In what is believed to be the largest capital call the City has seen, equity partners will be asked to contribute up to 100 per cent of the value of the capital they have in the firm to ease debt and increase loyalty.
Hammonds, which made gross fees of £137m last year, holds £18m in equity partners’ capital contributions, but has relied heavily on debt to finance its mergers and acquisitions over the last two years.
Since 2001, Hammonds has completed mergers with Birmingham firm Edge Ellison, niche London practices Wildes and Townleys and has expanded into France, Germany, Italy and Spain.
The £25m bank debt is composed primarily of an overdraft facility, but also involves working capital facilities for the overseas offices.
Hammonds equity partners hold between five and 13 equity points and put £15,000 per point into the firm when they join, or when they move up Hammonds’ sliding lockstep. Partners at the top of lockstep could now be forced to borrow an additional £195,000 to fund the firm’s financial reorganisation.
The move is also understood to be an attempt at creating increased loyalty within the firm, which has seen 44 partners leave since July last year. Of these, 15 have either retired or left the law, and many have gone to firms that are smaller and less international in focus than Hammonds.
