According to an article published by
The New York Times, titled “A Growing Conflict in Wall St. Buyouts,” it is crucial
for people to understand the term “designated lender counsel.”
In the past few years, a new relationship has developed between America’s
greatest private equity firms, the banks that lend these firms ample amounts
of money to pursue acquisitions, and the law firms that monitor these
transactions and decisions.
Before, when a bank was planning a large acquisition, that bank was responsible
for hiring a law firm to examine the transaction and loan. Now, many large
private equity firms require banks to use specific law firms, designated
lender counsels, to monitor the transactions. These large private equity
firms even pay for the services of the designated lender counsels they
select. Undoubtedly, this new process causes opposing outlooks to arise.
The article states that many bankers and “in-house” attorneys
are displeased with this new pattern, stating that private equity firms
can now assign firms that do not consider the best interests of the banks.
In addition, many bankers fear these designated law firms will not display
allegiance towards the banks. One partner at an unidentified firm explains
that this practice complicates the process since banks rely on borrowers
to make a living. Refusing to accept an offer simply because there is
no option to choose a firm at the banks own discretion is ultimately unprofitable.
On the other hand, representatives of private equity firms state this practice
saves individuals from overpaying the amount of legal fees owed for law
firms to review these transactions. Various representatives from these
great private equity firms fire back, stating that if banks truly had
an issue with this novel pattern, bank representatives would have already
addressed the issue.
Of course, the debate continues as to whether or not the new pattern is
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