Unsealed recordings lay out Nuveen's squeeze on banks over Preston Hollow deals

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Nuveen Investments offered Deutsche Bank and many other major banks and broker-dealers the same choice late last year — drop any direct placement dealings with Preston Hollow Capital LLC or lose Nuveen’s tender-option bond and primary and secondary market trading business, according to recorded conversations released by the court.

That was the “clear” and “stern” message coming from Nuveen’s head of municipals, John Miller, that a Nuveen representative shared with Deutsche Bank employees, according to the first transcripts of recorded conversations unsealed by the court in the Dallas-based private lender’s antitrust and defamation lawsuit against the Chicago-based high-yield investment powerhouse.

While Deutsche Bank resisted pressure to pull its lending support, many major broker-dealers and banks involved in underwriting potential transactions for direct placement with PHC had committed to cut ties, according to Nuveen assertions made during the recorded conversations.

“I’ve got 90% of the major top bracket muni broker-dealer firms and banks to say absolutely never again and I’m working on 100%. I feel my chances are pretty good at getting there,” a Nuveen employee tells a Deutsche Bank employee during one conversation. While referred to only as “John,” the Nuveen employee appears to be Nuveen’s head of municipals John Miller based on the conversation’s details.

“And, again, we — legally speaking — have to be very clear. We’re not telling anyone not to do business with them. We’re just saying that if we know that you do, we cannot do business with you. And that’s — that’s the conversation that’s being had with everyone,” another Nuveen employee tells a Deutsche Bank employee, according to the transcripts.

The transcripts come from conversations — recorded under regulatory mandate — that were obtained by Preston Hollow through subpoenas. The transcripts were originally sealed under a confidentiality designation that Preston Hollow successfully argued to lift.

Delaware Chancery Court Vice Chancellor Sam Glasscock III last Friday granted the order and limited redactions to Deutsche Bank employee names.

While the case is headed toward a late July trial, the judge has made clear that he'd like the two sides to settle. Whether that can be accomplished or discussions on that front are underway was not clear.

The transcripts provide a riveting view into Nuveen’s attempts to wield its power and its defense in pushing to blacklist Preston Hollow. Nuveen said it believed the lender engaged in predatory lending practices, which opened up the debate over pricing fairness in direct lending versus the open market. Nuveen’s successful maneuvers with broker-dealers and threats to its access to capital along with the alleged defamatory statements led Preston Hollow to file the lawsuit earlier this year.

Preston Hollow argued for the release of unredacted transcripts saying there was no legal reason to keep them from the public’s view. Many documents in the case are sealed as confidential.

Nuveen was “organizing an industry-wide boycott of PHC in terms of both underwriting and financing 100% placements — through both threats and specific defamatory statements about PHC’s business practices — designed not to compete with PHC but to stamp out PHC’s business model,” PHC argues in filings.

While Preston Hollow initiated the efforts, it still sought to keep alleged defamatory statements against itself under wraps.

Nuveen had fought against the public release, saying the effort was aimed solely at embarrassing the firm but it also argued that if opened up, PHC should not be granted its requested redactions.

“The selected passages from the transcripts, as presented, offer a distorted view of how we engage with broker-dealers on a day-to-day basis and therefore don’t reflect our overall approach to the municipal bond market on behalf of our clients and all investors,” a Nuveen representative said of the transcripts Monday in an emailed statement. “Nuveen continues to maintain the claims have no merit and will vigorously defend itself.”

PHC declined to comment.

Discovery and depositions have also been underway in the case as both sides prepare for trial. Additional bank and individual subpoenas have been filed over the last month as Preston Hollow learned of new information gathered from the original bank subpoenas.


A transcript of a phone call labeled "Exhibit A" and recorded during the 2018 holiday season between a Nuveen official and Deutsche Bank employees highlights the lengths to which Nuveen used its muscle to thwart Preston Hollow’s business.

It also provides insights into Nuveen’s motivations that its employees say extended beyond a single-minded effort solely to damage Preston Hollow.

