To celebrate our 10th Edition of "Best Law Firms" we spoke with representatives of several current "Law Firm of the Year" honorees. Each of these firms has been ranked in every edition of "Best Law Firms" throughout the past decade. All offer timely insight into their work on legal challenges shaping the future of their practice.
In big cities, there has been a surge to build to keep up with demand and rising rent rates. What sort of creative efforts have been made to accommodate demand where space may not be immediately available?
While the transfer of development rights (colloquially known as “air rights”) in New York City has historically been a way to increase development potential when land is scarce, we are seeing increased interest in these types of transactions that involve land owned by public-housing authorities. In December 2018, the New York City Housing Authority (“NYCHA”) put forth a plan known as NYCHA 2.0 in an effort to raise billions of dollars to address the $24 billion in capital improvements needed for NYCHA’s public-housing developments. The plan identified over 80 million square feet in unused development rights generated by NYCHA land and included the transfer of at least a portion of these development rights as a means to generate revenue to help fund these capital needs. Private developers have started pursuing these transactions, which require approval from the U.S. Department of Housing and Urban Development pursuant to Section 18 of the Housing Act of 1937, but are not dispositions subject to the City's formal public review process.
Other creative efforts that have emerged in response to the skyrocketing demand for housing and rising rents include the use of micro-units and co-living solutions to create additional density within the same buildable square footage. Co-living, which consists of community-focused shared living, is one of the fastest-growing housing sectors in major metropolitan areas and generally provides more affordable housing options than more traditional housing typology. As noted below, however, this new type of housing presents regulatory challenges.
In addition, the increased use of modular housing construction, which is generally quicker to complete and less expensive to construct than traditional methods of housing construction, is being used to combat high development costs.
- Joshua Rinesmith and Nora Martins, Real Estate Partners
Have state and local regulations, inspection requirements, and zoning laws made the practice more complex in the past 20 years or is it roughly the same?
Land use and zoning practice in New York City has become increasingly complex within the last 20 or so years, for both residential and non-residential development alike. On the residential front, the City has adopted two of the country’s most groundbreaking programs intended to spur the creation of affordable housing. The first of these was the voluntary Inclusionary Housing Program, established in 1987, which provides floor-area bonuses for the creation of permanently affordable housing within development projects. More recently, in 2016, the City adopted the Mandatory Inclusionary Housing program, which requires that a certain percentage of residential floor area be set aside for permanently affordable housing when there is a rezoning or certain other discretionary approvals that increase residential density. There is no doubt that these programs have added a significant number of permanently affordable rental units to the City’s housing stock; however, these programs have also added complex regulations and necessary approvals from additional agencies that are challenging even for sophisticated developers.
For non-residential construction, recent changes to the City's zoning resolution have been adopted that intend to protect industrially zoned land from being developed with certain types of commercial uses the City has determined applies pressure on the City’s traditional manufacturing sector. These regulations require special permits (which are subject to the City’s formal public review process, including City Council approval) for all hotels in manufacturing districts and for self-storage facilities in certain widely mapped designated areas. While these are new regulations that add to the complexity of developing such uses in New York City, there are other portions of the City’s zoning resolution that are instead so antiquated that they present challenges to existing and evolving business types. Such businesses include physical fitness centers, which can help combat the abundance of retail vacancies but require a lengthy public review process, and new businesses that are evolving to assist in fulfilling the e-commerce supply chain (such as smaller-scale distribution and warehouse facilities that need to be located closer to non-manufacturing areas where deliveries are actually being made). The City is recognizing the need to have more fluid zoning regulations that can adapt to changes in the commercial and manufacturing sectors, but the process for modifying the zoning resolution can be cumbersome.
In addition, the New York State legislature enacted the Housing Stability and Tenant Protection Act (known as rent regulation reform) in June 2019. This series of bills created additional protections for tenants in rent-stabilized housing but also included additional tenant protections for all rental apartments including non-rent regulated units. Initial feedback from practitioners and landlords suggests that these regulations will make it more difficult to turn over units and will potentially disincentivize capital improvements.
- Joshua Rinesmith and Nora Martins, Real Estate Partners
As the effects of climate change are starting to be felt, what sort of changes have you advised and made to improve building code best practices?
