Kirkland & Ellis has resigned as legal counsel to Optimum Communications, the telecoms operator formerly known as Altice USA, after pressure from some of the firm’s most lucrative sponsor relationships.
Kirkland’s retreat ends a conflict that had been building since November, when Optimum filed an antitrust lawsuit alleging that its creditors, which include Apollo Global Management, Ares Management, and BlackRock, had formed an “illegal cartel” during debt refinancing negotiations.
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The lawsuit, which Optimum filed through Kellogg Hansen, a Washington DC boutique, alleged that a cooperation agreement signed by more than 90 percent of the company’s creditors violated federal and New York state antitrust law by preventing any signatory from agreeing to a bond exchange without approval from the broader group.
Kirkland’s name appeared nowhere on the complaint, and the firm issued a statement in November: “Kirkland does not sue clients and did not here.”
The creditors were unconvinced.
They believed Kirkland had been the strategic architect behind the litigation, a suspicion reinforced by years of public commentary from Kirkland lawyers about the potential vulnerability of cooperation agreements to antitrust challenge.
Many of the plaintiffs in the suit (Optimum’s creditors) are long-standing Kirkland clients and pay the firm tens of millions of dollars annually.
In recent weeks, Kirkland’s leadership held a series of meetings with sponsor executives to stem the backlash. In those meetings, reports the Financial Times, sponsors’ primary demand was that Kirkland halt its work with Optimum entirely.
The firm complied.
“Firms like Kirkland can’t be in a position where they are perceived to be suing their own clients,” a person close to the firm’s top management told the FT. “The more aggressive strategies are becoming increasingly difficult for law firms with large private equity practices, precisely because those same firms now also have significant private credit arms.”
The decision leaves the status of David Nemecek, a star restructuring partner at K&E, in limbo. Nemecek had become the focus of creditor backlash after previously discussing the merits of challenging cooperation agreements at industry gatherings.
Though not formally involved in the Optimum lawsuit, he was representing the company in its debt negotiations and was perceived by creditors as the driving force behind the confrontational strategy.
Those close to Nemecek and Kirkland said he would continue working at the firm and that any departure would be his decision.
But, as part of its damage control, Kirkland has assured its private capital clients that it will avoid the most aggressive liability management transactions going forward — exactly the type of work that made Nemecek a coveted specialist in the first place.
That could provide an opening for rival firms to give Nemecek a new home and to take on future LME business when Kirkland is conflicted.
Either way, the current litigation continues in the background, as Optimum tests the novel theory that creditor cooperation agreements constitute antitrust violations, which no court has previously ruled on.