Ruling looms in Preston Hollow v. Nuveen after fruitless settlement talks

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The judge presiding over Preston Hollow Capital LLC’s lawsuit accusing Nuveen Investments of trying to bully banks into shunning the private lender on direct placement business may rule any day now after the failure of a fresh round of settlement discussions.

The case, first filed in Delaware Chancery Court by the Dallas-based private lender in February, moved into its final stages with post-trial oral arguments laid out before Vice Chancellor Sam Glasscock III Sept. 16.

Glasscock, who has made clear that he’d prefer the two sides reach a settlement, renewed his recommendation during the hearing, telling both firms that such a deal would result in the best outcome for both parties.

If Preston Hollow prevails, Glasscock 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 judge suggested a victory for Chicago-based Nuveen victory could still sting the firm’s reputation, and some form of settlement might soften the impact, according to market participants following the lawsuit.

He suggested they work out a “remedy solution” and report back within a week whether an agreement was brokered, according to court filings.

“In light of your honor’s recommendation … that the parties take a week to attempt to resolve their dispute, defendants … renewed their efforts at negotiating a settlement with plaintiff Preston Hollow Capital LLC including proposed mediation,” reads a letter last week to Glasscock from Nuveen’s attorneys at Potter Anderson & Corroon LLP. “We write to inform the court that these efforts have not resulted in any agreement.”

PHC isn't asking for damages. 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 will decide whether the Chicago-based investment powerhouse illegally engaged in wrongful and anti-competitive tactics to choke off PHC’s access to capital and deals or acted within its rights to protect its business in the competitive high-yield market.

Preston Hollow summed up in the opening lines of its closing statements what drove it to seek legal intervention through the filing of its lawsuit in late February, and how Nuveen’s threats have allegedly damaged PHC's business relationships and threatened its long-term viability.

“In December 2018, three Nuveen employees, including John Miller, the head of Nuveen’s municipal bond group, called every major broker-dealer with which Preston Hollow Capital does business and threatened to stop doing business with them if they continued to do business with PHC,” the document reads.

“At the same time, Miller and one of his deputies, Steven Hlavin, called Deutsche Bank, PHC’s primary source of financing, to deliver the same threat, insisting that Deutsche Bank stop lending to PHC. Their goal was to put PHC out of business,” the PHC arguments said.

Nuveen had also told Deutsche Bank of its decision to pull a then $1.9 billion tender option bond financing with the bank down to zero for having financed PHC’s business.

Nuveen fired back in its closing arguments by accusing of PHC of blowing out of proportion Miller and his associates’ threats. Those threats were captured on calls that became part of the court record when PHC subpoenaed the recordings made by broker-dealers under regulatory guidelines.

Nuveen countered by saying the PHC allegations described practices that are fair in a competitive market and arguing PHC fell far short of proving violations of any laws.

“PHC’s ‘proof’ boils down to a few recorded phone calls between Nuveen and a handful of market participants. During those calls, Nuveen personnel expressed concerns about PHC’s business, shared opinions about certain PHC deals, and made hyperbolic statements,” Nuveen’s attorneys wrote.

“The evidence shows that Nuveen acted lawfully for proper, competitive purposes. It is not unlawful to exercise the right to free speech to explain to a supplier why it should choose to do business with you over someone else—or even to demand that it make such a choice,” Nuveen argued.

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, 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.

When PHC filed the case in late February it cracked the window open on the cutthroat competition in the high-yield municipal market. It 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 remains at stake.

Preston Hollow contends its model offers issuers an affordable and flexible borrowing choice. Nuveen believes it damages the market and overcharges issuers.

The later release of transcripts of tape-recorded calls between Nuveen’s head of municipals John Miller and other members of his team and broker-dealer and bank employees further widened the view. More was disclosed in later court proceedings that included depositions from prominent market participants and all was laid out during the two-day July trial.

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