It’s a new year, and for Biglaw that usually means it is time for firms to go out and get a loan.
Obviously, this year it might be a little more difficult than usual. The American Lawyer is reporting that the credit crisis is coming to a partnership near you:
Law firms, typically considered good credit risks, are now experiencing the toughest and most expensive lending conditions in years. “Even good borrowers, prime borrowers, are having more restrictions and more difficulties than they used to,” says Altman Weil consultant James Cotterman.
Most firms will still be able to get loans to cover their immediate expenses. But to do so they will have to submit to more vigorous financial vetting than they did in the past. And, of course, it’s going to be a whole lot more expensive to borrow money:
Meanwhile, firms that didn’t secure a credit line early last year, and who went looking for it in recent months, discovered that credit wasn’t cheap anymore. “We just took out some lines from several different banks,” says the head of one firm, who asked for anonymity to speak frankly. The firm let its credit lines expire in 2003 and relied instead on capital contributions from partners. The banks used to give the firm credit for free. “Now we had to pay for the lines,” he says.
Rates have doubled, from below 1 percent in 2007 to 2-3 percent today for the top 50 firms, says Andrew Johnman, head of professional services at Barclays plc. “If they need additional money or if they need an amendment to their credit facility, then we reprice it to current market pricing,” he says.
Banks are tightening up in part because they don’t seem to think that every firm is going to make it through 2009:
The new year could bring devastating news. Dan DiPietro, client head of Citi’s law firm group, says he “would not be shocked to see another one or two dissolutions among The Am Law 200 next year.” Gibson, Dunn & Crutcher restructuring partner Jonathan Landers, Citi’s lawyer on law firm dissolutions, says he’s busy on a few workouts — basically loan restructurings — that haven’t yet become public.
Which Biglaw firms are already in need of big time loan restructuring?
“Banks get very nervous when there’s a crisis of confidence,” says Latham & Watkins partner Peter Gilhuly, who is advising Thelen on its dissolution. DiPietro, not naming Heller and Thelen, says Citi had firms that have dissolved recently on an internal watch list of potentially troubled firms as early as a year ago. “If we see a large number of people leaving and going to higher-quality firms, then we say we’d better take a look,” he says.
What does the people’s bank of Citi know that we do not? Are we really going to see more dissolutions in 2009? Is anybody safe?
I guess we’ll have to wait and see …
A Shorter Leash [American Lawyer]