Carter Hawley’s Adviser a ‘Bulldog’ Facing Biggest Test
In the often-nasty negotiating battles that rage in bankruptcy court, investment banker Jeffrey Chanin comes across as someone who can hold his ground.
He’s big, about 300 pounds on a 6-foot frame. He talks tough, with a deep, gravelly voice. And Chanin also is shrewd, a military history buff and product of working-class Brooklyn and Harvard Law School.
“He knows how to move people,” said Craig Cogut, a Century City lawyer and investment banker. Chanin, he added, “is a bulldog.”
These days Chanin is putting his iron will and resourcefulness to work for Carter Hawley Hale Stores, serving as a full-time bankruptcy adviser, financial consultant and negotiator.
It’s an unlikely partnership. Carter Hawley, parent of the Broadway-Southern California department stores, is part of the Los Angeles business establishment. For years, its button-down management relied on the patrician investment bank Morgan Stanley & Co. when it did deals on Wall Street.
Chanin, on the other hand, is an alumnus of the free-wheeling Beverly Hills office of the now-bankrupt brokerage Drexel Burnham Lambert. He has charm and a lot of friends but, by his own admission, he also can be hot-tempered and foul-mouthed.
In hiring Chanin, Carter Hawley apparently recognized that in the “rough and tumble” world of Chapter 11 bankruptcy, “street smarts account for more than style,” said Wilbur L. Ross Jr., a leading bankruptcy specialist on Wall Street.
For Chanin’s young, five-member Westside firm, the Carter Hawley job--one of California’s largest bankruptcy cases ever--represents its biggest test yet and a chance to move up in the burgeoning field of bankruptcy consulting.
It’s already reaping some of the rewards. For its work at Carter Hawley, Chanin & Co. is charging $200,000 a month, the kind of money that the biggest Wall Street investment banks command for bankruptcy advice. Chanin and one partner handle most of the job.
The firm’s current contract--it is expected to be challenged in court by creditors--also would provide a “success fee” of as much as $1 million if a reorganization plan proposed by Carter Hawley is adopted by the bankruptcy judge.
Although some of his duties remain fuzzy, Chanin is expected to play one of the lead roles in drafting a financial reorganization proposal and in trying to negotiate a settlement with angry Carter Hawley creditors.
For his part, Chanin says he has no reason to be defensive about his pay or value to the company. “When you hire Jeff Chanin, you’re paying for 25 years of experience,” he said.
Chanin “isn’t the most modest guy in the world,” said Geoffrey D. Lurie, a corporate turnaround specialist in New York. But, Lurie quickly added, Chanin has reason to be proud of his negotiating talents and bankruptcy expertise.
Chanin, 50, got started in the bankruptcy field as a lawyer. After graduating from Harvard in 1965, he packed all of his belongings into his Buick and drove to Los Angeles to join what is now the nationally prominent bankruptcy law firm of Stutman, Treister & Glatt.
Back then, bankruptcy lawyers held about the same status as ambulance-chasers. But Chanin liked Los Angeles, the partners at Stutman Treister and what he had studied of commercial law.
“I didn’t know status from a hole in the ground,” Chanin said.
Herman L. Glatt, one of the founders of Stutman Treister, said he hired Chanin largely because of how vigorously Chanin pursued the job, calling long-distance time after time to find out if a decision had been made. “I’ve never had anyone run after me so hard to get hired,” Glatt said.
Eventually, however, Chanin decided to leave the firm to go into business. He was a successful attorney and a quick study, but by some accounts, he lost patience for the details of practicing law.
In 1977, he joined one of his clients, Daylin Inc., as a senior vice president, and later he ran its Handy Dan/Angels chain of home improvement stores.
At Daylin, Chanin was one of the chief lieutenants to corporate turnaround artist Sanford C. Sigoloff, and the two for a time were close friends. When Sigoloff reassembled his management group in 1982 to reorganize Wickes Cos., Chanin was part of the crew again.