In Miami, the City has enacted an amendment to the Miami 21 Zoning Code which will allow new construction and redevelopment to raise habitable structures out of the flood plain with added Freeboard, up to 5 feet above the Base Flood Elevation. The amendment will also allow additional first-floor height for ground-floor retail establishments so that they may better respond to potential changes to public infrastructure in response to sea-level rise. This additional elevation does not count against the maximum building height. Also, the region is taking aggressive steps to upgrade infrastructure such as stormwater outfalls and seawalls in order to ensure that its coastal infrastructure more resilient. Finally, the federal, state, and local government entities in the area are continuing to examine ways to nourish and strengthen the state’s beaches.
- Spencer Crowley, Real Estate Partner
Can you speak to an experience where you helped a client through bankruptcy, and they were better off for it?
We currently represent Verity Health Systems and various related entities as their lead counsel in the second-largest hospital chain Chapter 11 filing ever. Verity has more than $1.4 billion of debt, and many complex challenges arose, requiring strategic maneuvering and tenacity, which ultimately led to all the hospitals keeping their doors open and preserving thousands of jobs and critical healthcare access to residents in the community. The six hospitals in the Verity system had been financially stressed for decades, but issues related to the California Attorney General’s oversight of nonprofit hospitals had caused every effort to transfer them to a more financially viable operator failed.
The most unique issues related to the transfer of two hospitals in bankruptcy to Santa Clara County, including the scope of the powers of the AG over the sale of non-profit healthcare assets in bankruptcy. The AG’s power over sales of nonprofit hospitals is virtually beyond challenge outside of bankruptcy, and the AG frequently imposes onerous financial and operational conditions on hospital buyers. In very few cases have parties challenged the AG’s powers in hospital bankruptcies or discussed the unique Bankruptcy Code provisions that address the sale of nonprofit assets in bankruptcy. Dentons crafted unique, innovative legal arguments pursuant to section 363(f) of the Bankruptcy Code to neuter the AG’s ability to review the sale. This resulted in a sale, which had previously proven impossible. The Bankruptcy Court consistently agreed with the Dentons’ arguments, overruling repeated efforts by the AG to derail the sale. The subsequent District Court appeal was voluntarily dismissed by the AG after Dentons filed a motion to dismiss, pursuant to section 363(m) of the Bankruptcy Code.
Additionally, because of the inability of the AG to impose conditions on the County, Verity was paid significantly more for assets than would have been possible if a buyer had been subject to the AG’s oversight. This has resulted in a much greater likelihood of full payment on over $450 million of secured debt and of some recovery for unsecured creditors. Additionally, because the AG did not have the right to review the sale since it was a sale to the County, a public entity, the sale closed approximately four months more quickly, resulting in savings of approximately $50 million for the benefit of unsecured creditors. Had the deal not completed, at least one of the hospitals (and possibly both) would probably have closed, resulting in the loss of significant access to critical health care in the community and job termination for thousands.
Bankruptcy filings have been trending downward, and according to some, it is at a 10-year low. Do you find this trend concerning and can you speak to why this may be occurring?
The reduction in recent years in commercial Chapter 11 filings have been driven by a number of factors, including low interest rates, multiple liquidity and refinancing sources competing against each other, an overall strong US economy, covenant lite deals, and the cost, time, and risks of a Chapter 11 process compared to some other alternatives for restructuring. That said, there has been a material increase in year-over-year commercial Chapter 11 filings in 2019, and those increases are likely to continue into 2020.
Bankruptcy is just one way to implement a restructuring or liquidation. There are times when the tools of the Bankruptcy Code can be particularly helpful, such as the automatic stay against creditor enforcement actions, the ability to reject burdensome contracts and leases, the ability to sell assets free and clear of interest, claims and liens, the ability to bind holdouts in a creditor class to the Chapter 11 plan treatment for the class, and the ability to cram down non-consenting classes of creditors or interest holders in a Chapter 11 plan. There are other times, however, where these tools are not all that important to implementing the restructuring or liquidation (for instance, a voluntary debt for equity swap to deleverage a balance sheet or a business that can be quickly liquidated or sold on an out-of-court basis).
