1) Private credit is a relatively nascent industry compared to the likes of private equity or BSL. At what point did Akin Gump decide to ramp up hiring in this area and make it a key offering?

Private credit has grown with the evolution of the LBO industry and the increased capital and regulatory requirements applicable to traditional money center banks. Originally, private credit was just the most junior (or mezzanine) piece of debt in an LBO capital structure since the banks had cornered the market on the more senior tranches of leverage. However, as PE sponsors required more creativity and speed of execution from their lenders in order to create a competitive advantage in a crowded environment and it became more difficult for banks to meet this need, private credit moved up in the capital structure and now provides solutions up and down the capital stack.

Akin’s market leading financial restructuring practice has been representing creditors for many decades — not just in restructurings but in transactions where these creditors were deploying capital. Many of these creditors are credit funds who were, and continue to be, the innovators in the private credit space (with more joining every year), and therefore Akin has actually been involved with the private credit revolution for many years.

Given that our financial restructuring, funds and tax practices among others have all been market leaders in credit, we are uniquely positioned among elite law firms to be the logical legal partner to credit funds and other alternative capital providers. Since 2017, Akin has hired or elevated 36 senior lawyers into our special situations and private credit teams.

2) Today, private credit is now a $1trn asset class and the opportunity set is still growing into new areas, such as consumer credit. Which segment of private credit is most interesting to you, and why?

Financial markets are experiencing a revolution where the creativity and speed of execution by credit funds are redefining capital structures. This paradigm shift is being led by credit funds because of the flexibility of their capital and is permeating all parts of the financial landscape, from corporate borrowings to asset-level finance, structured finance, project finance, consumer finance, and beyond. The types of instruments being deployed are no longer limited to loans and bonds, and often include hybrid equity, structured products and other creative capital instruments.

We at Akin, recognizing the need to be nimble and have a broad range of expertise that we can bring to bear in representing these investors, created a single group for both special situations and private credit where we bring together lawyers with the full breadth of expertise, rather than creating separate siloed practices. Our credit fund and alternative capital clients are breaking down over-specialization in favor of teams able to pivot to where the opportunities lie. And we are set up to pivot with them. Our goal is to be the trusted legal partner to these clients in all their needs rather than specializing in one particular segment.

3) Are bulge-bracket banks’ efforts to ramp up balance sheet lending (e.g. JPMorgan) making any significant dent in the private credit market? 

Fundamentally, banks need to walk a tight rope of opportunity and conflict when navigating entry into the private credit space.

On the opportunity side, they have clearly recognized the growth of this market, but their cost of capital is materially higher than credit funds and they have regulatory and capital requirements that can hinder their ability to execute quickly. They also have to balance this with the conflicts presented by negotiating on the other side of the table from their PE sponsor clients, who are a large source of fee and other revenue for these banks, and also taking away opportunities from their private credit clients.

The entry of the bulge-bracket banks into private credit should not be seen as competitive but as a recognition of the opportunities available and the evolution of the financing market. As with every evolving market, there will be many iterations and alternatives that will compete, but when the dust settles, we think that the bulge-bracket bank’s participation in private credit will settle in the same place as their private equity investments. This capital will largely be co-invest capital alongside credit funds and other alternative capital providers with a few outliers that are actually competing to lead these deals, which are often set up as distinct teams and pockets within bulge-bracket banks.

4) How does the increasingly widespread practice of ‘designated counsel’ impact the private credit space?

Akin is focused on being the trusted legal advisor to our credit fund and alternative capital clients and our work will always put the interest of these clients first and foremost. As a result, we do not focus on pursuing US designated counsel assignments, and we are often brought into situations initially involving designated legal counsel which become stressed.

5) A secondary market is now emerging in private credit. In the context of Akin’s other private debt-related offerings, is this starting to take up more of your time? 

This is just one more sign that private credit is an enduring part of the future of capital structures. Secondary trading, securitizations and crossover investing are clear indications of the maturation of this market. On a volume basis, this is still a relatively small part of the overall market, as there is an abundance of primary capital available in private credit, but we think that secondary trading will grow over time.

6) We are starting to see companies seeking to cut their legal bills amid rising interest rates and input costs. As someone who has been on both sides of the table, how are you dealing with this? 

Cost efficiency has always been important to investors. Even where the company is bearing the expense, in order to be competitive, credit funds understand that the overall cost of their proposals is what companies consider in determining which facility to choose. However, this has to be weighed against the risks of the transaction, as a low cost execution that does not properly protect against the downside creates greater risk.

At Akin, we believe that we can’t offer a one size product for all our client needs and need to tailor our product offerings based on the financial health of the borrower, the leverage ratio, the industry and other risks and our client’s risk appetite, among other factors. We will therefore efficiently staff and manage transactions in an appropriate way to ensure optimal cost and risk balance. However, even when our clients need us to be cost conscious, we are still bringing to these representations the full breadth of Akin’s knowledge, including our decades of experience in all market conditions. As partners to our clients, we are not looking to put our clients in either a competitively disadvantageous or an unnecessarily risky position.

7) Even as private credit becomes more crowded, lenders like Oaktree (which recently raised a $10bn LBO fund) are arguing there are untapped opportunities in this market. Where do you stand on this debate?

Financial markets are facing unprecedented disruptions that are redefining capitalism, making it clear that traditional sources of capital are no longer sufficient to meet all capital needs. This special situations and private credit revolution is early in its market development, and every day we see more and more opportunities being presented that do not neatly fit within the confines of traditional capital. We believe that we are in the growth phase of this financial paradigm shift. The key, as market leaders in the space have seen, is to be nimble and creative.

8) Boston is Akin’s 11th US-based office. Why Boston, and what is Akin’s plan for growth there?

All of the firm’s decisions on geography are focused on meeting the needs of our clients, and the opening of our Boston office was no different. Akin has existing long-term relationships with Boston-based clients in alternative assets, special situations and credit, and private equity funds. We see an opportunity for our physical presence in Boston to help serve the investment management industry’s needs while leveraging our global platform with deep financial restructuring, fund structuring and regulatory, tax, M&A, public law and policy and finance capabilities.

9) Outside of private credit, you’re a big supporter of immigration equality and have aided many LGBTQ refugees in partnership with human rights NGO Immigration Equality. How did you come to support this cause, and what’s the biggest lesson you’ve learned from it?

I am myself an asylee to the US, having received asylum protection in 1998 as one of the first LGBTQ+ people to be granted asylum after a change in the law that recognized those persecuted based on their sexual orientation as a protected class. So this issue has been very close to my and my husband’s hearts for many decades.

We have both been involved with Immigration Equality since 2000, having both served at different times on their board from 2000 to 2010. In 2011, we raised $1m, including support from Akin, to help Immigration Equality in their mission on behalf of families like ours. In 2021, we challenged Immigration Equality to create a program to protect LGBTQ Afghan refugees. With their amazing success of referring more than 60 refugees from Afghanistan through the US State Department to eventual safe haven in Canada, we extended our own philanthropic commitment to $500,000 to provide the anchor support for building out a program to assist and resettle LGBTQ refugees to safe countries.

One core thing that we have learned from our many years of experience with Immigration Equality is that every problem is more complex and more multi-faceted than it might appear at first, making collaboration across many organizations and government agencies crucial to accomplishing your goals.

This lesson has even served me well in my legal work as collaboration among the various practice groups within Akin allows us to better help our clients navigate the changing financial paradigm and to help them better protect against known unknowns. Deep knowledge that my partners have in complementary areas, from financial restructuring to tax, policy, trade regulation, funds, litigation and many others, make us much stronger as a whole than we could ever be apart.