Wickes’ subsequent emergence from bankruptcy was a major coup for the Sigoloff team, but the Sigoloff-Chanin friendship was destroyed. For one thing, there apparently were differences over how much credit Chanin deserved.
Today, Chanin describes himself as “the No. 2 guy” during the overhaul at Wickes, where he became part of the three-person office of the chairman. But Sigoloff, through a spokesman, countered that “there really was no No. 2 or No. 3.” Sigoloff said he considered all of the half-dozen senior officers reporting directly to him “as equal and important.”
Some sources say privately that Chanin’s personal conduct may have been a sore point too. A profile of Sigoloff that appeared in the December, 1989, issue of Manhattan, inc. said Sigoloff was angered by Chanin’s alleged use of a corporate jet to take “his new bride for a spin.” Neither man would comment on that point.
About the split-up with Sigoloff, Chanin said obliquely: “I wish it could have worked out better for him, but it’s not my problem.” The remark was an apparent reference to the criticism in some quarters of Sigoloff’s recent work for the bankrupt retail and real estate firm L.J. Hooker Corp.
After leaving Wickes, Chanin joined Drexel Burnham Lambert as an in-house adviser on bankruptcies and other “workout” cases, and eventually he was named a managing director. Shortly after Drexel filed for bankruptcy court protection in February, 1990, Chanin & Co. was resurrected as an independent firm.
“I’m in the business of taking care of sick babies,” Chanin said. “It’s the only business I know.”
In the relatively small community of bankruptcy specialists, Chanin is known as someone who rewards his friends. Jeffrey Werbalowsky, a competitor who also once practiced bankruptcy law, said Chanin once asked him, as a favor, to do legal research on the use of shareholder committees in bankruptcy cases.
A week later, Werbalowsky said, Chanin called back to say he was arranging for Werbalowsky to represent shareholders in the bankruptcy of Smith International, an oil-drilling equipment firm. In the bankruptcy business, Werbalowsky said, “there is a list of IOUs and you-owe-me’s, and I know Jeff keeps close track of that.”
Chanin’s friends say they worry that he has a self-destructive streak, citing his weight, heavy smoking and marathon working hours. His wife is a vegetarian and an animal-rights supporter, but when Chanin goes out, he enjoys a good steak and a scotch.
He can be hard on other people too. Although he has a reputation for getting heated and raising his voice to silence opponents on the other side of a bargaining table, Chanin says he rarely lets anger get the better of him.
But Chanin said he has been enraged a few times by people he believes have gone back on their word to him or who have attacked him without justification.
In those instances, Chanin said, “I get very angry very quickly, and it’s not a pretty sight.”
To strike back, Chanin says that “maybe three or four times” in his career he has intentionally bad-mouthed people he does not want to work with.
“In a community where a person’s reputation can be made or hurt by things you say to someone else . . . you can do that person a lot of harm, and they’ll never know you did it,” Chanin said. “You can make their life a lot less fun and interesting.”
Still, Chanin said he is not one to press his advantage in bankruptcy negotiations, where emotions often run high. “If you’re a bastard all the time, you can outlive your welcome in the community.” If you have leverage over someone, and you “squeeze him until it hurts him, then the next deal around, that man or woman may have the leverage on you, and he’ll have no mercy.”
Until he was hired by Carter Hawley in January, Chanin & Co.'s biggest job was serving with the New York investment banking firm Financo Inc. as adviser to bondholders in the Ames Department Stores bankruptcy case.
In that role, Chanin is drawing high praise from the man who, in theory, would be his chief adversary--Ames Chairman Stephen L. Pistner. He described Chanin as many people do: smart and direct, with a gift for sizing up everyone’s interests in a complicated bankruptcy case.
Pistner and Chanin first met when they wound up next to each other in bankruptcy court at the beginning of the Ames case. Pistner said Chanin turned to him and said, “If you have a few minutes to sit down, I’ll tell you what the world is really like from my point of view.”
