Law firms rely less on bank loans after Dewey collapse
Law firms are relying less on bank loans than in the recent past, partly because of the debt problems that helped precipitate the collapse of Dewey & LeBoeuf.
A survey of 130 law firms by Citi Private Bank’s Law Firm group shows the change in law firm attitudes toward debt, the Wall Street Journal (sub. req.) reports. The average bank debt per equity partner was $49,700 in 2014, down from $77,600 in 2008.
At Akin Gump Strauss Hauer & Feld, debt was reduced to zero, and laterally acquired partners no longer get salary guarantees because firm leaders wanted to “avoid a circumstance like Dewey,” Akin Gump chair Kim Koopersmith told the Wall Street Journal.
Banks often include loan covenants that deem the law firm in default if certain conditions aren’t met. Default triggers might include cash flow falling below certain levels or a certain percentage of partners leaving the firm. In Dewey’s criminal case, law firm leaders are accused of lying to banks about its financial picture. The firm also guaranteed high salaries to some lateral partners, contributing to instability, consultants have said.
While bank debt is falling, the amount of equity contributed by law firm partners is rising, the story says. The average capital contribution per equity partner was $383,300 in 2013, 92 percent higher than a decade earlier.
See also:
ABA Journal: “How Dewey management’s rosy picture masked an ugly truth”
