Milk giant Parmalat SpA is poised to appoint a leading US bankruptcy law firm to fend off creditors as it grapples with the widening fallout from Europe's worst financial meltdown in years, a person familiar with the situation told reporters on Friday.
Parmalat next week is expected to appoint Weil Gotshal & Manges, a New York-based global firm which represented clients such as Enron Corp, WorldCom and Republic Steel, the source said.
Hiring a high-powered US firm indicates that Parmalat is worried that activist North American creditors may take legal action to force Parmalat into an involuntary US Chapter 11 proceeding after it defaulted on certain bond issues last month.
PROTECTION
The global food group already filed for bankruptcy protection in Italy last month as it struggled to maintain operations and account for billions of euros in missing cash. It could voluntarily take similar action in the US within several weeks, the source said.
"It is possible that some of the Parmalat entities could file [for creditor protection] in the US," said the source.
"The main concern is to make sure the value of the domestic and US assets are maximized and that all creditors are treated fairly," the source said.
A representative of Weil Gotshal declined to comment.
The move comes as at least three groups of Parmalat creditors are organizing to take action and maximize returns in what is likely to eventually become a massive debt-for-equity swap.
Bingham McCutchen attorney Evan Flaschen, who heads the largest creditor group, said last week the group is considering forcing the company to file for Chapter 11 in the US.
But he said the group, advised by US investment bank Houlihan Lokey Howard & Zukin, is working with Enrico Bondi, Parmalat's turnaround chief, to forge a solution.
Another creditor group, led by noted bankruptcy lawyer Bruce Zirinsky of Cadwalader, Wickersham & Taft, already filed suit two weeks ago in the Cayman Islands on behalf of six insurance companies that held defaulted Parmalat bonds, Cadwalader said.
The group won a Cayman Islands Grand Court in late December to place a subsidiary of Parmalat and two related entities into "provisional liquidation," a kind of bankruptcy proceeding of the Caribbean tax haven.
A third creditor group rep-resenting holders of debt issued by Parmalat's Canadian units is represented by New York law firm Debevoise & Plimpton, sources said.
PROFESSIONAL FEES
In a US bankruptcy, creditor committee professional fees are typically funded by the bankrupt company, or debtor.
That contrasts with the new Italian law just passed to protect Parmalat, where the debtor is not obligated to pay such fees, according to Stefano Aversa, Milan-based managing director of US restructuring firm AlixPartners.
That fact alone gives creditor representatives an incentive to force a Chapter 11 filing in the US, since professional fees in a large bankruptcy case can easily run into many millions of dollars, experts say.
"A Chapter 11 filing would provide a mechanism for Bingham and Houlihan to get paid," said one investment banker who is seeking to represent a fourth group of Parmalat creditors.
This banker said that, short of a US Chapter 11 filing, Parmalat could file an action under Section 304 of the US bankruptcy code, which would let the company protect US assets pending decisions by the Italian court.
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