Clean up crew in finance, stuck lawyers, vacuum deals leveraged.

TLDR:

• Leveraged finance lawyers are working on cleaning up old deals rather than drafting up new ones due to a slowdown in the leveraged buyout machine
• Lawyers are assisting banks, companies, and debt holders in dealing with “hung debt,” which has become a major issue

Wall Street’s leveraged buyout machine kept big law firms busy for over a decade. However, the gears of the machine are now gummed up, and lawyers are largely stuck in cleanup mode assisting with “hung debt.” Although the work is not as lucrative as when the merger machine is healthy, it is high stakes and complex, with billions on the line for clients.

Some law firms have recognized the opportunity to provide a range of services required to work out the kinks in leveraged finance deals. Mayer Brown, for example, has brought together lawyers from their leveraged finance, restructuring, and litigation groups to market themselves as a cleanup crew. This approach has generated tens of millions of dollars in revenue annually for the firm.

As interest rates have risen sharply, many loans packaged and priced months earlier have failed to attract buyers, resulting in significant hung debt. Banks have been unable to offload these deals from their balance sheets, forcing them to the sidelines. When loans fail to sell, lawyers are called in to negotiate with potential buyers, often offering enhanced collateral or adjustments to other terms of the debt.

Leveraged finance lawyers are also getting involved when transactions leave companies in distress and holders of their debt start facing difficulties. Lawyers are working on issues arising from liability management transactions and advising on troubled deals.

It is anticipated that there will be an increase in these situations, leading law firms like Mayer Brown to assemble teams of restructuring and litigation experts to counsel on complex matters. Despite the slowdown in new deals, leveraging finance lawyers are finding opportunities to add value and provide critical services to clients facing challenging circumstances.