Originally appeared in:
Asset-Backed Alert: August 1, 1999
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Reprinted with permission.
It's now becoming clear which structured-finance legal practices are weathering the contraction of the home-equity and subprime-mortgage business -- and which ones aren't.
In the public asset-backed and mortgage-backed securities markets, Brown & Wood stands alone. The New York-based firm dominated first-half business, serving as underwriter counsel on 152 transactions, or nearly half of all public issues in the structured-finance arena. The firm is reaping the benefits of its strong ties to big issuers in the residential MBS market, which accounted for half of Brown & Wood's deal count in the first half.
According to Asset-Backed Alert's database, Stroock & Stroock was a distant second, handling 42 underwriter-counsel assignments in the first half, followed by third-place Cadwalader Wickersham (29 deals), fourth-place Thacher Proffitt (21) and fifth-place Skadden Arps (17).
Brown & Wood also topped the midyear issuer-counsel ranking, but the competition is tighter in that category. Brown & Wood represented issuers on 40 public ABS/MBS transactions in the first half. Next were Orrick Herrington and Cadwalader Wickersham, with 37 deals each. Rounding out the top-five were Thacher Proffitt (32) and Cleary Gottlieb (19).
It's worth noting that Orrick Herrington would rank first among issuer counsel if volume were measured by the dollar amount of its assignments. It represented issuers on public ABS/MBS deals with a face amount of $20.5 billion, exceeding the $18.2 billion handled by Brown & Wood. However, the deal count is widely considered a more relevant measure of a firm's performance because legal fees are usually tied to the complexity, rather than the size of a deal.
Hit hard by the pull-back of home-equity and subprime-mortgage players were Dewey Ballantine and Arter & Hadden. Dewey, which has traditionally served as designated underwriter counsel on securitizations for struggling ContiMortgage and Amresco Residential, slipped to sixth place in the underwriter-counsel ranking, from third place a year ago. Its midyear deal count dropped to 12 from 24.
Peter Humphreys, a partner in Dewey's structured-finance practice, attributed the first-half decline to the fact that many of the firm's mortgage-related clients are funding themselves differently than they were a year ago. Rather than braving the highly selective public market, some are selling whole loans to commercial-paper conduits and others are tapping the private ABS market.
Meanwhile, Arter & Hadden fell to 18th place among issuer counsel at midyear from sixth a year ago. The firm represented issuers on only three public ABS/MBS issues, versus 15 a year ago. The downturn for clients such as Industry Mortgage and Amresco has taken a severe toll on Arter & Hadden's public-market business.
Stroock & Stroock also felt the effects of the home-equity market crunch. Although it was able to hold on to second place among underwriter counsel, its deal count dropped to 42 from 61 a year earlier.
Ed Fine, who oversees Brown & Wood's dominant structured-finance practice, warned against judging law firms by short-terms moves in the standings. "In fairness," Fine said, "what you have to do is consider the staying power of a firm because there will always be ups and downs and clients who are doing well or not doing well or being merged out of existence."
He said Brown & Wood remains in the "growth mode." He expressed particular interest in collateralized loan obligations, which command higher legal fees because they are so labor intensive from a legal standpoint. Asset-Backed Alert's public-market ranking doesn't factor in legal work done on CLOs or collateralized bond obligations because those transactions are conducted as traditional private placements or Rule-144A offerings.