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Kirkland & Ellis sided with its private capital clients in a clash over controversial debt litigation practices, a decision that leaves the status of star partner David Nemecek, leading architect of such transactions, in limbo.
The world’s largest law firm has assured clients it would avoid the most aggressive so-called liability management transactions, which can pit competing private capital groups against each other, after the law firm resigned as transaction counsel to Optimum Communications on Monday.
Those close to Nemecek and Kirkland said he would continue to work for the firm in the near term, and that any decision to leave would be strictly up to the lawyer — who joined Kirkland more than a decade ago after stops at Cravath and Skadden.
Although not formally involved in the Optimum lawsuit, Nemecek was perceived to be the driving force behind a clash between the telecoms company and its private capital creditors.
“Firms like Kirkland can’t be in a position where they are perceived to be suing their own clients,” said a person close to the firm’s top management.
“The more aggressive strategies are becoming increasingly difficult for law firms with large private [equity] practices, precisely because those same firms now also have significant private credit arms.”
Kirkland’s decision to resign from its role with Optimum shows the growing influence of private capital groups and the difficulties the largest firms can find themselves in when one part of a sprawling practice clashes with another.
In November, Optimum — controlled by the French billionaire Patrick Drahi and formerly known as Altice USA — sued Apollo, Ares, BlackRock and Oaktree, which held nearly all of the company’s $26bn debt, alleging they had formed an “illegal cartel” by negotiating a debt swap as a unified collective.
These groups, some of whom pay tens of million of dollars to Kirkland annually, were furious about being dragged into a heated conflict with allegations of collusion that had never been made previously in the rough and tumble world of distressed debt.
Nemecek became the focus of backlash after he had previously mused at industry gatherings about the merits of these tactics and was representing Optimum in debt negotiations.
The sheer scale of private capital had made potential conflicts within Kirkland’s work more acute — with big groups such as Apollo, Blackstone and KKR playing a large role in traditional private equity buyouts and also as lenders to other businesses owned by rival private equity firms.
Kirkland has about $10bn in annual revenue, with its corporate practice geared around the major private equity areas including fund formation, debt underwriting, mergers and acquisitions, and reorganisation and bankruptcy.
Law firms have been putting up tens of millions of dollars in guaranteed pay to lure debt finance specialists such as Nemecek, who would be a prized recruit for a rival firm.
Kirkland and Nemecek declined to comment.
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