Pushing boundaries to drive global finance growth

Creative thinking opens up new horizons for deals across asset classes.

“Clients need solutions that redefine what it means to finance a transaction,” says Laura Swihart, co-chair of Dechert’s global finance practice. “Our ability to cross-over between mainstream financing and niche specialties places us ideally to address these needs.”

Swihart points to the firm’s work for Churchill Asset Management on its inaugural US$700 million collateralized fund obligation (CFO). “The deal set a template for a new type of hybrid CFO, allowing Churchill both to invest in its own funds and also hold a legacy portfolio of funds managed by third parties – a novel mix,” explains partner Jon Burke. And while complex CFOs typically require as much as a year to piece together, Dechert drove the Churchill transaction from start to finish in just three months.

Dechert is pushing boundaries in the Single-Family Rental (SFR) securitization space, which has mushroomed into a US$60 billion market. “We’ve helped turn SFR finance into a robust, viable asset class,” says partner Kenneth Hackman. “A case in point is our advice to Royal Bank of Canada, which we advised on an innovative SFR-backed US$525 million revolving credit facility used to support Bridge Investment Group’s acquisition of alternative investment firm Gorelick Brothers.”

Deep knowledge of real estate finance has long underpinned the firm’s market-leading position in the commercial real estate CLO space. A standout example was acting on all three of MF1 Capital’s 2022 CLOs, including one of the five largest CRE CLOs ever issued, at US$2.022 billion. Dechert also represented Goldman Sachs and Wells Fargo in the biggest social offering yet in the private-label CMBS market, a US$1.525 billion financing underpinning Blackstone’s acquisition of 43 properties in Florida.

“Our ability to guide clients through such transformative deals is a hallmark of the firm’s offering,” says practice co-chair David Forti. Amid an M&A boom in the data-center sector, Forti advised a Goldman Sachs-led lender consortium on the US$12 billion financing underpinning the take-private acquisition of global data-center operator CyrusOne Inc. by KKR and Global Infrastructure Partners.

The firm is also a leading advisor to business development companies (BDCs) and their lenders. “We act on the most sophisticated financing transactions in private credit finance,” says partner Jay Alicandri, “for example Blackstone Alternative Credit Advisors’ US$5.15 billion multicurrency senior secured revolving credit facility, widely considered top of its class for the BDC industry.”

Our international reach is central to successful dealmaking. For instance, lawyers in Europe and North America guided a global alternative investment manager through a loan-on-loan financing underpinning the acquisition of UK logistics warehouses, and advised a global investment management firm on a financing facility relating to the acquisition of a portfolio of light industrial assets in the Nordic region. “Both these deals were multi-jurisdictional, and absolutely reliant on close coordination across the UK, continental Europe and North America,” says partner Aparna Sehgal.

“We are also proud of the diversity of our team in an area of the law that is traditionally male-dominated,” notes Swihart. “A recent analysis into the global finance team makeup showed that more than 50 percent is diverse. Additionally, we are very pleased that some of our deals have been staffed fully by women lawyers.” One such deal that closed in 2022 was not only female-led, but all staff working on it were women of color – led by partner Nitya Kumar Goyal, Dechert advised an affiliate of Rockwood Capital, LLC, as lender, in connection with the purchase of a US$45 million mezzanine loan.

Securitizations for leading fintech clients

A team led by partner Andrew Pontano advised AI fintech trailblazer Pagaya on innovative structured finance transactions across an array of asset classes, including the largest-ever securitization of marketplace consumer loans.

Dechert is among the handful of leading law firms in the fintech ABS market, and has worked on securitizations of fintech assets involving the issuance of more than US$6.2 billion in securities.

Pontano’s team also helped expand credit union involvement in the automobile loan-backed securities market, advising J.P. Morgan Securities on a US$460.3 million automotive ABS sale by Pentagon Federal Credit Union. “Dechert has now played a lead role in all four auto-loan ABS deals led by credit unions, helping drive a market with significant growth potential,” Pontano notes.

Fintech clients unlock the potential of emerging technologies

As fintech clients integrate with mainstream financial markets, Dechert is pioneering novel deal structures and resolving the complex legal and regulatory questions prompted by new technologies.

“This year we have seen a range of clients – from entrepreneurial ventures to large financial institutions – seek to leverage the potential of digital assets, blockchain and other emerging technologies,” explains partner Mark Perlow. “However, clients wanting to make the most of these opportunities are also facing a regulatory labyrinth.”

BerkShares, a paper-based Massachusetts community currency, turned to Dechert partner Timothy Spangler when it wanted to allow users to make purchases via a mobile app. “The proposal was to migrate to a blockchain-based digital system,” says Spangler, who helped solve the unique regulatory issues posed at the state and federal level. The first-of-its-kind digital local currency was launched successfully in April 2022.

“And it’s not just about using blockchain for payments,” Spangler adds. iTrustCapital, a leading platform for buying and selling cryptocurrencies through IRAs, also faced myriad obstacles launching its market-leading crypto IRA investment platform.

