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Private Credit 

Peter Benson

Law firm Akin Gump Strauss Hauer & Feld LLP is not only making a splash in the private credit market via hiring but also taking it a step further in formalizing a more generalist group to address the varying needs of borrowers.

The new team, titled capital solutions, is supposed to sit in the space in private credit between buyouts and distress. In essence, the law firm expects to bring a team of partners with various backgrounds— debt, equity, structured credit, special situations etc. — and figure out what type of investment fits best with each specific transaction.

This differs from most law firms which silo most of their partners in their respective practices. Akin is looking to bring a suite of lawyers from the different areas at the beginning of a deal. This contrasts with other firms where there may be some crossover by departments on a deal-by-deal basis with lawyers from different units brought in later in a transaction.

Akin’s setup is one of the first instances of formalizing it under a single roof within a firm. Ranesh Ramanathan is tasked with leading the newly established group. Previously he was at Kirkland & Ellis, and before that spent a big chunk of his career in-house at Bain Capital.

“What we're seeing in the market is that a convergence on investment strategies that move away from pure play credit and pure play buyout,” he told 9fin. “We're seeing more deals getting done in this space in between pure play, private credit and pure play buyouts,” he added.

Without M&A taking place, sponsors have had to get creative. Dividend recaps have become prevalent to fund the payouts to LPs. Refinancings are a regular occurrence as sponsors look to beat looming maturities and cut debt costs. And if those aren’t possible, restructurings can become the only option.

“This [group] is a reaction to the market and a reaction to what our clients are doing,” Ramanathan told 9fin. “It's not something where we're trying to set the market.”

So why set up the group? Ramanathan explained that there are many companies looking to do deals that come in the door with the plan to provide one solution and the lender and borrower will leave the negotiating table with a completely different solution.

“We've had 12 deals that pivoted one way or the other,” he said. “Some came in as an equity deal and ended up as a debt deal. Some came in as a debt deal and ended up as a structured deal.”

A recent example of a scenario in which the team was able to help is when Akin represented a direct lender looking to replace a bridge facility

In the instance of the alternative lender — which Akin couldn’t name as the deal was private — there was a sense that replacing a bridge facility would be a simple deal. Typically it would just be replaced by a term loan and everyone would be happy.

However, the large middle market company at the center of the deal was looking for capital couldn’t take a term loan as it would trip a covenant through taking on more debt. The lender looking to provide the capital also faced a tax issue.

The eventual solution ended up being a preferred equity provision with a springing security interest and a PIK component. This avoided the covenant breach on the outstanding senior loan while also meeting the lender’s tax objectives.

As deals like this become so much more complicated, the siloing of legal help into teams with different specializations becomes more difficult to justify. Law firms over the last few decades have been focused on carving out niches. Akin and Ramanathan see it differently, hence the formalization of a team dedicated to serving this capital.

“Now we're moving back to: ‘yes, you should be a specialist in one thing, but you need to be enough of a generalist that you know that this may not be for me,’” Ramanathan said. “I should call one of my partners who's a specialist in something else to provide what the client needs.”

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Akin formalizes generalist private credit legal group

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