In-House Counsel & Lender Credibility?

m_1's picture
Rank: Senior Neanderthal | 5,008

I know lenders like seeing brand names on deals to feel safer about providing leverage for a deal but the rates these firms charge relative to what in-house counsel would cost is ridiculous.

Does anyone know how lenders view transactions being handled on the legal end by in-house counsel VS external?

By in-house I mean someone with a real track record and history working at large brand names in M&A, not some random guy that worked at some local law firm with 3 people handling divorce (lol).

Just kills me paying 1 year's salary for one fucking deal and then having to worry about dead deal fees too. Would be nice being able to go after deals more aggressively.

Thoughts? Experience? This is LMM specific for what it's worth so the legal side isn't overly complex anyways as all deals are in the US and around $5M - $15M or so, so something one guy can easily handle.

Comments (12)

Feb 20, 2019

m_1, way too quiet in here. What about these resources:

I hope those threads give you a bit more insight.

Mar 8, 2019

Bump! Would love feedback.

Mar 8, 2019

edit: misread the post hah

Mar 8, 2019

It's a lot less than a full years salary for each. Also, the Company pays lenders legal fees, so as long as they aren't astronomical, the lender doesn't really care. It's more about CYA than anything else. They also use in-house counsel in conjunction with outside counsel. If in-house were to manage everything, they'd be run over with deal flow at most active shops.

Most Helpful
Mar 8, 2019

Really, I've never seen bankers care about the brand name of competent legal rep (or college, law school or former employer brand names), just the competency. I did a side-by-side deal (difficult to explain the circumstances) with another CEO, I bought first add-on for $50k in legal fees (my norm with a competent boutique NJ firm) He bought second for $1M in legal fees (big NYC firm) and his deal was shit. I've also replaced expensive brand name NYC attorneys with unknown competent boutique representation and the bank just shrugged it's shoulders. They don't care and I don't think they believe standard LMM sale is very complex.

If I was a lender my priorities would be;
- the deal and projections
- DSCR
- Buyer reputation and track record
- Plan & management team
- Accounting team/CPA
- probably 5 other things
- Deal attorney firm's brand name

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Mar 8, 2019

Thanks. Exactly what I was looking for. Guessing we still need QofE/audits done externally and can't bring that in-house?

Apr 9, 2019

Quality audit > legal. I never heard of most of the legal firm on our deals. Loan value range everywhere from $50MM - $4BN. And, the quality of legal was never brought up during my conversation with senior banker. However, bankers will feel a certain way if the company can't provide quality financial reporting. A $50MM EBITDA company recently hired a CFO who can't do a cash flow statement, so yes we were very concern on quality of management team.

Apr 9, 2019

Unless I'm missing something, the lender is going to have their own UW counsel. If that lawyer is up against someone inexperienced on the company/sponsor side, UW counsel will probably view it as an opp to get better terms. Exception to that would be a co counsel who is so inept that they're wasting everyone's time and money.

Apr 9, 2019

I don't see lawyer having much on how the structuring piece of the loan. They simply just put plain English into a legal document. Terms are structured by the lender and negotiated with the company/sponsor. Typically, sponsor gets anything they want. Given that they bring in a good amount of business in IB.

Mar 8, 2019

From a broad perspective you are correct. There are still legal pitfalls that anyone who is not an attorney by trade can fall into. This is where a good lawyer is worth their weight in gold. Be able to quickly distill business issues vs legal and ensuring the document truly functions as you want it to. You'd be amazed how many problems I've found in senior bank docs, including a covenant that did not function the way as intended and actually had the company in default on day 1 when the loan was closed 18 months prior to me looking at the deal.

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Apr 9, 2019
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