“We were faced with questions that were at the intersection of investment management and technology. We needed to find routes through those issues, which lead to their rapid growth in the market and ultimately to a successful Series A funding round,” Spangler comments.

Among those increasingly looking to fintech are traditional financial institutions. A Philadelphia-based team led by partner Linda Ann Bartosch advised Huntingdon Valley Bank on an arrangement to sell participations in commercial loans to the MakerDAO protocol.

The partnership was one where both sides could add value to one another – the MakerDAO’s DAI stablecoin gained a predictable stream of stable assets to back its value, while HVB was able to grow its balance sheet for commercial loan funding. “Partnering with a digital currency platform presents challenges for traditional financial institutions, but we expect to see even more interest in similar transactions in the future,” explains Bartosch.

As financial technologies continue to evolve, new products are emerging.

“A growing part of the fintech space is Decentralized Finance, or DeFi,” Perlow notes. “DeFi uses the same blockchain technology that cryptocurrencies use, and can provide a speedy and secure digital alternative to transferring funds through traditional means.”

Dechert exercised the global scope of its fintech practice when a Munich-based team advised Rudy Capital on the structuring and initial issuance of debt instruments, one of the first bond solutions in the DeFi market. “The bonds are intended to give investors access to a market-neutral crypto-assets portfolio that invests in strategies from the DeFi environment, such as stablecoins, lending, liquidity mining or staking,” says partner Hans Stamm. “The aim is to generate a steady, positive return regardless of whether the crypto asset markets are rising, falling or flat.”

The actively managed and risk-adjusted portfolio combines return strategies from sustainable sources of return, which should enable long-term performance without speculation on the crypto-asset markets.

Securing antitrust victories for Endo

A landmark 'reverse payment' trial reaches successful jury verdict after eight years of litigation.

In 2010, Endo Pharmaceuticals settled a patent dispute with Impax Laboratories over Impax’s generic version of the painkiller Opana ER. Plaintiffs challenged the settlement, alleging that in the settlement Endo had agreed to pay Impax to delay generic competition in violation of the antitrust laws.

After eight years of litigation, the case went to trial in 2022. As partner George Gordon explains, “Very few cases like this go to trial, let alone reach a verdict, so this case raised several rarely tried issues, particularly relating to how the jury should assess the competitive effects of the challenged agreement under the antitrust ‘rule of reason’ standard.”

Co-defendant Impax settled after trial started, agreeing to pay a total of US$265 million to resolve the case. Endo, however, stayed the course and, after three weeks of trial, a federal court jury handed Gordon, fellow partner Julia Chapman and their team a defense verdict, concluding that the settlement was not anticompetitive. “Our success in this case was a culmination of a defense built over several years, which addressed the complexities that arose along the way,” notes Chapman.

This victory followed another one for Endo earlier this year. Dechert secured dismissal of a lawsuit brought by the FTC, which claimed that a 2017 license agreement, also between Endo and Impax, violated the Sherman Act. The judge agreed to dismiss the FTC’s case in its entirety due to its “failure to state a claim.”

Complex investigations require global expertise

Handling big-ticket investigations and prosecutions on both sides of the Atlantic.

The work of Dechert’s white collar and investigations team is by its nature global, diverse and wide-ranging.

In London, partners Roger Burlingame, Matt Mazur and Evan Flowers are advising 11 UK oil traders – the so-called “Essex Boys” – in one of the highest-profile market manipulation investigations of recent years. “We’ve had to interface with UK and U.S. enforcement agencies while simultaneously litigating in both Chicago (a class action) and London (judicial review proceedings),” says Burlingame. “We’re the only firm that’s equally strong in white collar on both sides of the Atlantic. This matter highlights our unparalleled capability to serve clients in these kinds of matters.”

In New York, Dechert devised a successful defense strategy for Michael Steinhart, the world’s largest private antiquities collector, with firm chair Andrew Levander securing a first-of-its-kind settlement with the NYDA. “Despite an extensive three-year investigation by NYDA and the Department of Homeland Security, involving no fewer than 17 searches,” explains Levander, “no criminal charges were brought against Steinhart, nor penalties imposed.”

Another prominent investigation in the public eye is that related to Energy Harbor, the owner of two nuclear power plants at the heart of an alleged bribery conspiracy to pass legislation to provide a US$1.3 billion government subsidy. An ongoing matter, this investigation is one of the most high-profile in the U.S., and has been reported as probably the largest bribery scheme in the history of the state of Ohio.

“Following a grand jury subpoena, we conducted an extensive investigation of the facts, submitted a large volume of documents to the government, and made a presentation to the U.S. Attorney’s Office explaining that our client did nothing wrong,” explains partner Jonathan Streeter. “To date, our client has not been charged.”

Also led from the U.S. is David Kistenbroker’s role as independent counsel to Exelon’s Special Litigation Committee, handling investigations into allegations of bribery, breaches of fiduciary duty and other alleged misconduct.

