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Intro: Welcome to Disputes in Perspective, a Reed Smith podcast. This podcast series will discuss disputes-related trends, hot topics, and developments occurring in the global legal landscape, and hopefully provide you with some helpful insights and practical tips. If you have any questions about any of the episodes, please feel free to contact our speakers. 

Adam: All right, welcome back to the podcast. I'm Adam Massaro in the Denver office of Reed Smith. I'm with Brendan Leanos as well, who's another one of my partners here in Denver. Brendan, how are you? 

Brendan: Thanks, Adam. Thanks for having me. 

Adam: Yeah, so we're six months in at this point, a little bit after that, founding a new office. How is it going for you so far? 

Brendan: It's great. Yeah, it's definitely a good mix of big law firm, big resources that we have here at Reed Smith with a nice startup vibe at the Denver office so far. 

Adam: What's your practice area? 

Brendan: So my practice area is debt finance. I work primarily with commercial banks, debt funds, and private equity sponsors and their portfolio companies in typically an acquisition context where we will help either on the lender side finance a private equity sponsor's acquisition of a portfolio company or on private equity side. Representing our work, representing them and their portfolio companies in obtaining the debt financing in connection with an acquisition. 

Adam: For purposes of your work, is there a percentage more where you do on the debtor side versus the lender side or not? 

Brendan: At Reed Smith, my practice so far in these first six months has been about half and half. Historically, I've done a little bit more on the lender side, maybe 75, 25 in favor of the lender's side. 

Adam: As far as geographic locations, where have you been doing deals since you came over? 

Brendan: Pretty much across the country, I would say. Everything I do, for the most part, is domestic. I don't do a lot of cross-border work, but geographically, for the clients, I'm helping support here, at Reed Smith. They're from New York, Chicago, California, Texas, here in Denver, pretty geographic agnostic. 

Adam: When you jump into a deal, how do you get sort of your first steps in place to know sort of what you're doing, what you're focused on? Because I imagine each deal is going to be different in one form or another. 

Brendan: Yeah, each deal is definitely different. I'd say they all have a similar flavor. If we're on the lender side, we have a pretty comprehensive checklist that we'll dive right into. We'll start. Typically, the first thing we do on the lender side is some basic due diligence of the company. We'll send opposing counsel a due diligence request list, basic information on the organizational structure of the target company and its subsidiaries, organizational documents. We’ll ask kind of basic questions about collateral information that will help us orient around how the lender can secure its security interest in the assets of the company. That stuff kind of looks very similar through deal-to-deal based on the type of company if it has real estate assets that it owns, certain title vehicles that it has, you know, we'll take different paths from there. But the first step is is kind of dusting off, you know, our basic forms, a perfection certificate, we call them, closing check lists. You know, finding a set of precedent documents is oftentimes the first step that makes things go a lot a lot more smoothly. So, for instance, if we do a lot of repeat deals with the same private equity sponsor or the same law firm who represents the other side, and it's often a lot more helpful when we start with documents that both sets of counsel and both counterparties are familiar with. So that's an initial conversation that we often have is, hey, what precedent makes sense, what similar-sized deal we're talking about to a deal we've done recently? Because in my practice, the size of the deals dictate a lot of the charms that we'll have or permit between lender and borrower. 

Adam: I can understand on a more traditional business model where you've got security and hard assets, AR, things like that, potentially equipment, those all make sense. On more exotic assets, you have to do security on what are some examples you've got to do in that space? 

