Down to Their Last Billion?

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In a cramped and crowded Dallas courtroom last week, Federal District Judge Harold Barefoot Sanders Jr. listened patiently as volleys of charges and countercharges flew between lawyers for the Placid Oil Co. and its creditor banks. On the surface, the squabble over corporate bankruptcy seemed mundane. In fact, the rancorous debate was anything but routine. For Placid is not just any oil company. It is the crown jewel of the financial empire built by the legendary Texan H.L. Hunt and ruled today by his beleaguered sons and heirs. Behind the legal posturing was nothing less than a desperate struggle to save the remnants of one of America's most fabled fortunes.

In what could be a serious blow to the Hunt clan, the craggy-faced Barefoot Sanders ruled that Placid must shift its petition for bankruptcy relief from a New Orleans court to Dallas. The banks wanted the case to be heard in Dallas, in Sanders' jurisdiction, but the Hunts hoped to avoid the judge. Sanders, a liberal Democrat who ran unsuccessfully for the U.S. Senate, has never been friendly with the conservative Republican Hunts. The Hunts may fear that having Sanders on the case could hurt their chances of holding on to what is left of their dwindling assets, which have been devastated by the deep slump in the oil market.

In 1980 the three Hunt brothers who are the principal heirs of Papa H.L. -- Nelson Bunker, now 60, William Herbert, 57, and Lamar, 54 -- estimated their combined net worth to be between $5 billion and $6 billion. Last August they admitted that their fortune had fallen to about $2 billion. Since then, oil prices have plunged more than 50%, and it is now difficult to say what all those idle Hunt rigs and energy reserves are worth. The brothers still have many millions stashed in personal holdings -- from bank accounts to racehorses and rare coins -- but they may no longer be able to call themselves billionaires. Says Harry Hurt III, author of the Hunt biography Texas Rich: "This has got to be one of the monumental financial reversals in American business history. It's the Texas equivalent of the Rockefellers putting one of their companies into bankruptcy."

When Placid Oil filed for Chapter 11 protection two weeks ago, the company listed debts of $979.3 million against assets of $2.05 billion. The move was a last-resort effort to prevent the company's 23 lenders, including Houston's Texas Commerce Bank and RepublicBank of Dallas, from foreclosing on such Hunt assets as oil and gas leases and real estate. Thus the banks and the Hunts are now battling for control of the family's remaining wealth.

In ruling that the Hunts must move their bankruptcy case to Dallas, Judge Sanders said that since the majority of the Hunt creditors are based in Texas, their claims should be heard in that state. Jerry Jones, a lawyer for the banks, had earlier argued that "we do not want to be charging around the United States to collect our debts." Some observers speculate that the Hunts may have wanted their case to be heard in a New Orleans court because they believed they would find a more sympathetic judge there. The Hunts, however, . deny that charge. Their lawyers maintain that Placid filed for bankruptcy in Louisiana because most of the company's assets were located there.

The Hunts will appeal Sanders' ruling, and they immediately demanded that the judge be disqualified from hearing their case. Their court petition argued that "one cannot be blind to the background of long-standing philosophical and political differences between the honorable Barefoot Sanders and . . . members of the Hunt family." But Sanders refused to remove himself from the case.

The Hunts' current crisis began last March when Placid, an oil exploration and development firm, defaulted on some $1.1 billion in bank loans. The Hunts and their lenders had not been able to agree on a plan to renegotiate the debt. The Hunts wanted Placid to hold off on making any bank payments so that the company could go ahead with aggressive off-shore drilling projects. The brothers were especially keen to develop a tract called Green Canyon, off the coast of Louisiana in the Gulf of Mexico. But the bankers insisted that Placid should accelerate, not halt, its debt payments.

Then the Hunts took the offensive. The brothers filed two suits against their bankers, charging them with "conspiring to dismantle and ultimately destroy" Hunt interests. They asked for some $14 billion in damages. The maneuver made sense. Indeed, suing one's lenders is becoming an increasingly common negotiating tactic among debtors. It often forces the creditors to settle at terms more favorable to the debtors.

