Moscow and the Middle East: Dewey Have A Problem?(Plus more about Dewey's loan covenants.)
Dewey might be closing some of its foreign offices. Which overseas outposts are on the chopping block? And which rival firms might pick up the pieces?
Over at DealBook, Peter Lattman reports:
An accelerating wave of partner defections from the New York law firm Dewey & LeBoeuf is now threatening to violate the firm’s loan agreements with its banks….
Having lost more than 20 percent of its partners, the firm has run into problems with its banks, according to three people with direct knowledge of the matter who spoke on the condition of anonymity because they were not authorized to discuss it publicly.
At issue are Dewey’s loan agreements that require the firm to maintain a certain percentage of its partnership. It is unclear exactly what that percentage is for Dewey, but legal industry experts say that typically, a law firm’s agreement with a bank requires it to maintain 75 to 85 percent of its partners. If it falls below that threshold, the firm is considered in default and the bank can demand repayment.
Dewey is locked in negotiations with lenders — JPMorgan Chase and Citigroup — to restructure its credit line, these people said. It also has a $125 million bond issue it raised in 2010 that begins maturing next year.
Ah, Citigroup: they are a major lender to law firms, the leader in this space, and for now they are standing by Dewey. As Dan DiPietro, chairman of the law firm group at Citi Private Bank, told the Times, “Dewey & LeBoeuf is a client in good standing…. Citi has had a banking relationship with the firm dating back to the early 1970s and continues to provide banking services to a significant percentage of the partners and associates.”
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That sounds reassuring — but the Dewey situation changes by the day, and lenders can turn on their borrowers quickly. As you may recall, Citigroup was a big lender to the dearly departed Howrey law firm. According to Howrey, the firm had to shut its doors after Citi pulled the plug, refusing to authorize payroll expenses beyond a certain date. (Citi disputed that characterization in a statement to ATL: “We are deeply disappointed in Howrey’s mischaracterization of the situation. Citi is not responsible for the employment practices of a client and has acted in a professional manner throughout this process.”)
Back to Lattman:
“As Dewey’s partnership ranks thin, the banks have all the leverage,” said Bruce MacEwen, a lawyer and consultant who publishes the Web site Adam Smith Esq. “The firm’s leadership now bears the burden of proof to convince lenders, clients and lawyers that it can survive.”
Among the banks’ concerns, say legal industry experts, is that Dewey’s main source of collateral is the firm’s outstanding receivables from completed legal work and work in progress. Once partners start leaving the firm, it becomes significantly more difficult to collect unpaid bills from clients, and their collateral can become impaired.
On Tuesday, Dewey said the departures had not violated loan covenants, and Citigroup issued a statement of support for the firm. A spokesman for JPMorgan declined to comment.
Dewey declared that it remains in compliance with its covenants. But if the departures continue, or if offices in Moscow or in Italy split off, will that continue to be the case?
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Hopefully Dewey will pull through (perhaps in some slimmed-down form). If you have information to share about the firm, whether hopeful or harrowing, please email us or text us (646-820-8477).
Dewey & LeBoeuf Russia Office Said to Seek New Law Firm [Bloomberg Businessweek]
Dewey to restructure Middle East practice after stream of exits [Legal Week via ABA Journal]
Partner Exodus May Upend Dewey’s Loans [Dealbook / New York Times]
Earlier: Dewey Have A Way To Stop The Partner Hemorrhaging? Energy Lawyers Exit
Dewey Have A Problem With Defections? Or With Math?
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