Brendan: Um, fortunately, or, you know, fortunately or unfortunately, I guess, depending on your perspective, I don't do a ton of, of really esoteric assets. I've done aircraft financing is, is maybe the most, um, esoteric of those. And there's, you know, specific perfection steps and requirements you need to, to do, um, related to financing aircrafts. Um, I've done a fair amount of real estate lending and those work generally the same. There's different requirements, state by state and county by county when you're looking at real estate assets. But I have not done a ton of, you know, very, very off the beaten path security interests. Knock on wood, it makes things a little bit more expensive for everybody that are just a harder process. Typically, the lender clients I represent are lending on kind of a cash flow basis for the business. So the equity interests in the company are oftentimes the most valuable. Having direct access to the equity of a borrower or subsidiaries is what a lender typically wants. It makes the foreclosure process a lot easier. It makes the sale process a lot easier. So that's what we've helped us a lot of work on. 

Adam: Flipping the other side, for example, you're representing a sponsor or private equity or portfolio company that's getting lending. Obviously, my thinking is, well, one of the concerns is, how do you ensure that the business can continue to grow and continue to get future funding, things like that? How do you approach that issue where it's not just limited to, yes, let's get a good deal in place, but what do we think about for the future? How do you kind of consider those aspects when you're on the other side? 

Brendan: Yeah, that's a good question. That's really the exercise, I would say, in, you know, I put my borrower side, sponsor side, hat on versus lender side, where the job of, you know, our team when we're representing private equity sponsor is to make sure they're getting the most flexibility in the documents as possible. It's, you know, typically when a private equity sponsors buys a company, their goal is to grow that company. You know, the idea isn't just to buy a company and keep it static in its performance. Its goal is to grow the company organically and then also through acquisitions. So we focus a lot of time on negotiating flexibility and making sure that the company can go out and acquire, you know, add on targets, roll them up into, you know, into the enterprise. And we don't want to have to go to the lender every time we do that. So we'll have flexibility in our covenants to permit us to go out and make acquisitions. And then on the flip side, you know, we need to be able to finance those acquisitions in an efficient way. So we'll kind of pre-bake in the ability to incur additional debt, for instance, go out and raise additional equity without having to go to the lender or the lender group every time because that will kind of muck up the process and make things less streamlined for the private equity sponsor as it goes and, you know, effectuates its model. 

Adam: When it comes to various industries that you've worked with on the private equity side, what are some of the areas or industries you've overlapped on multiple times that you've focused on just three years of practice? 

Brendan: It's a lot of, in the middle market, lower middle market, where I spend most of my time, it's a lot of B2B services. So there are some aspects of technology, but they're more like business subscription models, business technology, some infrastructure. You know, a lot of those types of businesses, not a lot of regulated businesses that I see, but some, you know, kind of call it technology lights or business services is a lot of where I spend my time. 

Adam: When it comes to perfection, obviously, especially on the lender side, and I've certainly dealt with these fights in the aftermath when we've got a distressed asset, we're trying to figure out who has priority. If you've got an asset or a business that has multiple layers of lending, what's your thought process? How do you approach that when you're dealing with perfection issues, lean priorities, things like that? 

Brendan: Yeah, that's a good question. So anytime we go into a deal knowing that there's anticipated to be multiple layers of debt. Kind of the most important thing from my perspective, at the front end is to have an inter-creditor or subordination or agent. So everybody knows going into the deal with very, very clear eyes who has priority and in what circumstances a junior lender might be able to enforce their security interests vis-a-vis the senior lender. So I spend, I would say, most of my time representing senior lenders. So I'm often negotiating those creditor agreements with a junior lender, either unsecured or, you know, secured on a second lien basis behind us. And then there's all sorts of variations based on that. I'm doing a deal now that will have a first lien secured group of lenders, a second lien secured group of lenders behind them, and then an additional group of ABL lenders who are providing an asset-based revolving facility to the company that will have priority on certainly collateral that they're lending against. And then they'll have a thirdly security interest behind the other groups of wires. So, you know, the idea, though, to your question is to not get to the end of the road and have any ambiguity as to who has priority on what. So that's all a contractual arrangement that we try to set out on the front of you. 

