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Message: <blockquote data-quote="Andrei Radu" data-source="post: 223525" data-attributes="member: 36777">Hi [USER=41021]@CharlesT47[/USER] for the first question, I would agree with you that the rise private credit has a somewhat negative impact on the banks' leverage; but I would argue it is not substantial enough to outweigh the aforementioned factors leading to an increase in bargaining power. While private credit has seen immense recent growth, the value of the market stands around an estimated $2-3 trillion; while the public credit market stands around $140 trillion - which is to say, we are quite a while away from private credit replacing the central role of public debt. Moreover, private credit also borrows a significant sums from banks to then be able to service PE clients, which means part of private credit PE financing can be ultimately traced back to public debt again. As for your second question, influencing the choice of/designating the lender's counsel is indeed a practice that had become quite prevalent as PE was booming. I am not sure to what extent this practice is as common nowadays, but my assumption would again be that with an overall more depressed PE dealmaking & fundraising market, higher interest rates, and more public scrutiny of this potential conflict of interest, investment banks will be pushing back more on this. This <a href="https://blogs.law.ox.ac.uk/oblb/blog-post/2024/10/private-equity-sponsors-law-firm-relationship-and-loan-contracts-leveraged" target="_blank">Oxford article </a>claims a recent study shows loan investors are increasingly suspicious of loan agreements where the lender's counsel was designated by the sponsor (as this is correlated with lower protection in the form of restrictive covenants and higher rates of defaults) and thus only want to purchase this debt at a discount. This in turn makes it more difficult for banks to take the debt off their balance sheets and thus decreases the profitability of wining these mandates; which should result in more pushback.As for Davis Polk's practice, it seems to me the firm has traditionally been more traditional corporate/banking focused and has not made a jump to a core focus on private capital as quickly as the likes of Kirkland, Latham, Simpson Thacher, or Weil (who, I would expect, would be among the sponsor-friendly firms PE would push banks to select as counsel). That said, in the US they have become more established in high-end PE buyouts work, being ranked among the top 10 firms in the country by Chambers. In London, we have also seen some growth, with the firm recently hiring Gordon Milne, a leading PE partner from A&O Shearman. As such, it is difficult to say whether the firm would be placed in this "sponsor-friendly" category or not - this is probably only something an experienced practitioner could have an informed view on.</blockquote>

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