In an interesting shift within the legal landscape, it appears that leveraged finance lawyers find themselves increasingly involved in resolving past deals rather than orchestrating new ones. A prolonged slowdown in leveraged buyout activity has tasked legal professionals with the intensive task of dealing with ‘hung debt’, a term referring to loans that were packaged and priced but failed to attract subsequent buyers.
The extent of hung debt is considerable, having grown into a roughly $80 billion problem. This includes prominent examples such as Elon Musk’s acquisition of former Twitter Inc, hence requiring substantial clean-up efforts. The implications of this issue extend beyond merely resolving the past. The inability to offload these deals from their balance sheets has led many banks to take a sideline, prompting private credit providers to step in and prompting legal professionals to ponder the identity of their future clientele.
When these loans fail to attract buyers, or cannot be ‘syndicated’, legal professionals are engaged to help formulate solutions. Meredith Mackey, a partner at Fried Frank who previously served as a vice president at Goldman Sachs’ loan negotiations group, explained that negotiations with potential buyers often involve enhancing the deal with additional collateral, better pricing, or by adjusting other terms of the debt, such as its maturity.
Such clean-up efforts are not limited to hung debt alone. Leveraged finance lawyers often find themselves involved when transactions put companies in distress and debt holders start receiving pressure. A recent example concerns the merger of pay-TV provider Dish Network and satellite operator Echostar, resulting in a series of asset transfers and debt swaps causing a drop in the price of some of its longer-term debt.
However, some law firms have found opportunity amidst the clean-up. At Mayer Brown for instance, the heads of the firm’s leveraged finance, restructuring and litigation groups have collaborated to market themselves as something of a cleanup crew. Such firms assemble teams of restructuring and litigation experts in order to handle complex matters. These squads, sometimes numbering near 100 lawyers globally, are gearing up for what they see as a continued need for their services in the foreseeable future.