Adam: Switching to a different area within your practice, artificial intelligence is coming into law in all types of ways, and it's going to be there, I think, on all types of pieces. There's obviously a question of what is both good for the client and good for the firm, as well as what is something that realistically can a practice benefit from AI, but at the same time, you know, recognize it's not a solve and certainly not a substitute for what we do. But where do you see it practically working in a good way in your area, where is it problematic, and where do you think it's headed? 

Brendan: Yeah, so in my practice, and I'm honestly just starting to kind of learn the capabilities of it and, you know, should do a better job of utilizing it. And I think we will in our corporate practice and our finance practice, this will be a really critical piece going forward. I think it can be incredibly helpful. So as an example, you know, I think a lot of my time is spent coming through Prestige and Documents. We are trying to find what a market term is for this type of deal, this type of company. And it can be pretty tedious going through 10, 12, 15 credit agreement precedents to find specific provisions, specific basket sizes, specific formulations of certain provisions. I think that can be an hours-long process for associates and partners, both for us to wrap our head around and work with the current state of specific basket sizes, for instance, or certain provision in a credit agreement. I think having a tool that we have in our Harvey program can be incredibly useful in saving everyone on the team a ton of time in doing that exact exercise. So we can put in, you know, 1250 credit agreements, ask it specific questions on, you know, what a specific fund relation is on, you know, this investments basket, for instance, and have it spit out a grid to us in seconds, a couple of minutes with, you know, with pretty detailed repairs. And I think that's going to be really critical for us to be able to harness and use efficiently. 

Adam: It is interesting you raise it, because I do agree, I think, on certain areas, ingesting a lot of information is fantastic. Also, if anything, I think there's an upside where the quicker you can get to that synthesis of information, then you as a lawyer, I think, can do a lot more and things like that. The other nice thing is just functionally, when we're working late at night, early in the morning, these are things that years ago we had to wait until somebody else's word processing does these things. To me, half the benefit of AI is that it gives me all that access. At my fingertips almost 24-7, which oftentimes when you're on a deal, working late, all those things, it's having somebody that can jump in there in the form of AI, I feel like really can help a lot with sort of the resources we have in front of us. 

Brendan: Yeah, absolutely. Like I said, I personally just need to spend more time on it, but I know that the firm is doing a really great job in putting that program and its capabilities front and center and training up our associates and they all know how to use it and making their lives easier and making them just better and more efficient at their job. So I think it's going to be something that's really critical for us and our practice over the next, you know, six, 12, 18 months. 

Adam: How about with respect to trends you're seeing in your space as far as intercredit agreements get more complicated, lending is more complicated and more layers, Where do you see the complexities going forward, the issues that you in particular can be of highest value? 

Brendan: Yeah, so what we see a lot and a big focus, especially for our private equity clients, is, like I mentioned, having flexibility in the documents to run their business. But really, when things get into a distressed scenario, having flexibility in your documents to do certain things with respect to the company's balance sheet, for instance. And doing things within those layers of debt that permit the company to maybe swap out debt from one lender group to another, incurring additional debt that on the face of the documents the lenders might not think is permitted. But when you, you know, these documents can be incredibly complicated and they're, you know, interrelated provisions. And the goal for us in the value that we can have on private equity clients is to, you know, the company runs a new initiative. Typically, you have to reach out to the lenders to get a waiver, to get a forbearance. If you're missing financial covenants, there's a lot of flexibility now built into documents that enable you to, you know, go out and incur additional debt or have arrangements with your lenders to kind of pit one lender group against another in a way that, you know, is ultimately going to be advantageous to the company and give it some more runaway to get its bearings again without necessarily going through, you know, a formal restructuring or go through a bankruptcy. You know, there's a lot of tools that are at our disposal. And our goal is to be helpful to the client in navigating those, especially when you have kind of those multiple challenges. 

Adam: Historically, we obviously think of your traditional lenders as your banks, local banks, community banks, plus big banks. But we all see a rise in private credit. How does that sort of rise in private credit impact what you do, optionalities for your clients, things like that? 

