Analysis

Capital Markets Advice Nowadays Is About More Than Finance

By Tom Zanki
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Law360 (April 17, 2020, 7:11 PM EDT) -- As companies navigate unforeseen challenges in order to survive the coronavirus-driven downturn, capital markets attorneys who advise them are managing thorny questions that transcend the typical corporate finance matters they ordinarily handle.

Capital markets attorneys typically advise their clients on how to raise money by issuing stock or debt so they can satisfy their business needs. While such advice is in high demand — as evidenced by the surge in debt financing in recent weeks as Corporate America has borrowed at breakneck speed in order to bolster cash levels — capital markets attorneys are now also counseling clients on questions beyond their financing needs.

Companies, lawyers note, are grappling with employment matters like potential layoffs as the economy worsens or how to determine eligibility for various relief legislation, as well as health and safety issues.

Ripple effects from the pandemic have reverberated across industries, especially the retail, travel and real estate sectors. With companies in survival mode, capital markets lawyers can serve as quarterbacks who can steer their clients on myriad questions.

"When a crisis like this hits, it's very natural for a client to want your help in navigating the new terrain rapidly and with common sense," Cleary Gottlieb Steen & Hamilton LLP partner Adam Fleisher said. "At times like this, clients turn to senior lawyers with whom they have longstanding relationships for advice extending well beyond technical securities law knowledge and deal-running advice."

Those matters can range from figuring out whether a company is eligible for government relief outside of traditional capital markets, such as federal loan programs under the Coronavirus Aid, Relief, and Economic Security, or CARES, Act. Rescue measures will likely stay on lawyers' radars as federal and state governments are expected to consider future stimulus bills as long as the economy is disrupted by the pandemic.

Cost-cutting measures that companies are considering as their revenue declines, including furloughing or terminating employees, are another pressing topic. Lawyers are also being peppered with questions about whether clients are "essential" businesses as defined by the government and how such companies should navigate varying state restrictions on movement.

The result is a mix of questions that address basic human concerns like safety and those that have financial impact and require technical expertise. Public companies regularly seek legal advice on ongoing matters like Securities and Exchange Commission disclosures, so turning to a securities or capital markets lawyer is likely to be their first stop when facing new problems.

"Some questions our clients are asking boil down to matters of common sense and judgment," Debevoise & Plimpton LLP partner Matthew Kaplan said. "And some of the questions really do require significant input from true subject matter experts."

Tax questions are one area where a capital markets layer may need to tap the expertise of a colleague. For instance, the CARES Act temporarily lifted restrictions on net operating losses reported by corporations, allowing for more companies to receive refunds from the IRS.

"We are directing our clients that have questions about these things to the right subject-matter experts when they need them," Debevoise & Plimpton partner Steve Slutzky said.

Many larger firms have assembled task forces, where lawyers with varying specialties study developments and prepare rapid responses that can be used firm-wide. The CARES Act is a common focus of task forces, given that the massive $2 trillion relief bill, passed rapidly by Congress, contained questions spanning banking, employment, tax and insurance matters.

Kirkland & Ellis LLP's Joshua Korff said his firm also has coronavirus task forces focused on Small Business Administration Loan programs, plus teams that cover business restrictions on a state-by-state basis, among other topics.

More relevant to capital markets are frequent announcements of regulatory relief from the SEC and major stock exchanges that are designed to keep markets running smoothly. The various rule suspensions and relaxations of filing deadlines often require legal interpretation.

"It generates a ton of de novo issues we need to help our clients work through," Korff said.

Goodwin Procter LLP partner Joe Theis said his firm designated specific experts for clients in order to improve familiarity with one another. So if a company needs the advice of a labor and employment expert regarding certain CARES Act provisions, "we would get somebody from the right part of the task force to get on the phone and talk to the client."

Given the massive job losses that have resulted from the pandemic, companies are navigating federal and state laws regarding public notices of terminations. The federal Worker Adjustment and Retraining Notification Act, for instance, requires employers with 100 or more workers to provide 60-day advance notice of mass layoffs. Certain states go beyond federal requirements.

"Unfortunately, these are tough times for companies," Theis said. "They are firing people, furloughing people, freezing salaries and things like that. So we are spending a lot of our time unfortunately with our clients on those issues as well."

Plus, the coronavirus response playbook is still being written. The government policy response to the economic disruption caused by the pandemic remains a work in progress as both President Donald Trump and Congressional leaders have said they expect additional stimulus.

Until now, companies and their advisers have focused much of their attention on the Payroll Protection Program, a linchpin of the CARES Act that provided $349 billion to companies with fewer than 500 employees with the intention of saving jobs. Theis pointed out that the CARES' Act's upcoming Main Street Lending Program could have a greater impact on public companies.

The Main Street program will provide up to $600 billion in loans to small and midsize businesses, many of whom were not eligible for the PPP. Businesses eligible for the Main Street program can have up to 10,000 employees or up to $2.5 billion in 2019 annual revenues.

Responding to the crisis will also test the prognostication skills of lawyers. Fleisher notes that the challenge goes beyond responding to developments that may happen next week, but also helping clients position themselves six months from now. Companies that emerge from the current volatility in strong shape may be in position to pursue acquisitions when the dust settles.

"One of the few bright spots in this mess is the exciting lawyering that we are getting to do," Fleisher said. "You can help real people and real business cope with the crisis and do some good in a way that's a little broader than just raising capital."

--Editing by Michael Watanabe.

For a reprint of this article, please contact reprints@law360.com.

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