Dewey & LeBoeuf’s problems escalated this week with another wave of partner departures, with eight additional partners bringing the exodus to 66 out of 200 partners who have now left the troubled firm with . . more troubles. The NY Times reports.
An accelerating wave of partner defections from the New York law firm Dewey & LeBoeuf is now threatening to violate the firm’s loan agreements with its banks.
Dewey has been in turmoil after slashing its partners’ salaries — many of them that had previously been guaranteed — after weak financial performance last year. With eight more partners announcing their departures from Dewey on Tuesday, at least 66 of 300 partners have now left the firm since January. Having lost more than 20 percent of its partners, the firm has run into problems with its banks, according to three people with direct knowledge of the matter who spoke on the condition of anonymity because they were not authorized to discuss it publicly.
At issue are Dewey’s loan agreements that require the firm to maintain a certain percentage of its partnership. It is unclear exactly what that percentage is for Dewey, but legal industry experts say that typically, a law firm’s agreement with a bank requires it to maintain 75 to 85 percent of its partners. If it falls below that threshold, the firm is considered in default and the bank can demand repayment.
Dewey is locked in negotiations with lenders — JPMorgan Chase and Citigroup — to restructure its credit line, these people said. It also has a $125 million bond issue it raised in 2010 that begins maturing next year.
“As Dewey’s partnership ranks thin, the banks have all the leverage,” said Bruce MacEwen, a lawyer and consultant who publishes the Web site Adam Smith Esq. “The firm’s leadership now bears the burden of proof to convince lenders, clients and lawyers that it can survive.”
Among the banks’ concerns, say legal industry experts, is that Dewey’s main source of collateral is the firm’s outstanding receivables from completed legal work and work in progress. Once partners start leaving the firm, it becomes significantly more difficult to collect unpaid bills from clients, and their collateral can become impaired.