Even when Chapter 11s are filed, the game plan for those cases has tended to change. In earlier recessions, businesses would often file a free-fall bankruptcy to put the automatic stay against creditor enforcement actions in place and then explore reorganization and/or sale options. For instance, a retailer may close some of its stores shortly after the filing and then take some time while staying in Chapter 11 to see if they remaining stores are profitable and can emerge from Chapter 11. The banks who made the original loan had large loan workout groups and would seek to restructure or otherwise maximize recoveries on their troubled loans.
In many recent Chapter 11s, the exit strategy is determined before the bankruptcy filing and is ready to be implemented early in the case, sometimes on a prepackaged or pre-negotiated basis with the support of certain key creditors or a stalking horse bidder. Debt positions often are sold at a discount from the original holders to private-equity funds either before or during the restructuring process, some of whom may have a loan to own strategy and others of which may have an arbitrage strategy. Many retailers liquidate all of their locations shortly after the filing even though some of them are currently profitable because the lenders are more focused on the longer-term challenges facing brick-and-mortar retail businesses.
In conclusion, our view is Chapter 11s remain an important restructuring tool for certain situations, and the volume of bankruptcy filings will increase further into 2020. Other alternatives to Chapter 11 will also be utilized more than they were in prior recession cycles.
- Robert Richards, Samuel Maizel, and Tania Moyron
As tax laws have changed over the past 20 years, have they been easy to adjust to? Are there any complications that arise for clients that might conduct business overseas and need to report domestic returns?
Changes in the way that companies operate business have likely had a greater impact on tax laws than tax laws have had on the operation of business. As commerce has become increasingly multinational, it has become difficult for companies to navigate the maze of international tax rules and ensure that their income is not subject to double taxation. You can see this in the current efforts of the Organisation for Economic Co-operation (OECD) and Development. Those efforts are nominally addressed to tax considerations related to the international digital economy, but now they have the potential to impact all businesses engaged in international commerce. It is important to understand not just the rules today, but how potential changes to international tax rules, such as those being considered by the OECD, may impact their business going forward. For clients that conduct business overseas, the structure of the overseas operations and understanding filing and compliance obligations is critical to ensure that income is not subject to multiple layers of tax. - Robert S. Chase II, Partner
How have recent interpretations of cryptocurrency gains and assets by the IRS created complications for you and your clients?
The IRS is focused on taxpayer’s obligations to report cryptocurrency transactions on a yearly basis and to subject certain transactions to taxation. Last year, a major cryptocurrency exchange was ordered to disclose information on individuals who engaged in transactions over $20,000, resulting in more than 13,000 customers being notified that their data would be disclosed. In July, the IRS issued over 10,000 letters directly to cryptocurrency holders informing them of their obligation to report taxable exchanges and to review prior year returns for any noncompliance. In October, the IRS issued a revenue ruling and FAQ addressing virtual currency income tax reporting issues. Of note, the IRS clarified that hard forks would be treated as a taxable event if the holder of the old currency receives new currency after the fork. The IRS also issued draft Form 1040 schedules, which, if adopted, will require taxpayers to inform the IRS of cryptocurrency holdings even if there were no reportable transactions in that taxable year.
It is clear that considerable efforts are underway to ensure that taxpayers are aware of their reporting obligations around cryptocurrency and that the IRS is on the lookout for the non-compliant taxpayer.
- James N. Mastracchio, Partner
What have you found to be some of the greatest misconceptions that clients have about the tax code, and you frequently must correct them?
A common misconception is that an accounting method change can only be used to resolve routine matters, and clients often fail to consider one for complicated issues, including those raised by the IRS Exam.
When the IRS is challenging a large deduction or proposing that income was reported erroneously, a settlement can often be reached, which both reduces the challenged amount and allows the additional income to be taken into account over a number of years using an accounting method change. Further, a taxpayer may thwart a likely adjustment if an accounting method change is filed before an issue is raised by IRS. Because an accounting method change receive audit protection (that is, the IRS cannot raise the same issue on exam in an earlier year), any subsequent IRS Exam adjustment is prohibited. Additionally, when issues that are raised in consecutive IRS Exams without consistent resolution and/or final determinations, such issues may be resolved with an accounting method change.
By addressing IRS Exam matters with an accounting method change, the client receives certainty about the item’s treatment, and more importantly, receives greater input regarding its ultimate resolution.
- Partner Ellen McElroy.
Some states have adopted online sales taxes to adjust for the growth of internet purchases. Have these created any issues for your clients, either companies or individuals?