Dechert’s global white collar team does not just step in when there is an investigation, however – it actively briefs clients on potentially relevant developments worldwide. In November, London partner Judith Seddon was the keynote speaker at the 7th Annual Business Crime Conference, setting out what the UK government has done and what is proposed in the future to investigate and prosecute economic crime. “It is a priority for Dechert’s global white collar practice to ensure its clients are prepared for any legislative changes that may affect business practices, whatever the jurisdiction,” says Seddon.

The year of ESG: a new era for business

2022 has been a crucial year for environmental, social and governance (ESG) initiatives, as its significance for business crossed the line from advisory principles to mandatory requirements.

With its global presence and strong regulatory expertise, Dechert has helped clients worldwide with this fundamental shift to incorporating ESG principles into every facet of business.

Dechert is successfully guiding asset management clients operating in the EU, particularly in the leading fund jurisdictions of Luxembourg and Ireland, through their “level 2” disclosures required by the EU’s Sustainable Finance Disclosure Regulation (SFDR). “The disclosure requirements are not straightforward, requiring a granular level of knowledge of how a fund business runs its portfolio,” explains London-based partner Mikhaelle Schiappacasse, who co-leads Dechert’s global ESG working group alongside D.C.-based partner Julien Bourgeois. “As Dechert covers all the relevant major jurisdictions, has in-depth knowledge of its clients and has monitored developments well in advance of the regulation coming into force, we are well-positioned to advise,” she adds.

Asset managers also need to watch the progress of the UK FCA’s Sustainability Disclosure Requirements, as well as the potential opening up of ESG investments to pension funds in the U.S. Also in the U.S., the SEC’s proposals to enhance and standardize climate disclosures will pose challenges across the financial sector, while the forthcoming Corporate Sustainability Reporting Directive (CSRD) is just one example of EU regulation designed to trigger a reappraisal of existing business practices across all industries to embed ESG considerations.

The “first mover” mantra is becoming louder. Climate risk, supply chain sustainability, diversity and inclusion, workplace health and safety and board-level accountability are now critical reputational risk factors. “As investment and lending decisions are increasingly influenced by ESG considerations, debt and equity investing will be transformed,” says Philadelphia-based partner Stephen Leitzell. “ESG principles are now critical to gaining market share, improving operating performance, engaging employees and raising capital.”

Sustainable Working Practices at Dechert

Dechert constantly reviews its own practices to encourage sustainable working.

In 2022, London achieved coveted ISO 50001 certification from the BSI for its energy management system, while pro bono and day of service volunteers across the globe have worked hard to transform the built and natural environment.

In New York, the ‘green team’ has worked hard to promote employee awareness of sustainability through recycling, waste-sorting signage and free e-waste collection, while smart initiatives across all offices to reduce heating and lighting have significantly reduced our carbon footprint.

The latest Dechert Spark Tank innovation contest encouraged colleagues to submit ideas on three key topics: enhancing the intranet; making Engaged & Empowered, Dechert’s hybrid work model, a success; and elevating the firm’s ESG efforts.

With 70 percent more ideas competing to win this year, we have already started to implement the winning suggestion, to introduce a composting program across eligible Dechert offices to reduce food waste by turning scraps into nutrient-rich soil.

Alongside the Asian Development Bank (ADB), Dechert is driving Kazakhstan’s energy and infrastructure modernization

With no law dedicated to heat, Kazakhstan’s facilities are outdated and run on pollutant fuels like coal or oil.

Partner Maria Tan Pedersen is part of a consortium of experts working with ADB to prepare a new legislative framework governing the generation, distribution and supply of heat.

“Kazakhstan’s curren tinfrastructure causes significant heat system losses and service disruptions, while generating greenhouse gases and air pollution,” Pedersen explains.

“We’re bringing our energy and ESG experience to the table to revitalize these systems.”

Also working with ADB, Pedersen is acting as International Legal Expert and team leader in the overhaul of Kazakhstan’s PPP legal framework.

These reforms aim to enhance the efficiency of PPP infrastructure projects and accelerate the mobilization of private sector capital, as well as to enable large-scale infrastructure development and investment in Kazakhstan.

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Dechert’s white collar and corporate groups produced a thought leadership paper – “Are You Ready for ESG as a Critical Business Imperative?" – with global advisory firm StoneTurn.

“Boards and senior management teams should focus on embedding ESG into existing business practices. Compliance is no longer a cost, but a driver of value. It is these companies that will reap the benefits of integrating ESG into corporate performance,” says co-author Matthew Banham.

Dechert also authored “The ESG Climate Change Evolution of Commercial Real Estate Finance,” a thought leadership paper on the intersection between ESG and the commercial real estate finance industry.

Global finance partner and lead report author Jason Rozes notes, “If real estate investors, property owners, tenants and lenders take action now to transition their capital to net-zero investments, not only may they avoid devastating economic losses, they stand to make outsized profits compared to market participants who ignore the warning signs.”

“This will also allow market participants to meet their corporate ESG goals and avoid possible regulatory fines.”

The paper was co-authored by Will Fuller, a global finance associate.