Addressing The New Economy With An Established Expertise: Focus On A Finance Group

Editor: Would each of you gentlemen tell our readers something about your professional background and experience?

Paparo: I've been involved in the financial services industry for the last 19 years. I started off at the rating agencies and then moved to commercial banking. Upon graduation from law school I worked as an in-house attorney for a financial institution that eventually became a part of Bank of America. I have always focused my practice on complex lending and restructuring matters. I am now handling senior lending work and restructurings for a variety of financial institutions and funds both on the syndication side and in bilateral transactions.

Ellis: I was a partner at Goodwin Procter until last September. I had been there for 17 years. I started as a bankruptcy lawyer and gravitated to corporate finance, where I handled senior debt, mezzanine finance and leveraged buyout work. Today I work primarily in the junior capital space, consisting of second lien and mezzanine financing. Also, I do a good amount of senior debt work. My work runs the gamut of corporate financing from debt to equity.

Editor: How did each of you come to Proskauer? What was it that attracted you to the firm?

Ellis: I was approached by Proskauer just after they had opened a Boston office. The Proskauer platform is unique, and the opportunity to be part of an entrepreneurial Boston office with a large New York-based firm supporting you - with offices across the country and overseas - was very attractive. In addition, the firm already possessed a strong corporate finance platform, which would enable us to execute our practice in ways that were simply not available elsewhere. Robust New York and Los Angeles offices, together with European opportunities, and the entrepreneurial nature of the Boston operation made the proposition very attractive. Over the past 10 months the practice has expanded three times over what I had anticipated.

Paparo: I decided to join Proskauer as a consequence of its reputation as one of the truly outstanding law firms in the country. I was attracted by the great opportunity to join Proskauer's dynamic corporate department, with a strong commitment to financial services.

Editor: Please tell us about your practice. How has it evolved over the course of your career?

Paparo: My practice can be summarized as a complex finance and restructuring practice. The complexity of transactions has increased dramatically over the years, especially in light of the emergence of new financing structures and the growth of junior capital lenders. The interaction between the various lenders has taken up more and more time by way of negotiating the intercreditor issues. It will ultimately be interesting to see how things will work out when there is a downturn in the economy. In addition, fund activity on the financing and restructuring side has also increased, and that has significantly contributed to the dynamics and complexity of the practice. From a lawyer's perspective, it is a great time to be involved in the financing and restructuring business.

Ellis: I started as a bankruptcy lawyer. When the economy began to move in a very positive direction, I realized that I needed to retool my practice because there was no bankruptcy work around. I started doing senior debt work. I think that the best senior debt lawyers are those who have an insolvency background. That qualification of understanding the downside/creditor rights scenario resonates with senior lenders. The firm had a large LBO practice, and there were a great many private equity sponsors who were spending time negotiating with senior lenders on the leverage piece of their buyout work. To introduce an insolvency/senior debt lawyer to that practice made sense. At that point my practice began to evolve. Many of the sponsors began doing subdebt funds as they filled the gap between senior debt and their equity piece. From there my practice moved into mezzanine financing with equity kickers, related creditor rights issues and on to an ever-expanding volume of second-tier junior capital work. It has been a very interesting 18 years because I have been able to work in just about all areas of finance.

Editor: Although Proskauer is known for its employment and labor law practice, in fact it has more than a century of experience in representing banks and financial services organizations. How did you find this practice upon your arrival at the firm?

Ellis: I would not have joined Proskauer if it did not have a deep bench in my practice area. The firm does have a very strong reputation, and one that is well deserved, in this area. In support of my practice, I am very glad to be able to call upon the expertise of some of the most experienced practitioners in the field, from sports lending to ESOPs, healthcare to real estate, high yield debt, and so on.

Paparo: Financial services clients, just like other types of corporate clients, are increasingly looking for law firms to handle all of their legal needs. Accordingly, I have been able to involve our ERISA and labor attorneys in financing transactions and to direct purely labor/employment work to our labor practitioners.

Editor: The two of you have just been named co-heads of the Finance Group. Please tell us what you propose as an agenda for the group.

Paparo: Our goal is to continue to increase and promote the capabilities of the Finance Group. Proskauer's finance expertise is one of the best-kept secrets in the financial services market. One of the reasons for our low key image, I believe, is that Proskauer is not engaged in volume "cookie cutter" deals, but rather we are often called upon to handle the complex and difficult transactions. Our deals often call for innovative business and legal solutions.

