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Underserved Leveraged Finance Investors Gain An Ally

A new law firm is looking to specialize in advising leveraged finance investors to help them push for tighter covenants and more favorable terms.

A new law firm is looking to specialize in advising leveraged finance investors to help them push for tighter covenants and more favorable terms. The model is a new one, because terms of leveraged finance deals are typically defined by the issuer and underwriters. And while it is rare for buyers of such deals to seek changes to a deal's inter-creditor structure, the exercising of these rights is becoming increasingly necessary, said Stephen Mostyn-Williams. He recently founded the firm, smwlaw, in London to address this aspect of the market. The firm is looking to attract U.S. and European investor clients.

Mostyn-Williams, who has spent most of the past 20 years working as sell-side counsel, established and ran leveraged finance practices at a handful of firms including Shearman & Sterling, Ashurst Morris Crisp, and Barlow Lyde and Gilbert. He was most recently senior partner and head of the international banking and finance practice at Cadwalader, Wickersham & Taft, as well as chairman of the European High Yield Association, which he founded in 2000.

"Deal structures are typically heavily influenced by the investment bank taking a big senior piece on the transaction and tend not to be particularly subordinated-investor-friendly," said Mostyn-Williams, who now spends his time renegotiating the terms of leveraged finance transactions on behalf of clients. They include Prudential M&G, Fortress Investment Group, a generalist hedge fund, and AIG-MezzVest, a specialist mezzanine fund.

The new law firm addresses several kinds of issues. These include the conditions under which subordinated creditors can take enforcement action, when senior creditors can take enforcement action without involving subordinated creditors and when interest payments to subordinated creditors can be stopped.

There is a dearth of legal advice available to investors on leveraged finance deals since expertise in the field is concentrated at a few large firms typically hired by the sell-side and thus less available to advise investors.

Prohibitively high legal fees have priced many investors out of the market, but Mostyn-Williams noted his firm charges clients a flat fee for a project rather than by the hour. This is better suited to the needs and restrictions of the investing community, he said.

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