Banks Ask Law Firms for More Information, Charge More for Credit
Law firms are finding that credit is getting more expensive and subject to more restrictions.
The changes come as many large law firms are borrowing more money and taking longer to pay it off, the American Lawyer reports.
Bankers are nervous because law firms that have dissolved took on additional debt for expansion, according to dissolution expert Jonathan Landers of Gibson, Dunn & Crutcher. Heller Ehrman, for example, had $54 million in debt, according to dissolution papers.
The lawyer advising Citi on law firm dissolutions, Landers said “the situation in all of them is remarkably similar.” When revenue declined, partner payouts were cut to keep paying down the debt, leading to partner defections, Landers told the American Lawyer.
Andrew Johnman, head of professional services at Barclays, tells the legal publication that rates on credit lines for the largest law firms have more than doubled. In 2007, law firms paid less than 1 percent to borrow money, while today rates are 2 percent to 3 percent, Johnman said. And even the best credit risks are finding that banks are imposing more conditions.
Howrey’s experience is an example, the story says. A year ago, the law firm asked Citigroup Inc. for access to more credit, with rates locked for two years. Citigroup agreed, but insisted on more frequent financial information.
Howrey has to report to Citi on a monthly basis with details of law firm finances and partner hires and losses, the story says. Dan DiPietro, client head of Citi’s law firm group, says Howrey isn’t alone. Any law firm seeking new or bigger credit lines have to provide more frequent information.
