Thacher Got ‘Hooked’ on Structured Finance Before its Collapse
Before its dissolution, Thacher Proffitt & Wood had grown from a law firm with a staid reputation that did mostly corporate work to a firm that dominated the market for structured finance.
By 2007, about 70 percent of the firm’s revenue came from structured finance matters—work that would dry up when problems with securitized mortgages led to the country’s financial meltdown, the American Lawyer reports. The Wall Street Journal Law Blog summarizes the story.
“Thacher got hooked on these lucrative deals, allowing structured finance to dominate the firm’s business model and refusing to consider a merger until the market had collapsed,” the American Lawyer story says. “In its final years, to keep up with the securitization boom, Thacher financed a massive growth spurt with debt that reached $30 million and, after the market turned, left a once fiercely independent firm at the mercy of its creditors.”
When financial problems loomed in early 2008, partners each made an additional $80,000 capital contribution to the firm and agreed not to tap revenues held back for unanticipated expenses, the story says.
In March 2008, the firm’s largest client, Bear Stearns, collapsed, and the law firm breached a bank covenant regarding the ratio of debt to work-in-progress and accounts receivable, the story says. Two consultants hired by the firm—Bruce MacEwen and Altman Weil’s Ward Bower—advised that the firm would have to find a merger partner or dissolve.
But merger talks with King & Spalding failed, and finances were grim for partners, the story says. “Aside from $115,000 each—an accumulated 11½ months of partners’ standard $10,000 draw—partners would take home nothing in 2008. Partners were liable for a portion of the firm’s $30 million debt, along with whatever they borrowed for their final capital contributions to the firm. Partners who had left their 2007 holdback with the firm—a sum that ranged from $100,000 to several hundred thousand dollars, depending on the partner—would never see any of it.”
Forty Thacher partners and 60 associates later landed at Sonnenschein Nath & Rosenthal, and the law firm dissolved. The lateral-moving partners included most of Thacher’s structured finance group.
