In resigning as Optimum’s counsel this week, Kirkland & Ellis has once again highlighted the invisible hand of institutional asset managers. Just like with Travelport back in 2020, the firm had to sacrifice an occasional client to keep hold of its regulars.

That resignation came after an intense pressure campaign led by Ares and Apollo, who took umbrage at being named in an antitrust suit by the broadband provider, according to multiple 9fin sources.

So how did we get to this point? Kirkland became the biggest law firm in the world (if we go by revenue, which was reportedly $8.8bn in 2025) largely thanks to its relationships with private equity firms.

In the post-crisis boom years of the 2010s, Kirkland helped PE sponsors make the most of hot credit markets by building in optionality to credit documentation. Then it helped them use those loopholes to protect their equity investments by imposing losses on lenders.

But at the same time, those PE firms were growing their own lending businesses. Those credit arms eventually became bigger than the buyout firms that spawned them; Apollo, Ares, KKR, Carlyle and their ilk are now more like investment banks than old-school corporate raiders.

As more and more money has poured into credit, debt documentation has got weaker. Investment grade covenants used to be so flimsy they didn’t deserve the name; many would argue that syndicated loan and bond covenants have gone the same way.

Even the private credit market, for many years seen as a bastion against weakening covenants, is succumbing to the pressure. The latest example of this, which we covered this week, is Thoma Bravo portfolio company Majesco (advised by Kirkland) which has included anti-co-op language into a new $1.3bn direct lending facility.

Fighting your friends

What does this have to do with Optimum and Kirkland? Well, the emerging consensus among market participants is that the driving force behind the Optimum capitulation is fairly cut and dry: if you sue your clients, there will be repercussions.

In today’s credit markets, the risk of doing that are higher than ever. When your biggest PE firm customers have huge credit arms, they can be your friends and adversaries in the same deal.

Kirkland is not the law firm behind Optimum’s antitrust suit. It was filed by DC-based litigation boutique Kellogg Hansen, and was supposedly in the works well before Kirkland clinched a role advising the broadband provider.

But Kirkland has been publicly linked to the lawsuit through the views of David Nemecek, one of its star partners and a luminary in the field of liability management. He has argued that co-operation agreements — pacts that bind creditors to act as a single bloc in debt restructurings — could be illegal under antitrust law.

This is a controversial argument! And until this lawsuit, many viewed it as a bit of an empty threat. Over recent months we’ve spoken to dozens of lawyers, investors, lenders, advisors and consultants with strong opinions on the topic; the distressed debt world thrives on deep convictions split by marginal differences.

Anti-competitive or not, co-op groups are obviously inconvenient for sponsors doing aggressive liability management exercises. Accordingly, Kirkland has pioneered a number of clauses in debt docs to discourage lenders from banding together: concentration caps, voting caps and law firm DQ provisions, to name a few.

So when Optimum sued its creditors, accusing Apollo, Ares and the likes of BlackRock, Oaktree, JP Morgan Investment Management of using a co-op agreement to run a “classic illegal cartel”, the angry reaction was focused on Kirkland.

Some market participants argue that the nature of the complaint (alleging that some of the largest asset managers had engaged in illegal conduct) crossed a red line. This wasn’t classic distressed debt marginal difference stuff, it was an outright accusation of criminality.

"If they were suing us over the definition of something in the credit agreement, we could live with that,” said an in-house lawyer we spoke to, who is not involved in the Optimum litigation. “If they were suing us because they believe we are breaking the law, that would be a big deal.”

Kirkland, Apollo, Ares and the other parties involved in the Optimum lawsuit declined to comment for this article.

Money talks

Firstly, what this episode reveals is that there are limits to how far law firms can push innovation in debt restructuring: however smart your attorneys are, they are ultimately constrained by the commercial realities of Big Law. Kirkland was forced to make a choice between its sponsor-side and creditor-side practices, and it chose the former.

“The PE side of things is still more lucrative,” said another lawyer. “When I get an LBO mandate it's debt financing, it's sponsor side work, it's the antitrust mandate, maybe even the tax work.”

Secondly, it shows a shift in power dynamics at large asset managers: they must protect the commercial interests of their credit arms (which are often their largest and more lucrative) and they are not above using their PE divisions as a cudgel to do so.

Over the last few years, credit has become the growth engine of asset managers: last year, fundraising for PE fell for the second year running while credit strategies drove the majority of inflows. In Optimum, these firms had to choose between greater optionality for their private equity strategies and greater certainty for their credit investments. They chose the latter.

This all highlights how the explosion of private markets after the GFC has created a messy web of complex and interdependent institutions. For big law firms with prominent debtor practices, the challenge now is to balance their competing interests — to find how far they can push LME transactions without hurting their other businesses.

“You have so many different credit strategies you can pursue, there’s billions pouring into the asset class, and management at large firms know that this is a fundamental shift,” said another market source. “For it to impact law firms and other advisors as a second order effect seems like a natural progression.”

To LME or not to LME

If you speak to a bankruptcy lawyer about LMEs, it won’t be long before you hear that most of them result in bankruptcy anyway. According to a recent study, the LME success rate (no bankruptcy and no new default) after three years is just 7%.

What Kirkland’s climbdown means for the future of LMEs is unclear. Some sources say LMEs may fall out of favor, while others note that this specific situation does very little to undermine the structural factors driving these out-of-court deals.

A spokesperson for Kirkland told the Wall Street Journal that the firm “will continue their liability management practice but will do so in ways consistent with market practices, in contrast to hyperaggressive tactics”.

Kirkland is enough of a heavyweight that if it moves away from more aggressive LME tactics, it could potentially change the direction of the whole market. Then again, it could also enable rival firms with fewer conflicts to gain ground.

It’s possible that consensual solutions could become a new focus in LME land. People have said this before and it hasn’t lasted long, but there are renewed signs: some post-LME documentation now includes a route for lenders to take the keys to a business outside of the courtroom, as 9fin has reported.

So why didn’t Optimum choose a less aggressive course with its restructuring? Partly because it’s not a sponsor-backed business — its owner, Patrick Drahi, has plenty of form torching the debt capital markets, as he did with Altice France’s protracted and fraught debt negotiations, which also featured co-op agreements.

This distinction between individual tycoons and giant institutions is important. Drahi can afford to burn bridges to protect his legacy, but equally, law firms can afford to drop him as a client if it helps them retain the more lucrative custom of big asset managers. Individuals are unpredictable and provide infrequent business; the big firms are the clients you want for the long haul.

Ultimately, this episode suggests that credit investors are prepared to accept — and underwrite for — the risk that loose debt documentation will give sponsors the upper hand in debt restructurings. But they are not prepared to accept being sued for protecting themselves.