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The Hilton Metropole on Edgware Road was simply brimming with 600 Clifford Chance partners last Friday (6 February). Amid all the pep talks, the workshops and the general joy, you can bet that at least a little of the chat was about shifting £30m in bank borrowings right back to the partners.
That £30m – equating to up to 15 per cent of total borrowings and a little under £1,000 per point – is coming straight off the existing syndicated facility with Barclays and Citibank.
So what’s going on? Clifford Chance’s private placement in December 2002 was supposed to be a transformative moment. The trend had already begun when both Clifford Chance and Herbert Smith eschewed partner contributions in favour of all-out bank debt some three years ago
But for the first time no one followed Clifford Chance’s lead on the private placement – not even DLA, which occasionally makes noises about floating. So why not? Well, there are covenant issues concerned with the private placement, many of which are better suited to balance sheet accounting. No wonder Clifford Chance is keen to become a UK LLP.
But we’d like to think there’s another reason behind Clifford Chance’s move, and it’s about partnership culture. The fact that it coincides with the firm’s first partner retreat for two years is nicely symbolic. There was a lot on the agenda, and it wasn’t just about financial management. So what did Peter Cornell and David Childs want to achieve last Friday? Why, evoke a feeling of ownership and participation, as well as kicking some butt. Of course, Clifford Chance partners have always been individually liable – up to £275,000 each – for the firm’s syndicated loan, to take one example. But for all the advantages of cheaper money, external funding doesn’t always provide line partners with that direct sense of engagement with their organisation.
Take Hammonds, for instance. It is currently in talks with its salaried partners to change their status into fixed-share partners. As part of this process, it will be requiring those junior partners to stump up around £20,000 each. Hammonds did its capital reorganisation last summer when it raised £11m from its partners in order to bring down its bank debt. This time round, it’s all about creating a sense of ownership, both literally and metaphorically.
Perhaps that was what Cornell meant when he talked about giving the partnership back to the partners. Reorganising the capital base isn’t just about tax advantages. It’s not a cash call, but it’s sure as hell a U-turn.