SWIMMING WITH THE BIG BOYS

DON’T LET THAT GOOD OL’ BOY SMILE FOOL YOU. AFTER DEALING WITH BUNKER HUNT’S DEBACLE, CARTER PATE IS ONE OF DALLAS’ TOP BANKRUPTCY SHARKS.

HANGING ON A coat rack in Carter Pate’s spartan Carrollton office is one of those novelty baseball hats with a shark poised above the brim. A stubbed-out cigarette butt has been wedged into the shark’s mouth, giving it a wily look. The shark is smiling.

Pate also is smiling. A lawyer for Trammell Crow is on the phone and wants Pate’s advice on what to do with a failing company that the real estate magnate heavily invested in several years ago. Pate paces when he talks, peppering his conversation with enough “sirs” and “y’alls’” to be respectful and folksy, all the while unconsciously fiddling with the shark’s fin.

The lawyer thinks bankruptcy might be the best way to salvage Crow’s investment, a tactic that Pate often suggests to clients. But in this case, Pate, who specializes in turning around foundering companies, thinks they should explore other options, including moving in a crisis management team to prop up the troubled firm. A breakfast meeting is scheduled for the following day. giving Pate a few hours to study the alternatives.

“Bankruptcy is such a final step, you really can’t turn back once you do it,” Pate says after the phone call. “It’s like putting a bullet in the head-a mercy killing. But sometimes you can pull a company back before it goes over the cliff, and make some money in the process.”

That’s what Pate is about, making money. Making it for failing companies, hungry creditors and himself. When the corporate ship is sinking, and the creditors are circling in the red ink, Pate is thinking about profits, not just survival. But don’t get the impression that Pate is some grand corporate lifeguard waiting to rescue drowning companies. You see. Pate usually works for the sharks, and his job is to see that the creditors continue to be led. Which makes his choice of headgear at some business meetings both ironic and irreverent.

“Sometimes I put this hat on just to break the ice,” he says. “These companies aren’t sure if they can pay their employees when they bring me in. It is an incredibly tense situation, So I stand up in front of the vice presidents with this stupid hat on and tell them that they may not like me or what I’m going to tell them to do, but we’re going to make money. That’s one thing I’ll guarantee.”



IN THE ’SOS, THE STARS OF THE BUSIness world were the deal makers, the bankers and investors who put companies together through leveraged buyouts financed largely with junk bonds. Those were the days of limousine rides and Cristal Champagne, paid for with seven-figure fees to the negotiators and arbitrageurs.

The ’90s belong to the fixers, consultants like Pate who are called in to rescue companies choking on the excess debt foisted on them by the ’80s deal makers. Called workout specialists, these corporate strategists get their hands dirty by tearing apart deals, rather than by making them, They slash and burn, Sometimes they fire vice presidents, orner times floor sweepers, always with an eye on the bottom line. They are the dreaded efficiency experts. but with a new twist. These guys don’t just throw a report on the desk and leave; they stay on to run the company, sometimes pushing out the boss in the process.

The job is stressful and exhilarating, one that rewards people skills as much as financial wizardry. Columbia University business professor John O. Whitney, himself a turnaround expert says the best and brightest business school students are flocking to this “corporate trench warfare.”

“People ask me what it’s like to manage a turnaround, and I tell them it’s like setting your hair on fire and putting it out with a hammer,” Whitney says. “It can be really tough. Everyone is mad at you, from the banks to the suppliers to the employees. No one has been paid, and they want your hide.”

Every major bank in the country began operating a workout department after the 1987 stock market crash. The big players in (he field followed the banks’ lead and clustered in the financial centers of New York, Los Angeles and Chicago. In recent years, Dallas has been added to the list of hot cities for workout specialists. Yes, Dallas’ penchant for savings and loan fraud and high-risk investment has turned into a growth industry.

More than a million bankruptcy cases nationwide were expected to be filed in 1992, the eighth year in a row that the number has increased. The Northern District of Texas, the federal jurisdiction that includes Dallas and Fort Worth, was expecting at least 20,000 bankruptcy cases in 1992. Bad times for most businesses have been good for others.