Since the US Supreme Court’s 2018 decision in South Dakota v. Wayfair, most states have taken a position that e-commerce companies must collect sales tax on sales into the state if they exceed certain dollar or transaction thresholds. In many states, these thresholds are low - having more than $100,000 in sales into the state or 100 transactions in the state. This decision has created a significant shift in sales tax collection practices for e-commerce companies and many of our clients. Companies may have state and local sales tax collection requirements in up to 45 different states. The Wayfair decision resulted in a significant amount of additional compliance and administration for companies. It requires determining the taxability of each item sold in every state, having a tax system or software that allows the company to charge and collect tax from customers and handling the reporting and remittance of sales tax to each state. For e-commerce clients that may have only been collecting sales tax in a few states, the Wayfair decision radically changed these historical practices.
- Partner Michele Borens.
How complicated is the cannabis tax process for growers, distributors, REIT’s, etc., currently as the adoption process expands?
With 33 states having legalized medical cannabis in one form or another, the pace is increasingly quick, and 2020 looks like several other large states, including NY, NJ and Florida may come on board.
It makes sense to distinguish federal taxation issues from state and local tax issues. In the case of federal taxation, the principal problem is I.R.C. Sec. 280E which disallows deductions or cost of goods sold offsets to income because cannabis is a Schedule 1 controlled substance. That produces federal tax rates of as high as 70 percent. This issue can only be resolved by the repeal of Section 280E, creating an exception for states that have legalized cannabis along the lines of the STATES Act, or reclassifying cannabis to something other than a Class I or II controlled substance based on its medical efficacy and lack of harm to the consuming public.
With respect to state and local taxes, the states are struggling with how to design tax systems. For example, California seeks to tax each stage of the process: growing, refining, testing, manufacturing, wholesale, and retail sales. The cumulative impact of all these taxes has led many consumers to seek out black market products. Although an attempt to scale back taxes failed in the legislature this year, it is likely to be revived in the next term. In any event, the complexity of operating in and complying with a slew of differing and changing requirements is challenging. It will become more complex once cannabis companies engage in interstate commerce.
- Partner Bradley M. Seltzer.
There has been a lot of talk over the past 20 years about changing immigration law, but not much sweeping change has actually taken place. How do you adjust to the policy memos that are often passed down in place of a change in the law?
With both the ongoing gridlock in Congress and policy issues being so complex from a legislative standpoint, Congress hasn’t been able to pass any comprehensive immigration changes since the Immigration Act of 1990. One of the ways to move policy when you cannot do it legislatively is through administrative processes, and there are various ways to do that. For example, you can publish a formal rule for review during a public comment period. This method is not popular as it can also be very controversial and time-consuming. Another option is through a policy memo, which can provide analysis and/or recommendations with respect to an issue. A third method is through an executive order, but that tends to lead to litigation. To adjust to these changes, you must be observant. At Fragomen, we have extensive resources that monitor new legislative and regulatory developments and emerging trends worldwide, so we can help our clients anticipate and prepare for changes accordingly.
What do you feel are the biggest misconceptions about immigration currently in the United States?
There are many misconceptions about immigration in the United States, but I believe the most significant one relates to the effect of immigration on the economy. The U.S., like most other developed nations, has a relatively low fertility rate, and the demographic reality is that the population primarily grows through immigration. The fact is that reducing immigration would negatively impact economic development in the U.S. because we would have an even greater shortage of workers than we do now. With unemployment at a low level, our economy needs more workers, particularly in fields that require a high level of education or skill, such as those in the disciplines of science, technology, engineering, and math. To reduce the number of immigrants entering the U.S. would be hugely problematic over time.
It doesn’t get a lot of headlines, but there is a skill gap between employer needs and the workforce. Employers turn to foreign labor to fill these needs for their businesses. How do you help in that process?
The primary focus of our firm is representing businesses and employers who have a need to hire foreign nationals because of the skills gap and are seeking to select the most qualified person for a specific job. Companies are committed to hiring the best talent they can. There’s a global competition for that talent, so immigration systems must be designed to enable employers to attract entrepreneurs and persons willing to make significant contributions to society, such as Nobel Prize winners. As reported in Forbes, immigrants have been awarded nearly 40 percent of the Nobel Prizes won by Americans in Chemistry, Medicine, and Physics since 2000.
