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HawTel paying $2,500 an hour to consultants


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POSTED: Wednesday, October 21, 2009

The Office of the U.S. Trustee is challenging the average $2,527.38 hourly rate being charged by a consultant for Hawaiian Telcom's bankruptcy case.

New York firm Lazard Freres & Co. LLC, HawTel's financial adviser, is asking for an interim fee of $600,000 for work done from April 1 through June 30 this year.

Acting U.S. Trustee Tiffany Carroll and Assistant U.S. Trustee Curtis Ching said in a court filing earlier this month that $600,000 for a total of 237.4 hours of work—amounting to an average of $2,527.38 an hour—is not reasonable.

The U.S. Trustee said the hourly rate of $2,527 “;far exceeds the billing rate of any other professional”; employed by HawTel or the committee of unsecured creditors.

“;Simply put, the amount of time Lazard is devoting to this case is not commensurate with its interim compensation,”; said the U.S. Trustee.

Lazard could not be reached for comment from New York by press time yesterday.

HawTel's letter agreement with Lazard outlined a monthly fee of $200,000 which would offset a $4 million restructuring fee when the case was done.

HawTel filed for Chapter 11 bankruptcy in December, and the court approved Lazard as the company's financial adviser in February.

HawTel spokesman Brian Tanner said since Lazard was contracted on a monthly basis, calculating hourly fees—as is typical with attorneys—would not be a fair comparison.

He said it was standard practice for a company undergoing bankruptcy reorganization to hire a financial adviser, that there was a competitive process and that Lazard's fees were within a normal range.

In papers filed with the court, Lazard said it was seeking—in addition to the $600,000 for professional services—another $47,436.51 in expense reimbursements (including legal fees and travel) plus $28,272 in state excise taxes.

The U.S. Trustee says of the total hours of work performed, almost half of the time was billed by an associate or analyst, employees who are typically less experienced and lower paid, which makes the $2,527 hourly rate “;appear even more unreasonable. “; Also at question are 28.8 hours billed for “;internal update calls”; and 17 hours for travel.

Since HawTel's current reorganization plan is proceeding without new buyers or investors, which was part of the reason Lazard was hired, the U.S. Trustee says the financial adviser's role as an investment banker is diminished.

The U.S. Trustee also wants to review Lazard's invoices and time sheets for more than $40,000 billed by Lazard's attorneys.