Pistner said he took Chanin up on the offer and got some of the best bankruptcy advice he has received from anyone. “This is not just a guy who practices law,” Pistner said, citing Chanin’s experience at Daylin and Wickes. “When you talk to someone who’s been there in business, it takes on a whole new meaning.”
In his days at Drexel, Chanin directed a Michael Milken-backed effort to bring a shipyard and tugboat company, Unimar International of Seattle, out of bankruptcy through an employee takeover. When he arrived at the company, there was “chaos” and intense bickering among management, creditors groups and the 13 unions involved, said Donald E. Liddle, now the Portland-based regional director of the Inland Boatmen’s Union of the Pacific.
“Nobody seemed to be listening to anybody. But when Jeff came on the scene . . . he took control of the situation,” said Liddle, who served as the company’s chief executive for a time after it emerged from bankruptcy.
“He understands working people, unlike most people in his position,” Liddle added. “He is so straightforward, honest and logical that it snaps people to reality.”
Chanin went to work for Carter Hawley about two weeks before the company sought bankruptcy court protection on Feb. 11. At first, Chanin evaluated bankruptcy financing for the company, while others at Carter Hawley pursued alternatives to a Chapter 11 filing.
Now Chanin is helping Carter Hawley executives with the mechanics of bankruptcy--among other things, he is courting suppliers and other creditors, urging them to resume shipments. Later on, when serious negotiations begin with creditors, he is likely to find his hands full.
Already, Carter Hawley’s unsecured creditors committee is grumbling about both the amount of Chanin & Co.'s compensation and the fact the firm is paid a flat monthly fee, rather than on an hourly basis. Sources close to the committee say the panel probably will go to court to push for an hourly fee.
The committee has also asked its accountants to review the need for all of the lawyers and outside public relations specialists retained by Carter Hawley, whose pay could drain the company’s assets.
More important, however, many analysts expect creditors to push for a breakup of Carter Hawley, which owns the Bay Area’s Emporium chain, Weinstocks in Sacramento and Phoenix-based Broadway-Southwest, along with Broadway-Southern California.
Chanin contends that Carter Hawley, the West’s only big department store company, can achieve its goal of emerging from bankruptcy intact if it finds a way “to run the business better.”
“If they can, we’ll have a successful reorganization; if they can’t, we’re going to have problems,” Chanin said.
In another respect, Chanin portrayed circumstances at Carter Hawley somewhat differently than the company’s management has.
Chairman Philip M. Hawley has said that the company’s Chapter 11 filing was the “best,” but not the only, option for restructuring. But Chanin and others familiar with the company said they believe that Carter Hawley had little choice after it was hit by a sudden credit squeeze in January.
They said it became apparent that Carter Hawley’s main lender, Bank of America, balked at renewing the company’s credit line. Meanwhile, many suppliers--worried about the slowdown in retailing and the company’s debt burden--tightened their credit terms.
Chanin pointed out that bankruptcy is a difficult, unpredictable process--not something a company embarks on if it has an easier way out. “Chapter 11 is a tool you use when you have no other realistic alternative,” he said.
An important part of working with a company in bankruptcy, Chanin said, is figuring out what motivates its management. Often, he said, that motivation is greed, ego or fear.
But in Carter Hawley’s case, Chain said, executives want to recapture their sense of “respectability” in the community. “They need to regain a certain amount of self-esteem by doing a good job in this case,” Chanin said. “It’s important for them to redeem themselves. They feel badly about the fact that they had to do this.”
Chanin said he much prefers his role at Carter Hawley, representing a debtor company, to working for creditors. He said the management side is more proactive and creative; Chanin particularly likes devising the complicated financial reorganizations.
“All I can do for a creditor is get their money back,” he said. “A debtor I can save, or I can help save.”
Much of the work in representing debtors usually boils down to persuading creditors, one way or another, to accept a deal giving them less money than they are owed. Chanin said he sees no ethical dilemma in that, largely because he focuses on getting all parties involved a fair deal.
“I’ve gone to sleep at night very well for 25 years,” he said. “Once in a while,” he added with a laugh, “I think I’ve even done some good.”