Q&A: Leveraged Finance Lawyer here
Not sure if this will be of interest to anyone (if not, I imagine this will quickly fall into darkness), but I am a lev fin lawyer working at a V5 primarily on lender side LBOs/refis/etc (though have done a decent chunk of sponsor side work). If you've ever had any questions that you feel too stupid to ask about the docs, process, etc. feel free to fire. Or if you're curious about the overall transaction process (or any questions for that matter).
Unfortunately I don't have exact numbers as its not something that's quite peaked my interest at this stage. But I can provide a bit more color for you. Put simply, It depends. You have to think in-house at BB as two separate roles. You've got your 'pure in-house' folks who are sat in the back office, working 9-5 doing your KYC, NDAs, sanctions and other compliance-y type stuff. Then you have your legal guys sat directly with the execution teams--these are the guys that are going to be staying up with you overnight negotiating the docs. They tend to be 80/20 legal/commercial. They can make a decent chunk of change and have great career prospects. I have several data points on these types and know one at GS earning well into the mid 000's. You'll usually see these people lateral from senior associate roles at [insert some top law firm]. There's a 50/50 split of those who stay and those who go back to private practice. I've seen the ones who go back to private practice walk straight into partnership.
You've hit my hot point!
Before I give you my thoughts, I just want to add one extra layer of conflict in there; the lender syndicate itself. Don't forget that within the lending syndicate (especially at bid stage before trees have collapsed) you'll have a range of Tier 1 clients for the law firm. How do you then balance not being too resistant on the sponsor (e.g. making sure the sponsor designates you for the next deal)? Getting the best deal for a target client (e.g. making sure you keep your JPM/BAML/GS and other lev fin lead lefts happy) and giving ample attention to the clients with less focus (e.g. your arrangers who are only ever going to be brought on for their commitments)? The cynical person might ask why it even matters, "sponsors are so aggressive these days that they'll get any terms they want regardless of who's acting as counsel". I try and stay more positive than that!
This designated lender counsel theme can really drive associates who want to get the best deal for their client (the banks!) mad. How the team approaches the bank's representation is entirely driven by the partner running the deal. For example, I know one partner who is happy to drop ethics to ensure he gets repeat representations. Rather than try and fight a particular point, he'll direct everyone to "just get the banks comfortable on this". I've also seen some firms happily toss information across trees (e.g. for JPM). To give you an example of the point I mentioned re: conflicts within the syndicate itself--I've seen partners literally tell some banks to f off and go back to committee if you need certain approvals because X bank is happy to proceed on this basis.
Fortunately, I've positioned myself with a group of associates who are very tuned into these concerns and we try and avoid the partners who are effectively 'sponsor-lender lawyers'.
I know some PE firms that will just absolutely NOT designate certain law firms because said law firms will really put up a good fight for the banks. I even know some lender-side lawyers who get so frustrated by having to always give into sponsor demands because of partner requests, that they just switch to sponsor-side work only to avoid the problem entirely. At the end of the day we are lawyers. We should want to negotiate. We should want to get you a good deal. Some relationship partners forget this.
2 and 3. I'll tie in your questions below.
-Baskets, baskets and baskets. Check them and think about the way the sponsor can combine them (keeping in mind any freebie basket).
-EBITDA addbacks. Some of them are so aggressive its beyond ridiculous. Your grandma crossed the street? Well that resulted in $300 million in potential growth. When looking at EBITDA addbacks, don't forget that EBITDA is crucial in leverage ratios and certain baskets--so sponsors can really play around with this one.
-Read the definitions and follow through when you're reading tricky bits of the credit agreement. Should the leverage covenant exclude junior debt? Is it intended that the borrower can incur an unlimited amount of junior debt and never breach a covenant by doing so?
-Double counting. Usually the credit agreement will cover any issues that might arise, but sometimes things will slip through the cracks. e.g. equity cure into EBITDA w/o reduction of benefit over each quarter.
-Check for unlimited RPs by meeting certain thresholds and make sure they're sufficient (e.g. a low net leverage ratio).
-Does the group structure work? Is the parent a guarantor outside of the restricted group w/ sufficient protection against upstream leakage? Also is management high enough above the group so you have a clean share pledge over your single point of enforcement?
-On a particularly highly leveraged deal, I'd make sure that you're getting at some security on day 1 rather than waiting 30/60/90 days. For no reason other than peace of mind. On that note, if you're dealing with security in very debtor friendly jurisdictions (e.g. France), make sure you're getting a double luxco in the structure.
-If you're bank is also agent and you know you'll be holding some of the debt long term, check the White List and make sure there aren't any funky funds on there.
-I mentioned this above in another post, but think generally about the way the business operates. I've seen countless times where a deal will use some aggressive sponsor precedent from a manufacturing company for an LBO of a software company with loads of 'leftovers'. Just make sure it works and the borrower will be able to operate.