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alt.legal: When Everyone Sees What The Best Bond Lawyers See

Join former Biglaw attorneys in changing the bond world.

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For most Biglaw bond lawyers, a critical skill is the ability to fleece potential debt buyers protect your clients’ interests with loophole provisions and sneaky covenants in the indenture. It’s “what you get paid the big bucks to do.” Finding ways to take advantage of investors through “creative structures” is how Biglaw attorneys provide value.

But one man found a way to leverage those gifts into a different type of value.  He left the practice of law to develop and sell Biglaw-level expertise in an alternative way: through highly expert research reports.

The man is Adam Cohen, founder of the Covenant Review, the authoritative bond research boutique that’s growing like gangbusters. (Spoiler alert: if you have the chops, he’s hiring.)

Ed Sohn: So what’s your story?  How did you get from there to here?

Adam Cohen: I was an associate at Latham from 1997 to 2005, with two years of investment banking at Lehman in the middle.  After years as a corporate finance attorney, I realized that most investors didn’t know what kind of loopholes we were putting into loan and bond documents.  So I started Covenant Review.

ES: What does Covenant Review do, at a high level?

AC: We analyze bond and loan documents and explain how they fit into risk management strategies and alpha-generating trades. We cover both leveraged loans and high-yield bonds.

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We take a different approach than law firms, who don’t like to do this work because they can’t charge one client much for it vs. working on deals.  And since this is all we do, we know what kinds of trades and events are happening around the contracts. For us, we publish our research to everyone at the same time and know that subscribers will renew year after year. All of our research is available on subscriptions, starting around $25,000 and going up to around $150,000.

ES: It’s a bold move to start this up out of nowhere. Did you have any help, mentors, anything when you started?

AC: No, not really. I had a banker friend whom I sketched the idea out to on a napkin at the Oyster Bar and a bond trader who told me to go write research myself for a year to see if anyone gave a damn.  So, not much help, no investors, no advisors. I just thought it was a good idea and my wife believed in me, so I started writing research and cold calling funds.  The first six months were pretty hard, but after that I knew that it was going to work.  Now I’ve got thirty employees, so I’d say we’ve been successful.

ES: That’s crazy. Bold move, but it also sounds like a calculated business decision.

AC: I knew there would be a market for this. And most people who have good ideas never put in all the effort to make them happen. If you put in all the effort, you already have a good chance of making it happen. I’ve had a lot of older lawyers who said they had this same idea.

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But they never did it.  That’s the difference.

ES: Now that you’re shining a light on these covenants, are you changing how issuers are drafting?

AC: We are definitely starting to see issuers burying covenants in different places now. As we uncover loopholes, people find more clever ways to do things. It keeps it interesting for us.

ES: Can you get technology to help you with any of this? We hear a lot about contract management tools that can do linguistic analysis, and the like.

AC: It’s a fool’s errand to try and automate data analysis for real answers. It’s one thing to use machine learning to speed up a discovery process in litigation, but no one wants to make a $50 million bond trade based on nuanced language derived from a computer program. I’ve seen people try it and it never, ever works. What we do is too nuanced, it requires considering a lot of context and expertise. I’ve seen two different projects try to use machine learning around bonds, burn through a hell of a lot of money, and then go out of business. You can only get machine learning up to a certain level of accuracy, and the remaining inaccuracy is what makes all the difference and takes a ton of time to unravel.

For indentures, you really have to think through how one clause of the Restricted Payments covenant matters with respect to another provision of the Asset Sales covenant, which in turn may depend on GAAP treatment – trying to turn that art into too much science is a recipe for a bad trade.  We do it right the first time by having really smart lawyers read documents really carefully.

ES: Who does this for you? What type of people are the brains behind your research?

AC: We attract lawyers who have been killing themselves at top Biglaw firms and want a genuine Monday through Friday job where customers appreciate what we’re doing. Our people help customers make good decisions, instead of just writing a massive contract that may never get read. We get to feel like we’re doing something really different, and our customers say thank you all the time.

We’re all here in midtown Manhattan, with nice normal hours, no weekend working. The atmosphere is collegial, but a little on the cerebral side, more cerebral than a law firm environment. At the same time, it’s more commercial. We’re always asking, “What’s the trade impact of what we’re describing? How does someone make money off of this idea?”

ES: Sounds nerdy. And gratifying. And exciting. What about professional development? Do people feel like they are advancing professionally?

AC: Well, one point of difference is that we hope our lawyers are here forever. Here, there is no pressure to make partner, no feeling that you could age out and be gone all of a sudden. We have a wider range of ages of people working here and backgrounds, we’re much more family friendly, and we give people an ability to use their knowledge differently. Most importantly – because of our subscription model, no billable hours.

By the way, if you do want to go back to the practice, you’re going to benefit from being here. We had a couple lawyers who left here and go back to Biglaw, and they walked in as partners, one of them recently at White & Case. I’d rather people not leave and go back, but if you feel like doing that one day, being with us will make you more marketable.

ES: So what’s next for you? What’s in the future for Covenant Review? Are there other financial products out there to cover? Are you growing?

AC: We cover what’s worth covering. We’re not going to cover municipal bond indentures, there’s so many and our depth of analysis is unlikely to matter. Also, new funds start all the time, so we always have more value to provide. And there’s other markets where we don’t have a presence … yet. You’re going to see some exciting news from us in the coming months.

Finally, as for growth, yes. We’re hiring. I’m looking for two more leveraged finance lawyers to join my team. If you’re reading this, you have the depth and type of experience here, and you’re looking for a different way to use your experience without killing yourself on hours, get in touch: careers@covenantreview.com.

Ed Sohn is a Global Director at Thomson Reuters’ award-winning legal outsourcing company, Pangea3, which employs approximately 1,000 full-time attorneys globally. After five and a half years as a Biglaw litigation associate, Ed spent over two years in New Delhi, India, managing hundreds of Indian attorneys and professionals in delivering high-value managed legal services. He now focuses on developing integrated technology and outsourced legal solutions. You can contact Ed about e-discovery, managed legal services, theology, chess, Star Trek The Next Generation, or the Chicago Bulls at edward.sohn@thomsonreuters.com.

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