Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at how Sidley Austin plans to try to crack to the upper echelon of Big Law restructuring practices. Sign up to receive this column in your Inbox on Thursday mornings.

Building a top company-side bankruptcy practice is a great white whale for ambitious Big Law leaders.

The task is daunting. Since Weil Gotshal & Manges’ Harvey Miller established restructuring as a Big Law business during the 1970s, only a handful of firms have developed a leadership position. Those top firms have historically enjoyed long runs of success once establishing their brands.

So, ears perked up in the tight-knit community last year when Sidley Austin announced its intention to take on the mantle of an upstart challenger.

I covered Sidley’s hiring of Stephen Hessler to helm the bankruptcy practice. It was an initial step on a firm-wide strategy to crack the market dominated by his former firm, Kirkland & Ellis.

Sidley has made some progress early on, but it’s far too early to judge the firm’s ultimate success or failure. Revenue in the restructuring group this year is set to grow 50% from a year ago and to be double its 2021 level, Hessler said. He declined to provide specific figures.

Today, we pull back the curtain on the firm’s plan of attack and its progress after 18 months.

Building the Team

Hessler’s initial priority after joining was bulking up the restructuring group’s associate-to-partner ratio, or leverage profile, to fall in-line with the firm’s broader targets. The restructuring group counted about 60 lawyers at the time, but it was slightly partner heavy.

Hessler fixed it by hiring more associates. He pulled most of the new lawyers from the firm’s law school hiring class and by bringing in some senior associates from other firms.

Today, the group is nearing 75 lawyers. Hessler is targeting growth to 100 lawyers by 2027. Much of the growth could come from internal promotions, with roughly 10 senior associates on track for partner consideration in the next four years, Hessler said.

With the talent roster in place, Hessler has a target for how many hours the group will need to work. That target, which he didn’t disclose, informs how many cases the group will need to find.

“That’s the systematic approach,” Hessler said. “And that builds into the qualitative side: How are we getting the right cases?”

Finding the Right Work

Getting big cases is of course what determines success for any restructuring practice.

On that score, Sidley has a ways to go. Kirkland remained the far-and-away leader of the practice through nine months this year. The firm led the way with 19 company-side representations, according to New Generation Research Inc.’s bankruptcy data.

Sidley represented four companies, fewer than firms including Latham & Watkins, DLA Piper, McDermott Will & Emery, and Paul, Weiss, Rifkind, Wharton & Garrison, according to New Generation Research.

Hessler said the group is advising six companies in “prep mode” for filings that could happen before the end of the year or early 2024.

Sidley’s international restructuring group has also been busy as a result of China’s property bust. Hessler said the firm has 20 company-side representations emanating from failing real property developers. That includes the two most well-known examples: China Evergrande Group and Country Garden.

Those cases emanated from the firm’s strong position in the capital markets practice in China, Hong Kong and Singapore, Hessler said.

The firm’s target is to spend between two-thirds and three-fourths of its time on company-side representations in and out of court, Hessler said. He wants the rest of the group’s time spent advising he called “constructive” creditors. For example, senior secured creditors or unsecured creditor groups who are looking to convert debt to equity positions.

“You build a huge amount of credibility and knowledge with those creditors who are across the table from you when you’re representing companies,” he said. “And with that rapport you’ve built with them, it’s easier to get deals done.”

From Private Equity…

One major reason Sidley is keen to develop its restructuring brand is to capture Chapter 11 filings or out-of-court work from its roster of private equity clients, whose struggling portfolio companies drive the bulk of cases for most Big Law debtor-side practices.

The firm in late 2022 won the job of representing Reverse Mortgage Investment Trust Inc. in its Chapter 11 filing, which was among the largest cases that year by liabilities. That gig came through Sidley’s long-time relationship with its private equity backer, Starwood Capital.

“What’s exciting is Chapter 11 filings are coming from pre-existing relationships and we’ve successfully been picked to hold onto that restructuring work when competing with other firms,” said Yvette Ostolaza, chair of Sidley’s management committee.

The case also exemplifies why Sidley is targeting company-side representations: They generate the biggest fees out of any role in Chapter 11.

After earning more than $5 million in the month leading up to the Reverse Mortgage Investment Trust filing, Sidley earned nearly $9 million while handling the case from November through April, according to court documents.

“We are going to leverage the preexisting private equity portfolio to the greatest extent that we can,” Hessler said. “But we also want to go out and find work anew and fresh, and we’re doing that.”

And Beyond

One relationship Hessler developed while at Kirkland led to one of Sidley’s Chapter 11 representations this year.

Gary Broadbent was general counsel of Mission Coal Co. when the company turned to Kirkland for its Chapter 11 filing in 2018. Now working at indoor farming company AppHarvest, Broadbent called up Hessler a few months before his company filed Chapter 11 this year.

Hessler earned his trust during the Mission Coal case, Broadbent said, and his move to Sidley meant AppHarvest could consolidate nearly all of its legal work with the full-service firm. Sidley took on work regarding financial securities compliance, employment matters and contractual issues.

“It’s a small stable of firms that have that capability,” Broadbent said, noting he puts Sidley at the top of the list. “When you look at the cases they’re handling now and the complexity of the cases they’re handling, there’s been a sea change at Sidley over the last 18 months.”

Worth Your Time

On Big Law Salaries: Cravath, Swaine & Moore raised the salary scale that Milbank put out this month, further raising the stakes for Big Law firms that hope to pay the highest wage. Several others have since followed.

On Law Firms and Artificial Intelligence: Generative artificial intelligence hopes to make legal work faster and more efficient, but it is also posing a quandary for law firms who can’t decide whether to tell clients they’re using it, Isabel Gottlieb reports.

On Bankruptcy Judges: Former bankruptcy judge David R. Jones said he’s asked the Justice Department to defend him against a civil suit alleging that he improperly failed to disclose a relationship with a local attorney, James Nani reports.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.