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AHM spends $50G for public relations

BY ELLEN YAN | ellen.yan@newsday.com

August 31, 2007

Creditors are angry over a request by American Home Mortgage Holdings to keep a recently hired public relations firm on its payroll, accusing the bankrupt Melville lender of trying to put its "best face forward ... concerning the failure of the company."

American Home Mortgage, which made the request Aug. 17 to the U.S. Bankruptcy Court in Delaware, said it needs the Manhattan-based Kekst and Co. as a "crisis communications adviser" and disclosed that it paid the firm a nonrefundable $50,000 a few days before filing for bankruptcy Aug. 6.

The cooperation of varied groups, from vendors to potential investors, is necessary to getting through Chapter 11, the lender said. "Kekst will be able to assist the debtors in protecting, retaining and developing the goodwill and confidence of these constituencies and stakeholders," its request stated.

Hourly billing rates listed ranged from $200 for associates to $875 for senior partners -- in addition to meals, air fare, printing and other costs.

"What we're trying to do is preserve assets to pay back creditors as much as we can, and the debtor is hiring a PR firm where people are getting paid an excess of $800 an hour, and for what purpose?" said Mark Indelicato, a Manhattan-based attorney for the creditors' committee. "The company has no reputation to protect."

The creditors' committee Thursday filed an objection that called the expense "simply a waste" and urged the judge to deny the expense. It rebuked American Home for not being more thrifty with spending while liquidating assets to pay off debts. Now that the company is in bankruptcy, it needs approval from a bankruptcy court judge for all spending, services and the fate of assets, and the prepaid fee is akin to an asset.

"The committee is concerned that the debtors have lost sight of this goal," according to the objection. "The debtors can no longer operate as usual."

Such a request has pushed the committee, charged with making sure expenses and other requests are fair, to closely examine other American Home requests for professional services, from liquidation specialists to vendors.

Kekst has done some work already, and American Home said future charges would be applied against the $50,000.

In its request, American Home said Kekst would help answer media questions, monitor coverage, prepare information for vendors, employees and others affected by the bankruptcy, and attend court hearings.

But Thursday, Joseph Kuo, a Kekst spokesman for American Home, declined to say what had happened in the day's bankruptcy hearings and also declined to comment on the brouhaha over its role.

One creditor's attorney even noted that other lenders in high-profile collapses have yet to hire a crisis public relations company, including a lender with hearings in the same Delaware bankruptcy courthouse.

"New Century doesn't have a firm," said Dennis Drebsky, a Manhattan attorney representing creditor Deutsche Bank. "I don't know why it was felt necessary to have a PR firm. The story is out in the courts every other day. What hasn't come out in court that a PR firm is going to tell us?"

One question is whether creditors can wrest the nonrefundable $50,000 given to Kekst if the judge sees no role for the PR firm.

"We certainly will fight for it," Indelicato said.

The objections come as American Home prepares for its first big auction Sept. 11 at the Wilmington, Del., offices of its bankruptcy attorneys. Up for sale are about 5,700 mortgage loans with a total unpaid principal balance of $1.62 billion.

But many creditors and investors have challenged American Home's right to sell off what they see as their property, including loans and servicing agreements that were called in before bankruptcy was filed.

On Thursday, Bear Stearns and a unit of Credit Agricole, one of the largest banks in the world, had such hearings before bankruptcy court Judge Kevin Carey, but no decisions were made.