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Kodak bankruptcy advisers likely to see $240 million payday

DVD's by Eastman Kodak Co are displayed in a retail store in San Diego, California, April 22, 2013. REUTERS/Mike Blake
DVD's by Eastman Kodak Co are displayed in a retail store in San Diego, California, April 22, 2013. REUTERS/Mike Blake

By Nick Brown

NEW YORK (Reuters) - A lawyer tasked with reviewing advisers' fees in Eastman Kodak Co's bankruptcy on Thursday gave his blessing to more than $240 million in bills, priming them for court approval next week.

Fee examiner Richard Stern recommended approval of about $235.8 million in fees and another $7.2 million in expenses, according to an 87-page report in U.S. Bankruptcy Court in Manhattan.

The fees on Tuesday will go before Judge Allan Gropper who, absent any objection from Stern, is likely to approve them.

Fees from lawyers, financial advisers and other professionals who bill a bankrupt entity's estate must be filed publicly. While the lion's share are paid to firms as the case goes on, they nonetheless remain subject to court approval at the end.

In large cases like Kodak's, judges often tap examiners to pore over the bills and offer recommendations as to whether they are reasonable. Examiners flag expenses that seem inappropriate or inflated and try to get firms to reduce them. If sides can't reach a compromise, the dispute goes to the judge.

In his report, Stern said Kodak fees were reduced by about $8.2 million through consensual deals.

Bankruptcy is big business for corporate law firms and advisers and Kodak's was no different.

The photography pioneer filed for Chapter 11 in 2012, listing about $6.7 billion in liabilities, and 23 firms representing Kodak or official creditor committees billed the estate for their costs.

Kodak's primary law firm, Sullivan & Cromwell, took home about $63.5 million in fees and expenses, while auditor PricewaterhouseCoopers earned about $33.6 million and investment banker Lazard made about $28 million, the report shows.

The company emerged from bankruptcy in September smaller than when it went in, with a focus on digital imaging and commercial printing. On Monday, in its first post-bankruptcy earnings, it reported a quarterly loss of $155 million, saying it had $839 million in cash and $679 million in debt.

Compared to those figures, the more than $240 million paid to lawyers and bankers is not chump change. The case featured a high number of law firms, with Kodak using at least 10, and its creditors' committee and retired employees' committee using two apiece.

That was due in part to the wide array of non-bankruptcy legal tasks that needed to be performed. According to Stern's report, most of the cost would have been incurred even outside of a bankruptcy setting, through tasks like preparing audits and assessing potential mergers and acquisitions. The company also spent significant resources litigating patent-related disputes with Apple Inc .

Firms agreed to reduce costs related to overstaffed hearings and conference calls, fee application preparation, and meal and travel expenses, according to the report.

High fees in bankruptcy cases have been a primary focus of regulators. November 1 marked the start of new guidelines, advanced by the Department of Justice's bankruptcy watchdog, under which lawyers will have to make more disclosures about billing practices.

The guidelines, which were criticized by most big law firms, will require lawyers in large bankruptcy cases to justify any hourly rate increases and provide rough budgets for their work.

Examiners like Stern also make money reviewing their peers' fees. Stern's law firm, Luskin Stern & Eisler, has billed around $400,000 since his appointment in June of 2012.

Stern declined to comment beyond his report.

A spokeswoman for Kodak did not immediately respond to a request for comment.

(Editing by Eric Walsh)

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