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Husband and wife Peter Rehon and Lisa Roberts run a five-lawyer firm that routinely handles the lending on transactions worth up to $20 million for clients like Greater Bay Bank and Pinnacle Bank. Working out of about 6,000 square feet of space, the two former Gray Cary attorneys nonetheless believe Rehon & Roberts has the rates and expertise to take business that had historically gone to the region’s largest firms. “My billing rate is $400 per hour,” Rehon said. “I know that some of my colleagues at bigger, larger firms bill considerably higher, and I don’t regard $400 per hour as a low rate.” The firm’s strategy seems to be working. After years of consolidation in the banking industry, there are fewer clients to go around. And borrowers who usually foot the legal bills are putting pressure on banks, which are in turn demanding flat-fee arrangements and lower rates from law firms, especially for the kind of middle-market work Rehon & Roberts provides. Since small and midsize firms with lower overhead are better able to wage an all-out price war, larger firms appear to be viewing their lending practices more as a complementary service to their higher billing areas, rather than a revenue driver in itself. “It’s quite honestly very difficult today to try to maintain a lending practice,” said Kathryn Johnstone, Morrison & Foerster’s financial transactions group co-chair. “Big-firm fees generally have gone up substantially in the past few years, and the banking sector has been one area that has been more resistant to fee increases,” she added. In traditional middle-market lending, the typical borrower is a private company with annual revenues ranging from $50 million to $500 million, borrowing around $60 million. But, lawyers say, the loan amount can vary widely, and can hit up to $800 million. The type of work might entail both secured and unsecured loan documentation and taking collateral to support the loan. Jan Cate, head of Pillsbury Winthrop Shaw Pittman’s bank finance practice team in the Los Angeles office, said the firm’s full-time traditional bank lending ranks have shrunk over the years. When she started in 1990, the Los Angeles office had about 10 full-time bank lending partners. Today there are three. Some lawyers, like Cate, focus more on lenders in niche areas, such as communications, energy and leveraged lending, while others have branched out to other areas, such as securities, she said. Those clients have not been as fee sensitive. “If it’s a specialty lending area, customers are willing to pay for the expertise and the service,” Cate said. So as billing rates at large firms have gone up, banks have turned to the smaller firms, such as Chapman and Cutler, Buchalter Nemer, or Rehon & Roberts. Greater Bay Bank Senior Vice President and General Counsel Linda Iannone said Rehon & Roberts meets her standards in selecting outside counsel. Rehon & Roberts charges slightly less than a midsize full-service firm like Buchalter Nemer, where a partner bills between $350 and $500 per hour, but substantially less than a MoFo or Pillsbury, where partners can command about $600 per hour. “Because of their experience and cost structure, we feel comfortable referring a wide variety of deal types to [Rehon & Roberts],” Iannone wrote in an e-mail. “We especially appreciate that we can pick up the phone and speak directly to Peter or Lisa at any time, and they are fully versed in the transaction even if an associate may be more involved on a day to day basis.” Chapman and Cutler, a 200-attorney banking and finance firm with offices in Chicago, Salt Lake City and San Francisco, plays up smart staffing and, in certain cases, free advice. “I think all firms feel the pressure of making sure they have competitive legal rates, and middle-market lending is no different,” Chapman and Cutler partner David McMullen said. The firm watches that they don’t overstaff matters. Instead, when appropriate, a mid-level associate supervised by a partner will handle the work. “We often assist our middle-market lending clients with structuring advice that may not be deal-specific, often for free, because we view that as part of what it takes to provide good client service,” McMullen added. MoFo’s Johnstone said her firm’s lending practice spans the gamut of services, from the simplest six-minute telephone call with a client asking about loan documentation, to work for sophisticated clients like Boyd Gaming, which has a $1.8 billion bank syndicated loan plus another billion dollars in public debt. It’s MoFo’s debt work that keeps Boyd on as a banking client, Johnstone said. “Cross selling with the real estate group or the capital markets group means strengthening our ties with financial institutions that other practice groups work with to do ‘lender’ work,” Johnstone added in an e-mail. “Boyd Gaming is an example of working with our corporate partners on the ‘borrower’ side of a transaction.” “We’re not filling our plate with traditional $10 million bilateral loan transactions because they don’t support our billing rates,” she added. But full-service firms are still appealing to some banks. John McGuckin Jr., general counsel of Union Bank, which has 317 branch offices throughout California, tries to handle most work in house. “More and more borrowers are becoming conscious about the bottom line on loan documentation fees, and therefore it is incumbent upon the bank to manage that process,” McGuckin said. But when the general counsel does have to go to an outside firm, he’s not looking for a boutique like Rehon & Roberts. “I don’t shop loan documentation to a whole bunch of firms. The whole point is that there is a stronger, deeper relationship with the law firm over a number of practice areas,” McGuckin said. “I find I’d rather go to a full-service firm that knows our company, our policies and procedures, rather than a boutique firm.” MoFo still handles lending work for Wells Fargo and Bank of America, among others. “We are asked for fixed pricing all the time. It’s definitely something the clients ask for and the smaller and midsized firms are doing, but bigger firms are not,” Johnstone said. MoFo will compete on price to a certain degree, she added, “but won’t cut rates in half.”

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