Preston Hollow calls Nuveen's 11th-hour move ‘desperate‘

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Preston Hollow Capital LLC fired back against Nuveen Investments’ attempt to reopen a two-month-old trial record, calling accusations of profiteering on a recent sale inaccurate, misleading and desperate.

The back-and-forth between the Dallas-based private lender and the Chicago-based investment powerhouse is the latest development in PHC’s lawsuit accusing Nuveen of wielding its influence to pressure banks and broker-dealers to shun PHC in an effort to choke off the firm’s access to capital and deals.

Two months after final trial arguments, Nuveen Investments earlier this month asked the Delaware Chancery Court to add new evidence to the trial record it claims undercuts PHC’s civil allegations of interfering in its business dealings and engaging in anti-competitive practices.

Vice Chancellor Sam Glasscock III is considering the lawsuit on an expedited basis but has not yet ruled.

“The court no doubt has devoted numerous hours to evaluating the case and may even have begun drafting a decision. It would be unfair to the court, as well as to PHC, to put that on hold while the parties engaged in further proceedings on issues” that won’t impact the outcome, PHC argued in its filing opposing Nuveen’s motion to reopen and supplement the trial record.

“The motion reeks of desperation and should be denied,” PHC’s attorneys from Morris, Nichols, Arsht & Tunnell LLP wrote.

Nuveen’s request cited a published news article looking at the price differential on PHC’s recent sale of a portion of the $200 million Roosevelt University issue it directly purchased last year and a fresh affidavit from Nuveen expert witness Edward A. Snyder, a Yale School of Management professor and antitrust expert. The 2018 deal was one of two deals described by Snyder as “central to the litigation” and the antitrust claims.

Snyder concluded after reviewing the sale price that it provided evidence of his assertions that Roosevelt paid too high an original yield on the deal, allegedly supporting Nuveen’s allegations that PHC engaged in predatory practices, which in turn would undercut the lawsuit’s legal contentions.

Snyder’s original analysis concluded that the Roosevelt bonds landed 100 basis points over comparable paper. The bonds sold at a weighted average price of $116.2 cents on the dollar, compared to a weighted average price of $96.5 cents on the dollar paid for the bonds by Preston Hollow at issuance, which equates to a gain of approximately 20% in about 14 months since the initial purchase, Snyder said.

“This evidence is highly probative of and directly relevant to Nuveen’s defenses to PHC’s claim of tortious interference with prospective business relations, corroborates the testimony of Nuveen’s witnesses, and undermines the credibility of PHC’s witnesses,” Nuveen’s attorneys at Potter, Anderson & Corroon LLP wrote in their motion.

The filing argued that the review and pricing is relevant to Preston Hollow’s antitrust claims because Preston Hollow asserts that municipal bond issuers benefit from its unique presence in the market and its ability to offer 100% placement of the debt.

In its reply, PHC calls the new “evidence” immaterial and asserts that Nuveen fails to meet the legal threshold for reopening the record as the new “evidence” must be so material that it is likely to change the outcome of the case.

“Even if the new evidence supported John Miller’s statement that PHC ‘fleeced’ Roosevelt (which it does not), the full trial record amply supports a finding that Nuveen tortiously interfered with PHC’s business via multiple other defamatory statements,” PHC wrote, referring to statements made by Nuveen’s head of municipals in transcripts of recorded calls between banks and Nuveen officials.

PHC further argues that additional briefing and arguments would be required if Nuveen’s request is granted and that would delay a decision in a case. PHC also believes if reopened it should then be allowed to introduce its own new “evidence” that includes recent borrowing relationships including a recently closed transaction with Gary, Indiana.

PHC noted in its filing that the new Gary deal paid off a revenue anticipation note transaction that Nuveen participated in and paid a higher rate than the new issue.

PHC argues the Snyder affidavit is flawed in that it failed to consider Roosevelt’s improved financial condition, which it contends was helped by the bonds it purchased as well as market conditions.

“As a result of both the general increase in the market for high yield municipal bonds and the dramatic improvement in Roosevelt’s financial condition, it is not surprising that the bonds traded at higher values in late October/early November 2019,” PHC wrote.

PHC called Nuveen’s portrayal of the sale inaccurate, saying it had sold $18 million of the nearly $200 million issue, not $42 million as Nuveen asserted, and it remains the majority holder. “Ultimately, Nuveen’s continued baseless efforts to paint PHC as predatory demonstrate why injunctive relief is necessary here,” PHC wrote.

Preston Hollow contends its model offers issuers an affordable and flexible borrowing choice. Nuveen says it damages the market and overcharges issuers and contends its actions seeking to protect its access to high-yield deals was legal.

Nuveen contends it acted within its rights to protect its business in the competitive high-yield market and accused PHC of engaging in predatory practices by overcharging borrowers that could secure lower rates in the open market and harming the market with weak covenants. PHC filed the lawsuit in February.

PHC isn't asking for damages on claims of tortious interference with prospective business relations, and violations of the New York Donnelly Antitrust Act. Instead, it asks the court for a preliminary and permanent injunction ordering Nuveen to cease the alleged conduct and to order Nuveen to rectify the harm already caused by withdrawing and disavowing retaliatory threats. It asks that Nuveen be directed to adopt supervisory procedures to ensure ban future misconduct that is alleged.

Glasscock had been hoping for a settlement but talks proved fruitless. The judge has warned of the difficulty of enforcing an injunction or some other court-ordered remedy to halt the alleged behavior and indicated that he would allow the two to discuss how best to enforce it.

The case pits the newer and smaller non-bank finance company specializing in high-yield municipal specialty finance against an institutional powerhouse.

The case originally was brought with four causes of unlawful action including Tortious Interference with Contract and defamation. Glasscock has dismissed the tortious contract claim and the defamation charge.

The defamation charge was dismissed because it requires jury consideration and Chancery Court cases are decided by a judge. That charge has been transferred to the Delaware Superior Court.

When PHC filed the case in late February it cracked the window open on the cutthroat competition in the high-yield municipal market. Its accusations sparked debate on the accusations of whether strong-arm tactics broke the law, broker-dealer complicity and resistance, and what constitutes pricing fairness as Nuveen labeled PHC’s yields “predatory.”

The reputations of both firms remain at stake.

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