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What is a Designated Lender Counsel?

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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 acceptable.

To read the article in its entirety, visit this page.