By James T. Hammond
jhammond@scbiznews.com

Attorneys at some of South Carolina’s biggest firms say their diversification of services provides them some collective insulation from the troubles in the credit markets.

“Because of the broad range of service offerings we provide to the business community throughout our state, our law firm is somewhat insulated from the full impact of the economic crisis we now face — but we are not immune,” said William Youngblood, managing shareholder and chief executive officer of McNair Law Firm, P.A.

“A stark contrasting example is that this very week we are representing clients involved with the $170 million investment in the first biomass facility in South Carolina to generate commercially available renewable power. While at the same time, regrettably, we have many corporate and municipal clients who cannot access credit markets at all because of the crisis in our economy, a crisis which is global — not just national or regional.”

Youngblood predicted that financial conditions most likely will worsen before confidence and stability returns, “but we have every confidence that this will return because ours is the most resilient and competitive economy in the world.”

Gus Dixon, attorney and partner with Nelson Mullins Riley & Scarborough, said that while some transactions are going forward, “generally we are seeing businesses proceeding cautiously because of the current uncertainty.”

“Frankly, people are concerned about a variety of things including interest rates and the availability of credit (both short and long term), access to equity capital, and consumer spending,” Dixon said. “Even businesses with good fundamentals are uncertain as to what the current situation will mean to them and the people with whom they deal including their customers, vendors, lenders or other relationships.”

“On top of all the economic uncertainty, people are concerned about the uncertainty and ramifications of the upcoming elections and the effect they could have on them and their businesses,” Dixon said. “People are also somewhat distracted by the impact the current situation is having on people they know such as loss of retirements, job loss, and becoming underwater on the debt on their houses. All of these factors are generally leading people to be cautious and deliberate in their business dealings.”

Diverse law firms such as Nelson Mullins usually have certain practices that do well in a down cycle, such as bankruptcy, litigation and certain banking related work, that offset certain practices that slow down in such a cycle like lending, structured finance and investment transactional work, Dixon said.

“In addition, diverse law firms generally are able to shift the focus of certain practices to provide needed legal services. For example, lending attorneys may do more work-out work. The challenge for some law firms is when they specialize in a particular area that is significantly impacted by the down cycle. For example, small law firms that primarily handle real estate closings may be having a hard time right now. Certain law firms with particular client concentrations or expertise concentrations may also be having a hard time.

“For example, Cadwalader (Cadwalader, Wickersham & Taft, a 200-year-old Wall Street firm) which had a large specialty in mortgage-backed securities issuances recently has laid off more than a 100 attorneys.”

Dixon said many law firms, like other businesses, will see their revenues and profits decline.

Steve A. Matthews, a partner with Haynsworth Sinkler Boyd P.A., said the legal profession and most large law firms are classic examples of portfolio diversification.

“Consequently, general economic factors, even extraordinary ones like the current liquidity contraction and market retreat, that have an adverse impact on some parts of the “portfolio” will have a mixed, neutral or even benign effect on others,” Matthews said.

“New real estate development, collateralized debt obligations and leveraged acquisitions, with their attendant legal work, may be down,” Matthews said. “But Haynsworth Sinkler Boyd is helping our clients with corporate restructurings and turnarounds, distressed asset management and disposition, ‘bargain-hunting’ acquisitions by companies that have maintained their liquidity, refinancings in a lower interest rate environment, capital-raising to repair damaged balance sheets, and litigation over unraveled or underperforming transactions — all fields in which activity can be up even in the current environment.”

Balance in law firms — both in types of practice and in industry sectors represented — and flexibility of lawyers are key to steady performance in a highly unsteady economy, Matthews said.