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Show Bankruptcy reorganization Leveraged buyouts blamed for recession NEW YORK, N.Y "The leveraged buyouts of the 1980s are an insidious and significant signifi-cant factor in the nation's recession,' according to attorney Ralph R. Mabey. Mabey assists in restructuring troubled companies com-panies and heads the bankruptcy reorganization department of New York-based LeBoeuf, Lamb, Leiby & MacRae, a law firm with 15 offices in the United States and Europe. He is a resident of Bountiful. "In a leveraged buyout of the '80s, a corporate raider often borrowed billions of dollars in order to buy all of a target company's stockand then required the captured target company to pay back the borrowed money," Mabey explained. "As a result, the target company was saddled with enormous payments of interest and principal while receiving nothing in return but new, sometimes questionable management. A company com-pany often was forced to lay off employees and sell assets in order to repay its debts. ' . A good example, according to Mabey, is that of TWA Airlines. Mabey represents the TWA Air Line Pilots in TWA's current Chapter 11 reorganization. re-organization. Mabey noted that, over the strenuous objections of his clients and of the City of St Louis, TWA has sold virtually all of its airline routes to London in an effort to reduce its overwhelming debt Carl Icahn purchased all of the stock of TWA during the 1980s. "In order to do so, he loaded approximately a billion dollars of debt on to the company," Mabey said. "A purpose of TWA's present Chapter 1 1 reorganization re-organization in Wilmington, Del., is to substitute a substantial amount of the company's excessive debt for stock in TWA in order to make it competitive com-petitive once more," Mabey explained. Mabey recently participated in the successful restructuring of nearly $5 billion of debt created by the leveraged buyout of the Federated Department Stores chains by Robert Campeau. Federated Department Stores, which includes well-known chains such as Bloomingdale's, was reorganized through Chapter 11 in Cincinnati. Mabey and his firm represented pre-merger bond holders owned more than $1 billion. "The problems created by leveraged buyouts are not just problems for the target companies and their employees," Mabey noted. "Much of the borrowings used for these buyouts was obtained ob-tained by selling so-called junk bonds. These are bonds or promissory notes which are risky because they load excessive debt on a company, but tempting investments because they pay very high interest rates to supposedly off-set their risks. "The failure of many leveraged buyout target companies has caused the default in payments of billions of dollars on junk bonds," Mabey continued. con-tinued. "As a result of these defaults, a number of the nation's insurance companies and savings and loans which invested heavily in junk bonds were undermined." LeBoeuf and Mabey represent a major client attempting to assist in the rehabilitation of First Capital Life Insurance Company of California, a $4 billion insurance company which invested heavily in junk bonds. The company has been taken over by the California Commissioner of In- 4 surance. A former United States Bankruptcy Judge for the District of Utah, Mabey's judicial decisions have been cited more than 1,000 times by other federal courts and scholars. He is a well-known national lecturer and author and is an appointee of the Chief Justice of the United States to a committee which helps revise the bankruptcy rules under which the federal bankruptcy courts operate. Under Mabey's supervision, more than 30 lawyers at LeBoeuf are active in significant Chapter 1 1 reorganizations throughout the country. coun-try. LeBoeuf has a Salt Lake City office comprised compris-ed of 15 lawyers. In Salt Lake City, LeBoeuf represents rep-resents CF&I Steel and the creditors of Bonneville Bonne-ville Pacific; both are chapter 11 reorganization cases. Mabey formerly served as court-appointed examiner ex-aminer in the A.H. Robins Dalkon Shield case in Richmond, Va. A $2.4 billion trust was created in that case for the payment of tens of thousands of victims. Locally, Mabey is an adjunct professor of law at Brigham Young University, a member of the Boimttful Power Commission, and is an active leader in church youth programs. He is married to Sylvia States; they have four children, Rachel, Elizabeth, Emily and Sara. "It will be years before the damage caused to our economy and to the competitive standing of many leveraged buyout targets and junk bond investors in-vestors can be overcome," Mabey added. "In the meantime, we all should be warned against trying to borrow our way to wealth. ' ' |