welcome back Big Law Business Column. I'm Roy Strom. Today we'll look at how leveraged finance lawyers work on cleaning up old deals rather than drafting new deals. sign up Get this column in your inbox on Thursday mornings.
Wall Street's leveraged acquisition machine has forced major law firms to print deal documents for more than a decade. But nearly two years after the wheels stopped meshing, lawyers who help banks, companies and creditors deal with so-called hung debts remain largely in liquidation mode.
This work is usually not as lucrative as it is when the merger machine is healthy and law firms are racking up stats in the league tables. But this cleanup is a high-stakes, complex undertaking, costing customers billions of dollars.
Some companies have recognized an opportunity to provide the three services needed to solve a problem. Lawyers specializing in leveraged finance bring in colleagues in restructuring and litigation practices to provide advice when transactions or borrowers run into trouble.
At Mayer Brown, long known for its dealings with big banks, the heads of the firm's leveraged finance, restructuring and litigation groups have joined forces to pitch themselves as a kind of cleaner.
“This collection of lawyers makes tens of millions of dollars a year,” said Rich Speer, head of the firm's global litigation and dispute resolution group. “We market ourselves in a very specific niche, and we want to represent our premium bank clients in the most complex matters that involve all three of our areas of expertise and depth.”
During the boom years, leveraged finance work was an important source of revenue for many large law firms that worked with banks, private equity firms, and corporations to arrange financing for large corporate acquisitions.
Banks typically sell these loans quickly and prepare for the next transaction. But starting in 2022, interest rates rose the sharpest in decades, and many of the loans – which had been packaged and priced months in advance – didn't have enough payments to attract buyers. .
This so-called hanging debt has grown to an albatross of about $80 billion, Bloomberg reported last week. The most high-profile of these deals was Elon Musk's then-controversial acquisition of Twitter Inc., which, according to a Bloomberg report, acquired around $18 billion of the bank's current holdings. The acquisition is said to be worth $12.5 billion.
Last year, banks were largely forced to sit on the sidelines, unable to remove transactions from their balance sheets. Private credit providers have stepped in to fill some of the void, and many lawyers are pondering who their future clients will be.
Meredith McKee, a partner at Fried Frank and former vice president of loans at Goldman Sachs, says that if a loan doesn't sell or can't be “syndicated,” in Wall Street parlance, problem-solving A lawyer will be called for this. negotiation group.
McKee said negotiations are underway with potential buyers to make the bonds more attractive. This deal could be enhanced by additional collateral, (to some extent) better pricing, or adjustments to other terms of the debt, such as maturity.
“Today's market provides more opportunities for lawyers to add value,” McKee says. “In troubled companies and tough markets, why our documentation is structured the way it is and what we can do to protect our customers while addressing company issues and adapting to market conditions.” We need to examine the fundamentals of this and see if we can change it.”
Aside from negotiating large amounts of debt (which are often ultimately sold at a discount), leveraged finance lawyers also work when a deal puts a company in trouble and debtors are starting to get cornered. start.
The latest example is the fallout from the merger of pay-TV provider Dish Network and satellite carrier Ecostar, which shut down earlier this year. Echostar, which was advised by White & Case, subsequently announced a series of asset sales and debt swaps, causing the price of some of its long-term debt to plummet.
Holders of some of that debt are consulting with law firms such as Paul Weiss and Milbank to consider legal options, including sending the company a notice of default, Bloomberg reports. That's what it means.
This increase in aggressive credit practices, often referred to as liability management transactions, is one of the reasons Scott Zemser returned to Mayer Brown from Allen & Overy in 2018, he said. said. Mr. Zemser heads Mayer Brown's Global Leveraged Finance Group, which has grown from just three lawyers to 25 when he started.
He wanted to build a team of restructuring and litigation experts he could consult on his most complex issues. The firm added competitive partners such as King & Spalding, Gibson Dunn & Crutcher, and Sidley Austin.
Mr. Zemser, Mr. Speer, a litigator, and Brian Trust, leader of a global bankruptcy practice group, lead a team of approximately 100 lawyers worldwide advising on troubled transactions. ing.
“For better or worse, I think we're going to see more of these situations,” Zemser said.
worth the time
Regarding litigation funding: Emily Siegel reports that Parabellum Capital has closed its $754 million fund, the largest private fund ever raised for litigation funding.
About Washington Lawyers: Former White House Counsel Pat Cipollone has joined former Attorney General Bill Barr's law firm, and the firm is expanding its staff by adding nine lawyers, Meghan Tribe reports. Meanwhile, Mayer Brown hired Kimberly Hamm, who previously served as chief adviser to Securities and Exchange Commission Chairman Jay Clayton and House Speaker Kevin McCarthy.
Regarding discrimination lawsuits: Patrick Dorian reports that a black female lawyer says the Troutman Pepper Hamilton Sanders law firm discriminated against her because of her race, then retaliated against her and ultimately fired her.
That's it for this week!Thank you for reading and please send me Your thoughts, critiques, tips.