcy code can also be called the full employment act for lawyers," said Irving Breitowitz, associate professor at the University of Maryland School of Law. "It is true that with a big Chapter 11 reorganization, there is a lot of money to be made."
The sum of fees and expenses so far is not excessive by industry standards.
Macy fees much higher
The reorganization of Macy and its $5 billion-plus in debt, to cite an extreme example, has cost nearly $50 million in professional fees and expenses since January 1992. Fees in the Chapter 11 case of department store chain Woodward & Lothrop Inc., which filed six days after Merry-Go-Round did and had about $600 million in debt, came to $2.4 million through April.
Merry-Go-Round, driven to bankruptcy court by falling sales and financial losses last year, is trying to restructure debts of $213 million and to reorganize a business that has 1,300 stores nationwide and posted revenue last year of $960 million.
That takes time and expertise, even though the cost saps resources from an already struggling organization. Some of the professional expenses piling up on the ninth floor of the federal courthouse would be generated whether Merry-Go-Round was in bankruptcy or not.
But some investors are trying to keep a lid on expenses.
Fidelity Investments, Merry-Go-Round's biggest creditor and also a large shareholder, tried two weeks ago to stop the hiring of yet another professional firm in the case.
Merry-Go-Round's shareholders committee wanted to retain New York investment bank Rothschild Inc. as financial adviser. Fidelity objected, arguing that Rothschild's advice was unneeded this early in the case and that its $70,000 monthly fee would further shrink the retailer's capital.
'Not small potatoes'
"It's not small potatoes," said Bruce Zirinsky, Fidelity's lawyer. Bankruptcy Judge E. Stephen Derby approved Rothschild's hiring anyway.
For the most part, lawyers and accountants operating on Merry-Go-Round's meter aren't living high on the hog. They're flying coach, renting Pontiacs and eating turkey sandwiches at their desks while working overtime.
But Peter A. Chapman, head of Bankruptcy Creditors' Service Inc. in Princeton, N.J., said Ernst & Young's $223 dinner tab in January at Mo's (where the lobster tail/steak combo costs $35.95) deserves a "bravery in billing award."
Ernst & Young's Mr. Hopkins, who charges clients $400 an hour, declined to comment.
At least five Baltimore law firms are working on the case, including Venable Baetjer & Howard, Merry-Go-Round's securities counsel; and Freishtat & Sandler, leasing counsel. But much of the work is going out of town.
Swidler & Berlin of Washington, Merry-Go-Round's lead bankruptcy law firm, has submitted the biggest bill so far -- $702,413 through April. Financial adviser Ernst & Young and auditors KPMG Peat Marwick, each with tabs in the $500,000 range, are in New York.
Sheraton is preferred
Some money ends up in Maryland, anyway, when advisers visit Merry-Go-Round. Ernst & Young's consultants apparently prefer the Sheraton Baltimore North Hotel in Towson and its Carnegie's Cafe and Grill.
KPMG's accountants are partial to Giovanni's, a dark-paneled Italian restaurant in Edgewood. "We do a lot with Merry-Go-Round," says chef Frank Martino.
And they'll keep coming. Mr. Chapman estimates that the reorganization of Merry-Go-Round, which had a net worth of $159 million at the end of May, will take two years and consume more than $16 million in professionals' fees and expenses.