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April 16, 2010 2:12 PM

Dewey Raises $125 Million in Offering

Posted by Zach Lowe

Update 2, 4/16/2010 at 5:35 p.m. - Comments have been added from a source at the firm and from law firm consultant Peter Zeughauser.

Dewey & LeBoeuf has taken the highly unusual step of raising money--$125 million--in a bond offering designed to refinance its existing bank debt, according to sources at the firm and this report from Bloomberg, which broke the news. 

A source at the firm says Dewey was refinancing existing bank debt. "With [our] bankers we looked at the rates and thought this was a good time to lock in," says one partner. "Essentially we think the current rates are the lowest we’re going to see." The partner adds that bonds were investment-grade, carried three- to ten- year terms, and, he adds with some pride, oversubscribed. "We suspect that other firms will pursue this route," he says.

Richard Shutran, a partner involved in the decision-making process, was not immediately available for comment. 

Law firm watchers across the U.S. are already weighing on what the bond offering means for Dewey, and the early returns are unclear. At least one law firm managing partner outside of Dewey says it is a positive sign for the firm, according to Bloomberg. Morrison & Foerster chair Keith Wetmore told the news service that, "You need a pretty good balance sheet to interest institutional investors. Not every law firm is going to have that." 

Insurance companies purchased the Dewey bonds, according to Bloomberg. 

Dewey has taken several unusual steps to bolster its finances during the recession. In early 2009, we broke the news that Dewey had cut compensation to 66 of the firm's 350 or so partners, with some partners receiving a monthly draw as low as $10,000. Several sources outside the firm have since told us that lower-level partners at Dewey did not receive their full 2008 compensation until late 2009 and are still waiting for their full 2009 compensation now. A firm spokesperson did not respond to requests for comment today. 

Peter Zeughauser, founder of the law firm consultancy Zeughauser Group (and an ALM contributor), calls the offering "creative," and says that making debt less expensive is generally a good step for firms. "Anytime you can cut the cost of your debt, that's a good thing," Zeughauser says. He adds that the law firm world will likely see the move as something of a challenge to Citigroup, the traditional leader among bank lenders to law firms. Firms have "groused" about Citi's high rates in recent years, Zeughauser says, adding that if more firms follow Dewey's lead, "the banks will have to be more competitive."

Dewey is certainly not the only firm to use a bond offering to refinance debt. Dewey Ballantine, one of its predecessor firms, issued a private placement in 1990, and MoFo did the same in 2001 and 2002 to refinance debt incurred when the firm spent money on office renovations and expansion, Bloomberg reports. Clifford Chance issued $150 million in bonds in 2003 to fund its expansion, according to our archives

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They must have a terrific balance sheet to be able to pull this off! Sounds like the wave of the future to squeeze the banks if a firm's economics are strong.

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