“This business didn’t exist in Dallas live years ago.” says Michael Markman, director of litigation for the Dallas office of Coopers & Lybrand, an accounting firm that specializes in turnarounds and bankruptcy reorganizations. “The turnaround business has grown dramatically. Look at the financial institutions. The airlines. Real estate developers. All of these companies need the expertise to get restarted. And more and more that expertise is here in Dallas because we have been dealing with this longer than the rest of the country.”

Pate’s role in this new Dallas industry is clear. “He is a major player now,” Mark-man says of his sometimes competitor. “He has become big very quickly because he does good work. In the past this business was dominated by financial people who were numbers oriented. But the problems in companies are almost always people-related issues. Carter has a good way of getting people motivated when it looks like everything is falling apart.”



WHEN ASSESSING THE 38-YEAR-old Pate’s meteoric rise you need look no further than the decaying corporate carcass of bankrupt ex-billionaire Nelson Bunker Hunt. Pate’s entry into Dallas’ corporate society began just three years ago when he was named the trustee to liquidate what was left of Hunt’s estate,

Before he was tapped to head the world’s largest personal bankruptcy in history (Hunt was about $1.2 billion in debt). Pate was doing turnaround and bankruptcy work for The Finley Group in his native North Carolina. He was appointed to the job by Hunt’s lawyers and creditors, who had agreed that Pate’s reputation fur impartiality and hard work would be essential in such a controversial and complex case.

Pate originally had planned to commute from his North Carolina home during his stint as Hunt’s bankruptcy trustee. It was a job he knew could last as long as six years, the maximum time set by the court for settlement of the debts. But early on he saw that a permanent move to Texas would brighten his future. “I only knew three people when I moved here,” he says. “But I could tell almost immediately that this was the place for me. One of the first things I noticed was that there was no real stigma attached to bankruptcy. People here weren’t afraid to ask for help.”

In 1990. Pate decided to leave The Finley Group to form his own firm in Dallas. Insiders say Tim Finley was incensed that his protégé left before completing the Hunt case. Neither Pate nor Finley would discuss the breakup (or the rumored financial settlement) in any detail, though Pate does admit it was somewhat prickly on both sides. ’Tim [Finley] had the attitude (hat he had helped me reach the big time. and I can understand that. But I had to do what was best for me and my family,” he says.

Last year Pate teamed with Dallas business consultants J. Otis Winters and Jack R. Stone Jr. to form Pate, Winters & Stone, Inc. The Dallas company has 140 consulting contracts with a variety of Firms and also handles 25 bankruptcies. Billings in 1992 are expected to top $2.5 million. Pate routinely deals with names like Ross Perot. Ray Hunt and Trammell Crow. Even Victor Kiam, the electric razor king who liked the Remington company so much he bought it. is working with Pate to sell it.

He’s achieved his status partly by being a right place-right time guy who used the Hunt case to get a leg up on the competition. But more important is that he’s brought the swagger of an entrepreneur to a business that traditionally shuns people who desire to be more than behind-the-scenes fixers. In many ways. Pate is part of a new breed of Dallas business leader.

When you look at Pate, you immediately see the two sides to his character. At 6-foot-5, he can dominate a room; in fact, he often likes to stand and talk even if everyone else is sitting. But he also has a choir boy face and a disarming good ol’ boy style.

Can he play the tough guy? Sure. He once reportedly wailed until Friday afternoon to begin a round of negotiations because he knew his adversary wanted to get away for the weekend. But when you ask Pate’s business associates and friends why he has been successful, you get a different message. They talk of his intelligence and his ability to get the right read on volatile situations. They also talk of his strong personality, how he motivates his people to do difficult jobs. Even his denigrators concede he plays every angle without peer.

Which makes Pate difficult to read at times. Is the friendly, aw-shucks persona real or pragmatic? It’s hard to tell. But if you listen to him on the phone for an hour or so, you realize he’s very calculating, very smart and a man of many facets.

Pate, of course, insists he is uncomplicated. He says his way of operating is simply “networking.” Likewise, he insists his success is more substance than style. “Effort Should Never Be Confused with Results” is his company motto, He’s a man devoted to ends rather than means.