We help in that process by advising companies on immigration procedures, processes, and qualifications. We are trusted advisors in immigration strategy, so not only do we assist with individual cases, but we also help with future planning and other strategic needs. For example, if a company wants to establish a new research facility, we can advise its leadership on which countries would be most attractive from an immigration perspective, providing them with assurance that they will be able to hire the global talent they need to be successful.
What are some cases that you have worked on in the past year that you found to be most rewarding?
There is a wide array of cases that we find rewarding. For instance, providing pro bono support to unaccompanied minors from Central America and helping them to obtain asylum or Special Immigrant Juvenile Status is particularly rewarding. On the other side of the spectrum, working with persons who are well known, in the arts, for instance, can be extremely rewarding. In these kinds of cases, we help these individuals navigate the immigration process and ultimately convince the immigration examiner that they are, in fact, a person of extraordinary ability. It really is a broad range of matters that have been rewarding to us. One of the things that we all enjoy in the immigration practice is that ultimately, the beneficiaries of our work are the individual immigrants, whether they’re CEOs of companies or pro bono clients.
What are some of the most pressing issues as they currently relate to Native American Law?
Some of the most pressing issues for tribes as it relates to Indian law include climate change, protection of tribal lands and resources, and the protection of tribal rights reserved by tribes through treaties and federal laws. We see litigation across the spectrum asserting that a tribe is not eligible to have land placed into trust or that its reservation boundaries have been diminished or disestablished. We see it in litigation challenging the constitutionality of protections afforded Native children and families in the Indian Child Welfare Act. And we see it in successive litigation challenging tribal reserved rights to natural resources and water.
With something like the Dakota Access Pipeline infringing on Native American lands, how is a conflict like this addressed in the legal system?
The laws regarding pipelines, as written, largely favor the siting of pipelines and other infrastructure with tribes increasingly relying on protections reserved through treaties or other federal laws. This needs to change. If any fossil fuel development including pipelines can threaten or be a severe risk to a tribal community or its resources, then tribal consent should be required.
There has been a push to change the nicknames of sports teams with Native American monikers. Is this something that falls under the category of Native American Law and if so, how are disputes handled?
It does fall within Native American Law and policy. Tribes are increasingly taking steps to protect their cultural property and are working with lawmakers to repeal antiquated laws derogatory to tribes. With regard to nicknames of sports teams, there has been more progress through tribal policy efforts working to change state and local laws regarding these names than in legal challenges. This will continue to receive widespread attention by tribes and their members.
What are some things that you believe most people should know as it relates to Native Americans? Whether it is a common misconception, something that deserves attention or similar matter?
Tribes are sovereign governments that pre-date the Constitution. Many of the rights exercised by tribes were reserved by them through treaties that ceded tens of millions of acres of land to the United States. Tribes are vibrant communities with governments that use tribal resources to provide education, social services, job training, and elder assistance to their citizens and often to non-citizens that they employ. What we know through experience is that when tribes are empowered to address their challenges through self-determined approaches, they are far more successful politically, socially, and economically.
The internet and content creation tools have created a level of ease for people to create “fake” content. Deep fakes are becoming a serious threat for some and many of them involve copyrighted content. How do your teams stay up-to-date on these trends and monitor for stolen content?
Practicing entertainment law in the 21st century means constantly working to master the opportunities and pitfalls that lie ahead, as technology and globalization transform the entertainment and media industries. To advance our clients’ business and legal goals, Manatt lawyers stay on top of what’s new today—and what’s likely to change in the next three to five years. For the theft or misappropriation of content, our primary role is to give clients strategic advice. Most clients prefer to police their own content and ask us for help when they find an infringing use. But as technology makes infringement easier, it’s harder to police. This has changed many clients’ strategies in the direction of getting content out to consumers as rapidly as possible and finding ways to monetize the content that doesn’t depend on keeping it locked up.
Has much changed in your practice as the industries make a shift from cable towards streaming services?
First, it's important to note that cable and satellite delivery of content is still a huge business, serving a large percentage of audiences. But as younger consumers seek to watch content wherever and whenever they want, the media business is scrambling to serve that need by streaming the content directly to consumers. It's not just the internet disruptors like Netflix and Amazon that are seeking to meet this need. The large traditional providers of content—like AT&T, Disney, Comcast, and CBS—have made big moves into the streaming field as well. At Manatt, our practice has expanded to service the business models of the streaming services and the content creators who supply their programs as well as the business models of the major studios, networks, and delivery platforms that have led our industry for decades.