Ellis: The corporate finance group at Proskauer has such depth of experience. There are few firms in the country with such expertise - from complicated senior debt deals to sports financing, real estate and junior capital - and it is spread across several national offices. We are in an excellent, if not unique, position. Our main agenda is to take this unique platform and expertise and spread the word to the corporate and finance communities.

Editor: Would you describe the services that this practice offers?

Paparo: Our experience and capabilities are extremely broad. We do, however, have an exceptionally strong background in certain areas, including acquisition financing, mezzanine financing, sports finance, entertainment/media finance, aircraft, vessels and anything with respect to asset-based financing, leasing or factoring facilities. Our mortgage finance group is very active and represents several of the money-center banks, as well as a number of international financial institutions.

Ellis: Proskauer has a very robust healthcare practice. Predictably, we have a very strong healthcare corporate finance group. The firm's nationally recognized employment and labor law practice has helped in the evolution of our sports finance group, our entertainment media finance group and, of course, our nationally ranked ERISA and ESOP financing skills. The firm provides us with a wonderful platform, and it is one into which our practice is fully integrated.

Editor: Are there areas of your practice which are particularly hot right now? Emerging specialties?

Ellis: Junior capital work is taking off right now. This includes second lien financing that is made up of new entrants, such as hedge funds and BDCs in addition to the traditional mezzanine funds. There is a great deal of private equity activity, and that leads to more finance activity. Consequently, as the private equity work continues, the volume of work in connection with buyouts continues to be heavy.

Paparo: The healthcare industry has been very active. There is so much money out on the Street at the moment that we are seeing its impact on pricing, structure, deal size and financial covenants from senior bilateral loans to syndications to the specialized lending areas.

Ellis: The number of deals involving one-stop financing has increased dramatically. Many of our clients will now approach a deal and need senior, mezzanine and second lien financing, and we are in a position to handle all of their needs. This represents a departure from the past, where the three deals were done separately with three different lenders.

Editor: Proskauer also has extensive experience in banking and commercial litigation. Would you tell us about the role your group plays in working with the firm's litigators in this area?

Paparo: At the moment the economy is in relatively good shape, and defaults and NPAs are down substantially. Accordingly, the litigation that we typically see during a down cycle (fraudulent conveyances, successor liability and lender liability claims) has not been as active in the past.

Ellis: Commercial finance litigation is a specialized area. We are very fortunate at Proskauer in having a group of litigators which understands creditor rights and lender liability issues and has dealt with these issues for a long time. This includes a great depth of experience in arguing about prepayment penalties, fraudulent conveyances and preferences in an insolvency proceeding. Because the economy is doing well, we have not had a great deal of this activity recently. That state of affairs is bound to change, inevitably, and when it does we will be able to address the new situation with a litigation group that is corporate finance savvy and adept at dealing with the complexities of commercial litigation.

Editor: And with respect to its work in representing banks and creditors' committees in bankruptcy and reorganization proceedings?

Ellis: When we are negotiating with creditors and structuring deals with multiple entities where fraudulent conveyance concepts must be addressed, I get the insolvency people involved at the earliest possible moment. They are fully integrated into the corporate finance group at the very beginning of our deals.

Paparo: All of my restructuring work is focused on representing creditors acting as junior lenders or various distressed debt funds. We have an excellent bankruptcy department, and we routinely undertake complex multi-party restructurings, debt for equity swaps, state court creditors rights litigation and dip financing. As Steve points out, we work very closely with our bankruptcy experts.

Editor: I gather you were able to draw upon the firm's resources - in terms of expertise and personnel - in staffing all of your projects.

Paparo: Yes. By way of example, we recently closed a substantial and complex asset based facility that was probably one of the largest healthcare financings in recent years. At one point we had 25 to 30 attorneys with diverse specializations working on the closing. This enabled us to close the transaction, involving hundreds of locations, within 30 days of being retained to commence work on the matter.

Ellis: Our experience in Boston has been quite unique. In February of this year, the firm expected to have some 15 lawyers residing at this office by year end; we now have over 60. The work here has really exploded. The junior capital work is particularly intensive, and to have the number of truly exceptional tax lawyers at our disposal in Boston is an extraordinary advantage in this market.

Editor: What about the future? Where would you like this practice to be in, say, five years?

Paparo: We would like to see Proskauer widely recognized as having one of the premier and highest quality finance practices in the country.

Ellis: I believe we have accomplished the really difficult task, which is to recruit and develop an exceptional group of lawyers for our various offices across the country. Now we must let the world know about the services we offer.

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