|Posted on September 18, 2014 at 1:15 PM|
Every valuation expert dreams of getting paid $1.5M (yes, million!) for a three week engagement. I polled my colleagues and most indicated that they would have done the case in question for 10% or less than the luminary in the case In re Lightsquared, Inc. , a Chapter 11 case from the SDNY. http://www.nysb.uscourts.gov/sites/default/files/opinions/228464_1631_opinion.pdf.
Was this expert incompetent? Connected? Where the attorneys that retained him at fault? Was the client well-served by this "expert"? Was the Bankruptcy Court unfair to the "expert"? Did this "expert" underestimate the scrutiny the court would apply reviewing the report submitted? Understand that a Daubert challenge was coming? Understandhe and his firm would be under scrutiny especially if the court issued (a stinging report)? Read the case and decide.
The following is a summary (this is an abridged version):
The company/dip submitted a third plan for confirmation. The company provides wholesale mobile satellite communications and broadband services throughout North America. So, this company owns several satellites and licenses to use the satellite service spectrum issued through the FCC. The military and first responders are clients of this debtor. There was a fair amount of anatgonism and 16 classes where eventually created. A special purpose entity --owned by DISH's Chairman--opposed the plan and treatment accorded under the plan.
This SPSO offered a NY-based investment banker that amanged GLC as the valuation expert. In connection with the case there was a question of whether a 10Mhz spectrum would be auctioned off or assigned to Lightsuared. Lighsuared argued that despite that question, the plan of reorganization was feasible.
Moelis was the expert for the debtor. The Moelis expert testified that they had done spectrum valuations in the past and work related to telecoms. This expert had worked on the case for 2 years and also with a "jr analyst" (my words). The SPSO offered GLC as the valuation expert. This expert relied on the Moelis' expert's report and made certain modifications (amterial ones).
Here is what the court had to say about the $1.5M expert's report:
Many aspects of Mr. Reynertson’s testimony are noteworthy: (i) he had never previously valued satellites or spectrum (see Conf. Hr’g Tr. Mar. 27, 2014 (Reynertson) at 126:14-23); (ii) he applied certain faulty and arbitrary assumptions in his valuation methodology (see fn 41, supra); and (iii) he was not provided with the valuation analyses that had been prepared by Mr. Ergen and by PWP during the summer of 2013, and, when presented with such analyses at the Confirmation Hearing, he admitted that seeing these would have helped him and may have changed what he did in connection with forming his opinions.42 The GLC Valuation Report was rife with inconsistencies and flaws; it was on the whole an unimpressive piece of work and will not be afforded significant weight. In addition, a portion of Mr. Reynertson’s testimony relied on the expert opinion of Mr. Hyslop. As the Court finds that portions of Mr. Hyslop’s expert opinion shall be stricken from the record, as discussed infra, the portion of the GLC Valuation Report that relies on the stricken Hyslop testimony shall be afforded little weight."
The court added:
"The GLC Valuation Report offered by SPSO suffered from many infirmities and inconsistencies. On the one hand, Mr. Reynertson purported to have relied on the opinions of Mr. Hyslop for his determination of how much of LightSquared’s spectrum should be included in his valuation analysis and how much might be sidelined due to the “technical issue.” He appears to have relied in part on a Hyslop opinion that was first revealed at the Confirmation Hearing; this undermines the integrity of Mr. Reynertson’s opinion and, more generally, raises questions about his credibility. Moreover, notwithstanding his reliance on others for regulatory and technical assumptions, he appears to have used his own judgment to risk-adjust his valuation analysis. Simply put, his methodology is all over the place. Paid $1.25 million dollars for his work, Mr. Reynertson delivered a superficial analysis that was not even informed by a review of the valuations prepared by Mr. Ergen and PWP. The Court affords it little weight."
The case goes into depth regarding when a cramdown is allowed or disallowed. It is a good read on that level. It is also a reminder to counsel and parties in a Chapter 11 to retain the expert(s) early in the engagement. GLC should have passed on this opportunity; three weeks to get up to speed on this and generate an expert report with no other expert being retained to provide guidance (an expert can rely on another expert when generating an opinion!) is a tall task. This case is reminiscent of the Kodak case. In my opinion, GLC should have passed on this engagement, given the time frame ... but turning down $1.5M for a three week engagement is hard even given the above.
A professional can get up to speed and take on new matters, but must have the time and resources to develop the expertise. A superficial report is not the intended end result, but that is what the court said GLC delivered.
As for the questions asked at the beginning, those are ones for the reader to think about!