Hedge funds and other financial clients are ramping up their interest in riskier investments, and law firms are paying attention.
Simpson Thacher & Bartlett is setting up a multidisciplinary effort that draws on expertise across the firm to provide a comprehensive response on issues arising from client involvement in distressed investments.
Simpson Thacher’s newest unit, the Private Capital and Special Situations Investment Group, aims to draw on legal expertise from the firm’s bankruptcy, capital markets, leverage finance, private equity, tax, intellectual property, employee benefits and litigation practices.
In addition to Simpson Thacher, Latham & Watkins, as well as Cadwalader, Wickersham & Taft, also have such special situation practice groups to handle the varied legal demands of clients involved in the creative financing that marks such complex investment areas.
Michael Torkin, who joined Simpson Thacher from Sullivan & Cromwell in November 2017, is heading its special situations group.
“We wanted to leverage expertise across all practice groups,” said Torkin, in an interview.
He will be working with Simpson Thacher partner Sandeep (Sandy) Qusba, who said the new practice would provide “one-stop shopping for clients to mitigate risk and get advice on mitigating their risks.”
Simpson has long been involved in the private equity market, with a roster of prominent clients including Kohlberg Kravis Roberts & Co., Silver Lake Partners and the Blackstone Group.
Last year, Simpson advised KKR’s Internet Brands company in its purchase of online health publisher WebMD Corp. for nearly $3 billion. Earlier this year, the law firm advised Silver Lake Partners on a $3.5 billion purchase of Blackhawk Network Holdings, an operator of gift card stores.
Simpson is also working with 21st Century Fox concerning financing related to the spin-off of its news and sports businesses, which is part of Fox’s $52.3 billion sale of its film and television studios and its cable and international television assets to Disney.
Another huge deal where Simpson has a part is representing the board of directors of insurance giant Aetna during the pending $69 billion takeover by CVS Health.
Simpson also provides legal services for other leading investment firms including Apollo, Centerbridge Partners, and TBG Capital.
Those organizations and others have done numerous well-known leveraged buyouts and other deals, which have included such notable events as the 1989 purchase of RJR Nabisco Inc., which helped Simpson make a huge name for itself in private equity.
Riskier Era for Capital
Deals have been resurging as investors, facing a low-interest rate environment in recent years, increasingly have ventured into the distressed investments markets like oil and gas.
As sources of funding from traditional lending institutions, like banks, have dried up, investors have more often turned to capital markets, private funds and other financing sources which can be riskier so more expert advice is needed to structure deals in ways that lessen risk.
The newly formed Simpson practice group is coordinated by the restructuring, credit and corporate partner who will be gathering input from colleagues, Torkin said.
The combined legal experience “uniquely positions the PSIG team to provide clients with a 360-degree perspective on execution as well as legal and business risks,” he added.
“We’re ready for the next material restructuring wave,” he said. “This group allows lawyers in the firm to think outside the box and help clients in new ways.”
The Simpson Thacher group will have 22 partners, including three restructuring partners, who are located in offices on both the East and West coasts. They will be backed up by seven restructuring lawyers.
Restructuring Across Sectors
Latham also has a special situations practice that provides advice to hedge funds and others, and emphasizes non-traditional capital raising, including distressed transactions. It draws on expertise from the firm’s banking, investment funds, restructuring, tax, mergers and acquisitions practices.
Latham didn’t respond to a request for information about its special situations practice. But last year, the firm worked on a range of complex restructuring and distressed transactions across the oil and gas, life sciences, digital media and manufacturing industries, according to its website.
The deals included the restructuring of BIND Therapeutics, Inc., which was sold to Pfizer and the bankruptcy reorganization of Quicksilver Resources, Inc., an oil and gas exploration and production company.
In recent months, Latham brought aboard well-known restructuring lawyer George A. Davis, former co-chair of the global restructuring practice at O’Melveny & Myers for the same role.
Cadwalader, which also has a special situations practice, also has been actively building its bench of dealmaker advisors. Earlier this month, it recruited Steve Fraidin, who had been a vice chairman at hedge fund Pershing Square Capital Management, for its mergers and acquisitions team.
He was previously a partner at Kirkland & Ellis, where he worked on major transactions including 3G Capital’s $28 billion takeover of H.J. Heinz. Cadwalader did not respond to an inquiry about its special situations practice. But its special situations group has two partners and one special counsel in London, and partner Jeffrey Nagle, a leveraged finance expert, in its Charlotte, N.C., office, according to its website.
Its practice, according to the firm website, advises investors “who provide private financing and other capital solutions to corporations that are unable to access the mainstream capital markets, whether as a result of market dislocation, the need to finance a complex or difficult to value asset of business, being caught up in a challenging process (e.g. restructuring or turnaround) or a number of other ‘special situations.’”
Other top-line firms are also gearing up for distressed investing opportunities that emerge from economic upheaval. Earlier this month, Kirkland, for example, added Scott Cockerham a partner to handle infrastructure finance-focused investment strategies. He joins the tax practice group. Cockerham, who had been at Akin Gump Strauss Hauer & Feld, follows the firm’s addition of two other infrastructure hires.
Some major firms with practices in oil and gas already are experiencing a surge in business, particularly in Texas. Shearman & Sterling, for example, has opened two Texas offices recently – one in Austin and one in Houston – as its roster of fossil fuel industry clients continues to grow.
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