“If you work for me, I don’t want to hear how you tried this and that, how you made all these phone calls, but it still didn’t work out,” he says with a stem loo “In the end, how hard you tried doesn matter. When I hire people, I ask they what they have done for their company, they tell me they’ve supervised a 12 per-cent sales growth in their department, I’m not interested. I want someone who cue deals with suppliers so they could make balloon payment. I want people who have had to do things, not just manage things.”

In many ways, success in the corporate turnaround world depends on flipping the traditional views of business upside down You invest in failing companies rather than successful ones. You circle like a vulture rather than soar like an eagle. And you don’t have time for long-winded meeting and five-year growth plans.

“I just can’t sit through two-hour busi ness meetings anymore.” Pate says. “I just keep wanting to say to these people, ’Get to the point, already.’ When I first make contact with a company, the financial people start telling me about their profit and loss margins and debt ratio. But all than stuff doesn’t matter. It’s the same whatever business you’re in. For whatever reason the company doesn’t have any cash and everything has ground to a halt.

“Sometimes 1 feel like I have to grab these guys and get them to answer some simple questions. Are we being sued of not? Can we make payroll on Friday?”



IN JUNE OF 1991, THE 150 EMPLOYEES of Tidel Engineering in Carrollton hadn’t been paid in about six weeks. Still, most of them were coming to work every day, hoping that something could be done to make the company profitable again and save their jobs.

“I remember leaving work on a Friday and we had no assurances that the doors would be open on the following Monday,” says Pat Martin. Tidel’s senior vice president of sales and marketing for security products. “When I came to work Monday, I saw Carter Pate and two guys from the Saudi International Bank meeting in the office. There was a great deal of apprehension because most of us thought we were going to be liquidated.”

Tidel’s situation was a textbook example of the debt overload of the ’80s. Once a thriving division of Southland Corporation, Tidel manufactured the time-delay safes used in convenience stores. Tidel also sold environmental monitoring equipment used to detect leaks in underground gasoline storage tanks. While fending off a corporate takeover bid by a Japanese company in the mid-’80s. Southland raised capital by selling Tidel to Dallas businessman David H. Monnich. Insiders say Monnich paid too much for Tidel, but with Southland as its primary customer, Tidel thrived, racking up more than $20 million in annual sales in its first few years.

But things eventually ground to a halt. The convenience store boom dried up, and Southland itself filed for bankruptcy. Mon-nich’s debt service was very high, and when the company rang up only $650,000 in sales for the first five months of 1991, it was evident the end was near. Tidel collapsed. (Monnich declined to be interviewed for this story.)

The Saudi International Bank, Mon-nich’s primary lender, hired Pate to assess the situation. The bank had few options, If it allowed Tidel to file for bankruptcy, the case could drag on for years and the bank would get pennies on me dollar. If the bank seized the company and sold the assets piecemeal, the same result.

Pate pushed for another option: foreclosure on Monnich’s company. According to current and former employees of Tidel, the deal allowed for a clean break between Monnich and the Saudi bank; the Dallas businessman would give up Tidel uncontested as long as the bank agreed to waive all claims against him. The plan was to restart Tidel, selling it when it became profitable, with Pate overseeing the operation as Tidel’s new president and CEO.

’’I could see that this company had a backlog of orders, so I knew the market was still there,” Pate says. ’There was just no cash to move the orders through. Once we got the orders moving, we could translate that into cash and push on ahead.”

Pate convinced the Saudis to extend some credit to pay the employees. He then went through every department, cutting the work force from 152 to 55 during the next year. The downsized Tidel Engineering started turning a profit within six weeks, and now averages $1.6 million in sales each month. And the future looks bright for the manufacturing firm; Tidel has developed an inexpensive automated teller machine that analysts expect to revolutionize cash transactions in retail businesses.

In October of 1992, just 16 months after foreclosure, the Saudi International Bank sold Tidel to American Medical Technologies of Houston for $4.5 million. The new owners plan to keep Pate as CEO and have offered the employees profit-sharing plans. Pate, the ultimate juggler, now spends two days a week at his Tidel office and three days in Carrollton.

So who wins and who loses in a turnaround like Tidel? Though he lost his company. Monnich still was able to cut and run. The Saudi International Bank recouped its investment Pate is Tidel’s CEO. and has been retained by the Saudi bank to advise on all of their failing loans in this country. Tidel’s remaining employees, who faced uncertain futures a year ago, now have stock options. The big losers were the 100 employees who got dumped from their jobs, a consequence Pate does not ignore.