The Hunts' downfall was in the making long before the oil slump. Their troubles go back to 1979, when Bunker and Herbert began hoarding silver. They ultimately amassed some 59 million oz. of the precious metal, which seemed a shrewd move as the price of silver climbed to a high of $50.35 per oz. in January 1980. It was a gamble characteristic of the sons of H.L. Hunt, who once made a living as a cardplayer. But this time the Hunts' luck ran out. When the silver price plummeted to $10.20 per oz. two months later, the Hunts were suddenly left with a debt of $1.5 billion. Shrugged Bunker Hunt: "A billion dollars isn't what it used to be."

To pay off their silver-related debt, the Hunts borrowed $1.1 billion. Eventually they owed money to banks ranging from Texas institutions to New York's Citibank, the Bank of Nova Scotia and the Bank of Scotland. To secure the loans, the Hunts pledged as collateral much of their wealth, including assets from Placid Oil, their main holding company.

Still, the Hunts could have overcome the silver debacle if fundamental economic changes had not battered the foundations of all their wealth. Unlike the Bass brothers and several other rich Texas families who invested in a wide variety of industries, the Hunts concentrated their holdings in oil, sugar, silver, real estate and cattle. They, like their father, had absolute faith in the value of tangible assets. In the 1970s the Hunt philosophy was golden: as inflation accelerated, the worth of the brothers' investments surged. But when inflation subsided and oil prices fell during the 1980s, the value of almost everything the Hunts owned began to sink. For example, they filed for bankruptcy protection for their sugar-refining company, Great Western Sugar, in 1985, and their enormous investments in oil leases in the Arctic proved disastrous. Says Bernard Weinstein, director of the Center for Enterprising at Southern Methodist University in Dallas: "The 1970s saw rising commodity prices. In the 1980s the gods are on the other side, and the Hunts are victims like everyone else."

So far, the life-styles of the Hunt brothers seem little affected by their corporate financial woes. The bulky, 6 ft. 2 in. Bunker still owns one of the world's largest stables of thoroughbred racehorses. Herbert maintains an exceptional collection of antique cars. Lamar, a keen sports investor, remains the owner of the Kansas City Chiefs football team. But if the Hunts' creditors cannot draw enough cash out of Placid Oil, they may try to dip into the brothers' personal pockets.

The Hunts are confident their empire can make a comeback. They know, however, that if forced to liquidate their assets at today's depressed prices, the result would be abysmal. Placid Oil may be worth more than $1.9 billion, says John McMullen, a Cambridge, Mass.-based energy consultant hired by the Hunts to assess their holdings. But its assets must be developed to realize that worth. If the company were liquidated now, McMullen estimates, it would fetch just $180 million.

The Hunts are counting on a turnaround in oil prices to bail them out. They estimate that crude will be selling for $30 per bbl. by 1989. While the price has risen 36%, to more than $16, during the past two months, that is still a long way from the Hunts' optimistic projection. Edward Vetter, a Dallas energy consultant, speculates that a return to $30-per-bbl. oil might not happen for ten years.

Meanwhile, the Hunts remain vulnerable to further shocks. Because their holdings are so closely linked, the family could be forced into a wave of bankruptcy filings if creditors moved to claim assets not protected by the courts. Chapter 11 could be the only way to protect what is left of their fortune. Hunt Attorney Edwin McCabe admits that future bankruptcy filings are possible.

No one expects the battle between the Hunts and their bankers to be resolved easily. Houston Lawyer John Bennett suspects that in light of the suits and countersuits between the Hunts and their lenders, the two sides "may have come close to poisoning their relationship." Neil Orleans, a partner in the Dallas law firm Wise & Stuhl, says the case could turn into "the world's biggest mess."

Whatever the ultimate outcome, Bunker, Herbert and Lamar Hunt cannot escape the striking symbolism of their company's bankruptcy filing. Here was the clan that embodied all that was bold, brash and rich about the American oil patch. Yet today, like many a lone Texas wildcatter, the Hunt brothers are hurting -- and not even the hugest gusher can provide a cure.