In one exchange between unidentified Nuveen and Deutsche Bank employees, the Nuveen representative reveals the firm’s displeasure with Wells Fargo Bank for its private placement of bonds in an October issue for Chicago-based Roosevelt University that sold through the Illinois Finance Authority. The borrower and issuer are not named but prior filings make clear the reference.

“We were upset that the deal was navigated around us, but we are also upset that what we heard was Preston Hollow was — they were demonstrating predatory lending practices,” the Nuveen employee says.

The employee goes on to accuse PHC of misleading deal participants and bashing Nuveen in front of issuers, which was allegedly reported to Nuveen by Wells Fargo, according to the Nuveen employee quoted in the transcript.

As the conversation continues, the Nuveen employee blames the alleged bad-mouthing directly on a Preston Hollow professional who previously worked at Mesirow — a reference to Curtis Erickson, currently head of capital markets at Preston Hollow, who is named in the transcripts. Nuveen's relationship with Mesirow had soured over the alleged comments but has since been restored, according to the transcripts.

Nuveen warns that Preston Hollow’s business model will take supply away from traditional buyers, not just Nuveen, but the traditional high-yield muni market.

“It’s harmful to issuers over the long term, which shows us that Preston Hollow is not interested in owning these credits and investing in these credits over the long term,” the Nuveen employee says, going on to accuse PHC of attempting to sell securities to the firm at “significantly marked-up levels.”

After the Roosevelt deal, Nuveen said it put Wells Fargo “in the box” with plans to pull its tender-option bond relationship until it brings Nuveen a direct placement deal as an exclusive.

The Nuveen employee goes on to suggest that the conflict may have added to “tensions” between Wells Fargo and its then head of municipals and “was probably the situation that tipped the scales to him ultimately being fired,” the transcript says.

Stratford Shields is not named but he was the head of municipals fired by Wells Fargo in December. Shields is now a banker with Loop Capital Markets.

The bank declined at the time to disclose the reason behind the firing. Sources said Shields was placed on administrative leave and fired based on a shouting match witnessed by others between Shields and another banker and may have been motivated by a power struggle over future leadership.

“These allegations cast further doubt on Wells Fargo’s previously stated reasons for Mr. Shields’ departure. It seems that, in trying to justify getting rid of a successful and highly effective public finance leader, Wells Fargo lied to Mr. Shields or to their customer Nuveen — or to both," said a spokesman for Shields.

Piper Jaffray Co., The Bank of America Corp., and Morgan Stanley & Co. soon found themselves in similar conflicts with Nuveen due to pending transactions and Nuveen planned to halt trading activities.

“The directive is very clear and it’s very stern: We will not be conducting high-yield business with anyone who is involved in these types of transactions with Preston Hollow which ultimately led to the decision by John to direct another employee to take down all of the Deutsche Bank TOB exposure to zero because we need to make a very clear and consistent stance that we are not going to be doing business with anyone who chooses to support this type of activity in the market,” the Nuveen employee tells the Deutsche Bank employee.

Miller and another employee were not on the call because they were busy informing major banks and broker-dealers of their position, the documents state.

“We’re not telling you that you can’t, but we are telling that if you do, we will choose not to— not to support you in any way,” the Nuveen employee says on the call. “This isn’t about penalizing Deutsche Bank. This about taking a consistent stance about certain market practices that we think are harmful to not only Nuveen but the market as a whole — we’re long term market participants.”

The Deutsche Bank employees argue back that their role is solely to provide financing as a TOB provider, that they have no role in underwriting practices, and believe the penalties they face are unfair given they were not aware of Nuveen’s opposition to Preston Hollow’s model.

The Nuveen employee reports having worked with “John” for 15 years during which the employee had never seen him “so serious about anything” and that “it’s very clear he’s creating a zero-tolerance policy."

The DB employees push Nuveen on its objective and whether it’s seeking to divide market participants and do business only with those that shun PHC, according to court documents.

“We want the lending practices of Preston Hollow to stop. They cannot be — in our opinion they cannot be shown deals exclusively and be allowed to negotiate these, what we view as predatory lending practices. Okay? And that includes liquidity financing,” the Nuveen employee says.