“The days when you turn a company around by just slashing the number of employees are over,” Pate says. “It’s never that simple. But when you look at the accounting department and see they have five people there when the industry norm says there should be two, then you have to get rid of a few people. It’s never very pleasant, but I have to look at the big picture.”

Pate has teamed that the unpleasantness of job cutting works better with a certain amount of detachment. When asked if he gets any thrill from having ultimate control over a company and its employees, he shrugs his shoulders. “Do you get a thrill when you see your byline published?” he asks. “This is what I do. After you do something like this for 10 years, it becomes your job. What you should look at is the employees who still work here. Ask them how things were before we took over and how things are now.”

Nevertheless, he tried to be sensitive about the filings at Tidel. “He just didn’t publish a list of names on the bulletin board.” say Martin, who remains vice president of sales. ’’Whether someone worked on the line or up in the office, Carter took the time to talk to everyone individually. Most everyone I talked to felt he handled things with a lot of” decency.

“I know this sounds obvious, but when we got paid five days after Carter got here, it was a tremendous confidence builder,” Martin continues. ’”He earned people’s trust by meeting with each employee and getting their input in how to turn this thing around. It was like lighting a hundred tires at one time.”



IF PATE TRIES TO LIGHT FIRES IN TURN-ing businesses around, he spends a lot of time putting them out when dealing with Bunker Hunt’s bankruptcy case. This is another hat that Pate wears, that of bankruptcy trustee, out to get as much money as he can for the creditors. The Grand Liquidator.

In three years. Pate has sold 2.6 million acres of land. Dozens of oil subsidiaries. Millions of head of caille. Ancien! Roman coins. Remington bronzes. Even Bunker’s nearly new tea kettle, which sold at auction for $150 even though it still had a $19.95 K mart sticker on it. In all, $80 million worth of assets have been sold to offset Hunt’s $1.2 billion debt. Pate is paid well for his services; his firm could earn as much as $1.3 million from the estate according to bankruptcy records.

The case has brought Pate the kind of notoriety public relations people dream of. He has been interviewed on CNN. Quoted in The Wall Street Journal and The New York Times. He’s a regular on the business pages of The Dallas Morning News and Fort Worth Star-Telegram. And in a business usually reserved for bland accountants who toil in anonymity. Pate has sought the spotlight

This penchant for the limelight, combined with his hard-charging balls-to-the-wall management style, has put off some of Dallas’ establishment, particularly Bunker and William Herbert Hunt’s children and grandchildren, against whom Pate has filed racketeering charges.

Pate and Steve Turoff, Herbert Hunt’s bankruptcy trustee, are suing the brothers’ children and grandchildren for $100 million, claiming that amount was illegally transferred to the heirs in gifts and trusts just months before the brothers filed their bankruptcy cases. Pate and Turoff are attempting to use provisions in the Racketeering Influenced and Corrupt Organizations Act to get at me money.

According to the RICO statutes, anyone proving he or she was harmed by a pattern of illegal behavior can be rewarded with triple damages. In this case, the trustees must prove that the Hunt brothers moved the funds while contemplating their bankruptcy action, which is a violation of federal bankruptcy law.

Fifty or so members of the Hunt family are named in the suit. None of their attorneys will discuss the legal action, which is expected to be settled by mid-year or later. Pate also is tight-lipped on the RICO filings, saying only that “we take these charges very seriously and tried every way possible to settle this without court actions. I have a fiduciary responsibility to the creditors, who are getting only 8 cents on the dollar.”

But some observers say the RICO action was needless grandstanding by Pate and Turoff. “They aee just using this for publicity purposes,” said William Herbert Hunt’s lawyer Steve McCartin. “There is a lot of shock value in calling the Hunts’ grandchildren racketeers. They just used this to get in the paper.”

Was Pate grandstanding? Maybe a little. When the story of the RICO filings broke, it first appeared curiously enough as a small item in a Wall Street Journal legal affairs column. The reaction of The Dallas Morning News and Dallas Times-Herald to being scooped by a national newspaper was predictable: Both papers ran front page stories on the RICO filings the following day. Several days later The Morning News ran a feature on Pate and Turoff.

