In recent years, there has been much written about the rise of borrower-friendly loan terms in leveraged lending. But overlooked in the literature is a set of unorthodox practices outside of the loan documents that may also undermine lender protections. Specifically, sponsors who borrow for their leveraged buy-outs routinely designate and pay their lenders’ counsel. This process, called borrower-designated lenders’ counsel (or simply “designation”), has been labeled “insidious” by the New York Times and “the most problematic issue in corporate law” by Law.com. It has also sparked regulatory concern in Europe.

In “Lend Me Your Counsel,” we provide the literature’s first detailed examination of designation in the United States. Relying on proprietary training materials for lawyers and original interviews with leading lawyers in this space, we flesh out the contours of designation, explain why it arose and has endured, and consider its implications, including for attorney ethics and transactional efficiency. (more…)