As the conversation progresses, the Nuveen employee asks the DB employee what is the firm’s ability to collapse a liquidity trust, making clear that it’s not directly asking the bank to do that with Preston Hollow.

In a second transcript labeled "Exhibit B," Nuveen further defends its actions. The call appears to be between Deutsche Bank officials and a Nuveen official, likely John Miller as he is referred to as “John” and during the conversation he refers to the positions being taken on Preston Hollow as being his own. “This is issuers that we own getting sucked down this predatory path at rates that aren’t even market rates,” says the Nuveen employee labeled as speaker one.

Deutsche Bank continues to defend its position that’s it’s simply acting a financier and shouldn’t be punished for the individual transactions. The Nuveen employee counters: “The ability for them to move up the scale into deals that are really hurting us and really going to hurt our industry, that ability does come from your TOB financing.

“I think you are far and away number one. And you’ll be definitely number one going forward because I’m getting these commitment in the Street because they agree with me,” says the Nuveen employee.

Nuveen said it halted trading business with Wells Fargo after the Roosevelt deal and now has a “firm commitment” from Wells Fargo that it will “never” again partner with Preston Hollow.

After taking similar action with Bank of America Merrill Lynch, the firm committed to forgo direct placement business with Preston Hollow. Goldman Sachs Group and JPMorgan offered similar commitments as had a handful of mid-tier regional firms.

Wells Fargo, JPMorgan, and BAML declined to comment on the transcripts and Goldman did not immediately respond to a request for comment.

A meeting with Citi was slated for later that day and the Nuveen employee said it was expected to go in Nuveen’s favor. A meeting was not expected with Morgan Stanley until 2019.

A third transcript labeled "Exhibit C" is a telephone discussion between Nuveen and Deutsche Bank employees ahead of an in-person meeting. The Deutsche Bank official reports that it intends to maintain the PHC relationship.

“We look at them as like an equal opportunity — we are an equal opportunity firm and we want to do business with you and with them, and we can’t agree to not do business with them,” according to the transcript.

The Nuveen employee responds by saying any decision to scrap its relationship with the bank would be “purely a business decision about counterparty risk” which Nuveen argues is now an issue because of its assertions that PHC engages in predatory practices.

A final transcript labeled "Exhibit D" represents a discussion between Nuveen and Deutsche Bank officials in which Nuveen reports that a “major bank underwriter” who had agreed to back out of a series of deals had indeed stopped five Texas-based “dirt” deals initiated by Preston Hollow from closing.

The two go on to discuss the differences between Preston Hollow’s proposed deals and a direct bank purchase of a bond deal after the DB employee poses the question over why Nuveen would not consider a direct bank placement “predatory.”

“The deals are done above market with no covenants, so the bond are going to trade very poorly in the secondary market. They are not in it for the long term…so they are willing to harm the issuer by making their debt service too high, artificially high, and then weakening covenants so that their borrowing practices can become more leveraged. Covenants are there to protect both the issuer and the bondholder. So with the lack of covenants, the project is more likely to fail,” the Nuveen employee says.

The case pits Preston Hollow, which describes itself as a well-capitalized, non-bank finance company specializing in high-yield municipal specialty direct placement financings with more $1.8 billion in assets and $1.3 billion in equity capital, against a firm that is a top high-yield manager with $930 billion of assets under management including $154 billion in municipals.

Preston Hollow sued Nuveen on Feb. 28. It accused the firm and Miller and his staff of a concerted effort to damage its business through “threatening, anti-competitive and defamatory communications” to top broker-dealers and Preston Hollow’s primary lender.

Nuveen has responded in its defense that there’s nothing illegal about the tactics it is accused of using.

Glasscock previously dismissed one claim on tortious interference and allowed two others to move forward including one on tortious interference with prospective business relations and the other on a violation of New York’s Donnelly Antitrust Act. He asked for an additional briefing before deciding on whether to allow the defamation claim to proceed. Nuveen recently submitted additional briefs outlining its argument as to why that claim should be dismissed.

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Lawsuits Private placements Buy side Sell side Broker dealers Preston Hollow Nuveen Illinois Texas