Pate’s other controversy involves the sale of Bunker Hunt’s 2,000-acre Circle T Ranch in Westlake. Town officials claim Pate will ruin their pastoral splendor by selling to developers who want to blanket the property with shopping centers, middle-class homes and apartments. Pate says he just wants the best offer for the prime land, located on Texas Highway 114 between D/FW and Alliance airports. When Westlake re-zoned the ranch to limit development, Pate sued the town, claiming the action dropped the value and scuttled several lucrative deals. In his suit. Pate claims he has had offers as high as $35 million for the ranch, but the town’s zoning decision has killed those deals and lowered the value of the property to about $ 18 million.

“He’s pretty much talked down to the [town] council from the beginning.” says Westlake Planning and Zoning Chairman Scott Bradley. “His approach with us has been my way or no way. Those attributes might serve him well in his other business dealings. But I don’t think it serves him well in dealing with Westlake.”

Pate responds, quite evenly, that he won’t “sit back and let Westlake turn the Circle T Ranch into a pig farm just because they want 2,000 acres of green space in the middle of town.” He acknowledges his tough stand on these high-profile disputes may have alienated some of Dallas’ old business guard, who prefer to air their disagreements in private, rather than in the courtrooms and in the newspapers.

“People don’t hire someone who runs from a fire fight,” he continues. “Just because the Hunt family or the Westlake council thinks they can do these things doesn’t make them right. I may not get into the Petroleum Club, but there is no one who can say that I just went through the motions and shortchanged the people I am working for.”



SO MAYBE PATE WON’T GET INTO the Petroleum Club. Lunch with Markman in Southland Center’s Chaparral Club will have to do for now. Amid the monogrammed starched cuffs and leather suspenders. Pate and Markman share gossip and information about bleeding and battered companies. There is blood in the water. Continental Airlines. Craig Hall. Popeye’s Chicken.

“Maybe you can turn around Popeye’s by coming up with a new recipe,” Markman jokes to Pate. “Maybe we could test market it up here,” Pate replies.

Looking around the room filled with gray suits, you realize that some of these very successful business people could run their corporate ships aground in the shallow financial waters of the ’90s. To get back to safe harbor may take special help.

“I remember getting called in to advise a machine hauling company,” Pate says as he munches shrimp from the seafood buffet. “On Thursday morning, the financial officer just casually mentions to me that they don’t think they could make Friday’s payroll. I couldn’t believe it. I got their list of clients and started calling every one of them. We offered them discounts of 10 and 20 percent if they paid cash and wired us the money immediately. We cut the payroll checks on Friday and deposited the cash from the discount orders on Monday.”

“That bought us enough time that we could go to the banks and work something out.” Pate says. “You see, banks and lawyers can’t work things out in a few days. Most of them can’t work things out in a few weeks. When 1 get called in, things have gotten out of hand and have to be done now, Otherwise, they’re out of business.”

What’s next for Pate? He’s trying to diversify his company in case the economy takes a turn for the better. And he plans to move away from getting paid as a consultant, on an hourly fee basis, and into more equity deals, where he owns a part of the companies he turns around. To this end, he and his partners are salting away funds to buy undervalued companies with an eye toward turnaround and eventual sale.

Personally, he is enjoying the trappings of success, though in the scaled-down ’90s style. His salary is estimated to be in the mid-six-figure range, but he is uncomfortable discussing it. He is almost apologetic when he talks about his new 3,000-square-foot Piano house or his big, black Mercedes (he is quick to mention he got a deal from a bankrupt car dealer in Arkansas). He also emphasizes that he stays away from the workaholic lifestyle by keeping weekends and most evenings free for his wife, Angie. and their three young sons.

Does Pate envision ever needing someone like himself, a friendly shark to pull him through rough waters if the turnaround business goes sour? He says he’s constantly wary of becoming too big, and needs to look no further than Nelson Bunker Hunt to see the consequences of business failure. Hunt, after all, was a big fish who ended up as shark bait.

For Pate, the lessons are clear. Never get so big and bloated that you can”t swim to safety. Especially when the sharks are on your tail.

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