Brendan: Yeah, that's a great question. That's a big, obviously a very hot topic in my world these days. You know, for private equity sponsors, it's all beneficial because you just have a lot more demand. For providing debt. So you can weigh different options. I think there's pluses and minuses to be between going to a commercial bank, and a private credit provider. You know, you're oftentimes going to get lower pricing when you go as a bank, private credit is going to be more expensive. But in connection with that higher price you're paying for private credit, you kind of get a more bespoke product in a lot of cases. You get some more flexibility. They're able to support higher leverages than a commercial bank will in a lot of cases. And you get a lot less red tape oftentimes where, you know, when you deal with a private credit lender, especially in the lower middle market, it's, you know, it's two or three individual people that you're dealing with who can really call the shots. You know, they answer to their investors, they answer to their credit committees. But it's a much more streamlined process in a lot of cases. And, you know, you pay for that with a slightly higher interest rate, maybe more prepayment penalties as a borrower. But, you know, and that's where we can add value also kind of at the outset of deals when our clients are going out to market looking at different term sheets. And they'll oftentimes solicit term sheets from both banks and private credit letters. And we'll help them figure out what's most meaningful to them and help them get that decision. 

Adam: I want to wrap up with talking a little bit about being a partner. You started practice on the east coast is that right? 

Brendan: Yeah I did in New York. 

Adam: And then you came out here as an associate is that right as well? 

Brendan: Yeah. 

Adam: How do you balance that East Coast hustle, which is kind of inherent on some levels with living out here? Because there's a different speed in the Mountain West, but the clients still demand the same level of quality, all those things. But I have to think there's adjustment. There certainly was one for me. I'm just curious how you handle that and sort of how you keep the best of the East Coast while also are the things that make it so enjoyable to be out here as well. 

Brendan: Yeah, that's something that I probably think about if I should be thinking about it more. You know, I think that the honest answer is that I don't really see that much of a distinction. I think that I try to just do the best I can for my clients every day and, you know, be responsive to them and, you know, be as precise and as perfect as I can for them when I'm dealing with them. But at the end of the day, also, I think, you know, one of the big things I learned from the partners I worked for in New York at the friends I worked for there was to, you know, how to best be commercial in dealing with closing counsel and dealing with, you know, business parties on the other side. Because at the end of the day, my job is to help get deals done. So it's, you know, the best mentors I had in New York and what I try to carry to my practice here is, you know, how to get from A to B in a deal without pissing everybody off. You know, we get a lot of repeat customers, a lot of repeat law comes to the other side. And it's really important in my practice to build relationships with deposit counsel, with lenders and borrowers on the other side of transactions, you know, advocating for my client and what they need, but at the same time making sure that at the end of the day, we get on a closing call, everybody's congratulating each other, everybody's happy, and we end up in a good place that makes sense for all parties. 

Adam: All right. Well, that marks our time for the day. So that's a wrap on this podcast. But I really appreciate you joining. And thank you again for sharing your insights. I look forward to having you back after we hit our one-year anniversary and see what you're up to then at the firm. 

Brendan: Yeah, looking forward to it. Thanks, Adam. 

Outro: Disputes in Perspective is a Reed Smith production. Our producers are Ali McCardell and Shannon Ryan. For more information about Reed Smith's litigation and dispute resolution practice, please email disputesinperspective@reedsmith.com. You can find our podcast on podcast streaming platforms, reedsmith.com, and our social media accounts at Reed Smith LLP. 

Disclaimer: This podcast is provided for educational purposes. It does not constitute legal advice and is not intended to establish an attorney-client relationship, nor is it intended to suggest or establish standards of care applicable to particular lawyers in any given situation. Prior results do not guarantee a similar outcome. Any views, opinions, or comments made by any external guest speaker are not to be attributed to Reed Smith LLP or its individual lawyers. 

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