Brobeck Phleger & Harrison is racing to resolve its huge debt burden after demands to reduce its liabilities from potential merger partner Morgan Lewis & Bockius
Brobeck is believed to have stemmed all profit distribution for the first three months of the year and instead has redirected income to Citibank in a move to pay down its debt.
The management has also successfully renegotiated the terms of its property leases with landlord Equity Office Properties Trust. The firm was left with excess capacity, especially in its Palo Alto and San Diego offices, after a stream of partner departures in 2002. It is understood that Equity Office has agreed to a number of concessions, but sources say this has forced Brobeck to make a multi-million dollar write-off on its balance sheet.
John Pachtner, a spokes-man at Brobeck said: "Our management team continues to be sharply focused on our debt and expense issues, which are both making significant progress towards resolution. We feel fortunate that our business partners are working with us in a positive fashion to help us resolve these issues."
An announcement on a merger between Brobeck and Morgan Lewis was believed to have been due next week. However, this has now been pushed back after Morgan Lewis insisted that Brobeck accelerated its financial reorganisation.
Sources indicated that the sums owed to Citibank run into tens of millions of dollars and, although Brobeck is a limited liability partnership, it is normal practice that a bank would require a covenant attaching personal exposure to individual partners.