Nuveen's 'bluster' was choke hold, Preston Hollow testifies

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Preston Hollow Capital LLC’s private lending business tanked after Nuveen warned banks to shun the firm or lose its business — a threat Nuveen says was exaggerated simply to get bankers’ attention.

Those were the positions staked out as the conflict between the Chicago-based investment powerhouse and the newer and smaller Texas-based purveyor of direct placements in the high-yield arena took to the courtroom. PHC is asking the court to order Nuveen to halt what it contends are anti-trust violations of New York’s Donnelly Act and illegal efforts to interfere with its business.

Nuveen’s head of municipals John Miller and PHC’s Ramiro Albarran, who manages asset origination activities, and PHC founder Jim Thompson took the stand Monday, according to Bloomberg’s published reports covering the first day of the non-jury, two-day trial that began before Delaware Chancery Court Vice Chancellor Sam Glasscock III Monday.

Miller told the court his threats — made public in transcripts of audio recordings between him and other Nuveen officials and bank employees — amounted to nothing more than “blustering” because “sometimes you have to exaggerate to get people’s attention, especially on Wall Street trading desks,” according to Bloomberg reports.

Miller or his associates had warned banks they would be put “in the box,” meaning the firm would pull its trading and/or tender option bond relationships, if they chose to underwrite deals brought to them by PHC where PHC would directly purchase the bonds. He warned some firms that many major Wall Street banks were already on board with the boycott.

The transcripts of audio recordings made public so far came from Deutsche Bank AG, PHC’s primary lender, and Morgan Stanley, Goldman Sachs, and RBC under subpoena by PHC. The calls were recorded due to regulatory rules.

But Miller said during his testimony that he never got any such agreements, according to Bloomberg.

In the transcripts, Miller defends his position on PHC warning banks that it engages in “predatory” lending practices by overcharging issuers and damages the municipal market. PHC has charged Nuveen was engaged in anti-trust violations trying to protect its coveted market share amid a drought of paper by orchestrating the boycott.

In testimony Monday, Miller said some of hits threats were aimed at protecting the firm’s pipeline of transactions.

On the calls, Miller had reported being upset by PHC’s direct placement deal through Wells Fargo Securities of Chicago-based Roosevelt University’s bond restructuring as it was in Nuveen’s own back yard. Miller told the court Monday the interest rate was higher than the market rate but admitted he didn’t know the specific terms of the deal and did not follow up with the university, Bloomberg reported.

PHC’s work fell “dramatically” this year by more than 60% on an annualized basis after growing by 30% in each of the previous two years and at least one firm told PHC that Nuveen was the more important client, Albarran told the court according to Bloomberg . Goldman Sachs, Bank of America Corp., and JPMorgan Chase & Co. have all declined doing deals and PHC no longer expects to reach its target of $2 billion in direct loans, Albarran also said.

PHC blamed Goldman’s decision to scrape a deal with PHC on a University of Virginia financing on a call from Nuveen to Goldman. PHC had worked to cultivate a Goldman relationship and a “dozen things” between the two were previously in development, PHC chairman and chief executive officer Jim Thompson told the court. They are no longer working together on any financings.

In a statement, Goldman spokeswoman Maeve DuVally denied the lack of work between the two was tied to Nuveen. "Goldman Sachs has not terminated its relationships with any parities in the municipal bond market as a result of conversations it has had with Nuveen," DuVally said in a statement.

Albarran later acknowledged that it was hard to put a number on how many deals might have been lost because of Nuveen’s alleged threats and other factors could have contributed to the lack of business.

Nuveen — in official court filings — has responded in its defense that, if it had engaged in such tactics, there’s nothing illegal about them and that banks were offered a choice as Nuveen had made the business decision to no longer work with counterparties that did business with PHC.

As PHC was told of the growing threats received by banks throughout last year, it ordered PHC to halt the alleged behavior, according to court documents. Nuveen denied any campaign to damage the firm’s business and eventually PHC turned to the courts with the filing its lawsuit in late February.

The case originally was brought with four causes of unlawful action including Tortious Interference with Contract, Tortious Interference with Prospective Business Relations, violations of the New York Donnelly Antitrust Act, and Defamation. Glasscock has dismissed the tortious contract claim and the defamation charge.

The complaint asks the court for a preliminary and permanent injunction ordering Nuveen to cease the alleged conduct, to order Nuveen to rectify the harm already caused by withdrawing and disavowing retaliatory threats, and asks that Nuveen be directed to adopt supervisory procedures to ensure ban future misconduct that is alleged.

The case pits the Dallas-based lender, which describes itself as a well-capitalized, non-bank finance company specializing in high-yield municipal specialty finance with more $1.8 billion in assets and $1.3 billion in equity capital, against an institutional powerhouse. Nuveen has $930 billion of assets under management including $154 billion in municipals and is a top high-yield manager.

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