At some point, do you believe content streamers like those on Twitch, YouTube, or other services are going to need representation?
Content creators (and the services that stream them) need representation right now, and Manatt is representing a number of them. The appetite for this content is huge, and the deals can be substantial. Given the fast-changing nature of this business, the stakes are high for the services and content creators alike. Both sides need to approach deals in a thoughtful, forward-looking way that advances the long-term development of the business as well as the short-term monetization of popular creators and the platforms that help them succeed.
Technology has progressed rather quickly since the Digital Millennium Copyright Act was passed in 1998. How far behind is the legislation on the technological advancements?
Stunning developments in technology have greatly outpaced developments in the law. The creation, copying, and distribution of content is a generation removed from the mid-1990s when the DMCA was shaped and passed. Financial models have dramatically changed. The rise of digital platforms and distribution has thrust two new forces—Silicon Valley and digital consumers—into a field that once was dominated by creators and gatekeepers. Manatt has taken a leading role in advocating for the modernization of copyright law and in advising clients how to navigate the profitable but perilous Brave New World of entertainment.
How often are media attorneys bombarded with ideas for movies, television shows, screenplays, and other entertainment concepts? What should people understand about this practice that would improve their odds and not waste their time or yours?
Many people outside the industry see entertainment lawyers as the people who can turn their ideas into Hollywood gold. But the truth is that entertainment lawyers are not creative tastemakers looking for The Next Big Thing. That role is played by agents and managers whose job is to find and nurture talent and bring it to the attention of creative executives who make decisions on what gets produced. Entertainment lawyers are business and legal advisors to companies and talent who are making deals in the industry. At Manatt, our priority is to advance the strategic, financial, and creative goals of our clients—both corporate and talent—to carry them to the top of the entertainment and media industries.
How have firms adjusted over the past 10 years in the wake of the 2008 financial crisis and the ensuing legislation such as the Dodd–Frank Act and the formation of the Consumer Financial Protection Bureau?
Susan Rodriguez: In the wake of Dodd–Frank, proactive compliance counseling became a key need for clients. Clients wanted to know how to get ahead of and prevent the next issue instead of waiting for litigation or enforcement actions.
Cheryl Haas: We have increased our regulatory counseling capabilities and now regularly advise clients on a variety of consumer and securities regulations, draft policies, and procedures and, when needed, we prepare them for any upcoming exams or inquiries by regulators.
As the internet continues to grow, we see certain innovations in industry. There has been a growth with online-only banks. Does this present a certain set of challenges for you?
Susan Rodriguez: The challenge is this: We are dealing with an evolving area where the regulations, law, and even licensing requirements have not caught up with the technology. But with every challenge, there is also a great opportunity. We are excited to help clients shape the industry and pave new roads with development of innovative technologies that are designed from inception to be mindful of existing consumer protection laws and regulations. The regulators seem to appreciate this too. The CFPB has a “sandbox” for innovation where companies can obtain a safe harbor for testing a product, and the Office of the Comptroller of the Currency is accepting applications for fintech charters.
One of the features of blockchain technology is smart contracts. If certain blockchain and cryptocurrency projects were to take off and see mass adoption by the public, would a smart contract feature be a threat to the banking and financial law practice?
Susan Rodriguez: Adoption of smart contract features seems to be a natural progression into the future of banking, and law firms will need to adapt accordingly. We don’t view it as a threat to the banking and financial law practice, but rather just an evolving means of digital security. Many of our brick-and-mortar institutional clients are already embracing smart contracts in their existing products and services, but they still need advice on everything ranging from implementation and compliance to data privacy and security issues. At McGuireWoods, we also recently developed a financial institutions innovation group aimed at addressing these developing areas of the law and adapting our legal practice to best serve clients in these areas.
Cybersecurity is of major importance for financial institutions. How have you helped outline plans for clients to improve their digital infrastructure?
