NEW YORK, November 27, 2023 – Kirkland & Ellis, the world’s largest law firm, is navigating a tricky situation after stepping back from a deal involving controversial debt practices. The move underscores the growing pains of firms juggling massive private equity and private credit practices, and leaves the future of a key partner in question.
Law Firm Backs Away From Contentious Debt Tactics
Kirkland & Ellis has assured clients it will steer clear of “liability management transactions” that can create conflict among private capital groups.
The firm’s decision, revealed this week, comes after it resigned as transaction counsel to Optimum Communications. Kirkland has reassured clients it will steer clear of the most contentious “liability management transactions”-deals that can pit competing private capital groups against each other-a strategy that has drawn increasing scrutiny.
While Kirkland has stated it will avoid these aggressive tactics, the fallout has focused on David Nemecek, a star partner who spearheaded many of these transactions. Those familiar with the situation say Nemecek will continue with the firm for now, with any departure ultimately his decision. He joined Kirkland over a decade ago, following stints at Cravath and Skadden.
Although not directly involved in a lawsuit brought by Optimum, Nemecek was widely seen as the architect of the conflict between the telecoms company and its private capital creditors.”Firms like Kirkland can’t be in a position where they are perceived to be suing their own clients,” a source close to the firm’s leadership explained.
The increasing complexity of the financial landscape is at the heart of the issue. “The more aggressive strategies are becoming increasingly difficult for law firms with large private [equity] practices, precisely because those same firms now also have significant private credit arms,” the source added.
In November, Optimum-controlled by French billionaire Patrick Drahi and formerly known as Altice USA-sued Apollo, Ares, BlackRock, and Oaktree, alleging they had formed an “illegal cartel” by negotiating a debt swap as a unified collective.The company claimed the groups held nearly all of its $26 billion in debt.
These private capital groups, many of whom are substantial Kirkland clients, reportedly reacted with fury to being drawn into the legal battle and facing accusations of collusion-charges rarely leveled in the world of distressed debt. Nemecek became a focal point of criticism after publicly discussing the merits of these strategies at industry events while representing Optimum in debt negotiations.
What are liability management transactions? These are strategies used by companies to restructure their debt, often involving swapping existing debt for new terms or engaging in complex financial maneuvers. They can be beneficial but also create opportunities for conflict when multiple creditors are involved.
The growing scale of private capital has amplified potential conflicts within Kirkland’s practice.Firms like apollo, blackstone, and KKR are major players in both traditional private equity buyouts and as lenders to businesses owned by rival private equity firms.
Kirkland & Ellis generates approximately $10 billion in annual revenue, with its corporate practice focused on key areas of private equity, including fund formation, debt underwriting, mergers and acquisitions, and restructuring/bankruptcy. The firm has been offering substantial compensation packages-tens of millions of dollars-to attract specialists in debt finance, like Nemecek, who are highly sought after by competitors.
Both Kirkland & Ellis and David Nemecek declined to comment on the situation.