Susan Rodriguez: Over the past few years, we have worked to build out a strong team at McGuireWoods to respond to clients’ needs in the areas of cybersecurity, information governance, and improving infrastructures. We recently hosted an event for clients with the chief counsel of the Cybersecurity and Infrastructure Security Agency, which is part of the U.S. Department of Homeland Security, to discuss ways clients can receive information from the government on risks and collaboration to ensure secure and resilient digital infrastructures.
McGuireWoods partner Susan C. Rodriguez is co-leader of the firm’s financial institutions industry team. She is based in Charlotte, North Carolina.
McGuireWoods partner Cheryl L. Haas chairs the firm’s Financial Services Litigation Department. She is based in Atlanta.
The IPO market has been hot over the past couple of years with so-called “unicorn” companies. Often, once they are listed their price has fallen or—as with a notable co-working space—or the IPO failed to launch. Have these types of companies complicated the securities and capital markets practice at all, and can you share your thoughts on them?
With their high public profiles, the going-public stories of unicorn companies bring significant attention to the capital markets that would not be attracted by smaller offerings. We view this increased visibility as a positive in that it creates energy and activity in the public offering space that can have an impact across the company size spectrum.
Further, the creative structuring that often happens at the higher market cap levels (such as the use of direct listings, or multi-class voting structures) leads to innovation that spreads across the market. Certainly, post-offering challenges to valuation of very large, notable companies can and do put pressure on subsequent offerings, and should performance of too many of these companies suffer, or should there be too many high-profile offerings that are viewed as unsuccessful, a negative tone could expand to smaller-size deals. But from the perspective of our capital markets practice, the visibility of IPOs by unicorn companies is a net positive in terms of stimulating the overall field.
Justin W. Chairman is partner and co-leader of the Capital Markets and Public Companies Practice at Morgan, Lewis & Bockius LLP
What sort of changes, if any, have there been in this practice area as it relates to the push for green initiatives?
Roughly 60 percent of the work of the U.S. project finance group has been on renewable energy in each of the past 12 years. It is 75 percent this year. This year has felt like 2009, when the Obama economic stimulus measures pushed the renewables market into overdrive. The main stimulus this year is looming deadlines to place wind farms in service and to start construction of solar projects to qualify for federal tax credits. We added another 12 lawyers to our U.S. group in September and October to help with the increased demand.
Other sources of stimulus are growth in use of batteries and other forms of electricity storage and the number of offshore wind projects that are in various stages of development off the Atlantic coast. We see batteries in roughly 25 percent of the projects on which we are currently working. Storage has not reached a tipping point, but it is clearly moving closer. We are counsel in a large share of the offshore wind projects currently moving to market.
What sort of considerations must be made for projects in areas that have begun to feel impacts from climate change?
Catastrophic weather events are already having a visible effect. They throw off electricity output forecasts and put projects and utilities at risk. Financings and refinancings have been more difficult in California since PG&E went into bankruptcy because of wildfires. Projects in Puerto Rico were badly damaged last year by the hurricane. Public companies are under pressure to make climate change disclosures in their securities filings.
How do you stay on top of the changes and compliance regulations that are constantly evolving, especially when you consider states and countries may have different sets of rules?
Our global reach makes this easier for us than other firms. We have 224 project lawyers globally and 58 offices in 33 countries. The project finance team did $117 billion in transactions in the last three years before 2019. We hold monthly meetings that have the cadence of a radio show where people report briefly on new developments that will affect the market, pitfalls they have run into in deals, new questions clients are asking, and similar items. We publish our Project Finance NewsWire that goes to 64,000 people in the market. Issues dating back as far as 21 years can be found on our website. Our podcasts on project finance subjects are regularly ranked in the top 100 U.S. business podcasts. We hold periodic webinars on topical subjects that draw as many as 2,000 to 3,000 people. We have a dedicated "knowledge lawyer" in our London office which spearheads publication of a quarterly "Storage Updater" as well as research into climate change–related subjects.
What type of person is an ideal fit for project finance law and what should an aspiring student or associate who wants to pursue this field prepare for?
The ideal fit is someone who is personable and is a good listener. He or she must also be well organized and be willing to drill down into complicated details. Project finance is a complicated exercise in risk allocation. Banks will not provide financing until they are confident that all the risks have been identified and allocated among the parties. This can take months on large projects. A good project finance lawyer is a problem solver who is attuned to what each party needs out of the deal and looks for common ground.