Nuveen argues that all is fair in the competitive high-yield market


Nuveen is digging in to fight a lawsuit by Preston Hollow Capital LLC that accuses the investment powerhouse of using strong-arm tactics to control high-yield market share by pressuring banks to shun the private capital competitor.

In the latest salvos in the case launched by Dallas-based Preston Hollow on Feb. 28, Chicago-based Nuveen doesn’t deny the alleged intimidation practices against broker-dealers and Preston Hollow’s primary lender.

The Preston Hollow lawsuit challenges the reputation of Nuveen and its head of municipal finance, John Miller. Nuveen says the suit is legally baseless.

Bloomberg News

Nuveen, which has said the claims are without merit, argues that even if the accusations are taken as true that it acted well within its rights against the competition.

“Just because plaintiff does not like that conduct does not make it wrongful, even if it negatively impacted plaintiff’s business. That plaintiff fails to adequately plead any cognizable claim to justify any relief is thus unsurprising,” says the April 12 public filing supporting Nuveen’s motion to dismiss.

The lawsuit offers a first-of-its-kind public display of behind-the-scenes competition in a paper-starved market where disputes are often resolved outside the public eye.

Nuveen’s filing cities various case law, including a Delaware Superior Court ruling that concluded “privilege enjoyed by competitors in the same market to compete aggressively for market share” justified the defendants’ actions.

Preston Hollow over the last week filed subpoenas seeking information and communications from five banks about communications related to Nuveen and Preston Hollow.

The case — absent a ruling in the coming months that tosses the charges or a negotiated settlement — is headed toward a July trial, according to filings in the Delaware Chancery Court where the case was filed.

A source close to the case told The Bond Buyer that no settlement talks are in the works ahead of May filing deadlines related to the subpoenas.

Market participants are watching the litigation because it raises issues of price fairness, investment competition, broker-dealer complicity, and clout. It also puts the reputations of both firms on the line.

Preston Hollow, which provides up to 100% direct placements, says it began hearing in 2017 that Nuveen, and its prominent head of municipal finance, John Miller, was wielding its power and cash to run interference with broker-dealers on potential deals for Preston Hollow, using Nuveen’s role as intermediary between an issuer and investor.

“The campaign of intimidation to coerce broker-dealers from doing business with Preston Hollow” by threatening to withhold business escalated after Preston Hollow closed on its purchase of two higher education financings, the lawsuit says.

Preston Hollow, which set up shop in 2014, turned to the courts after Nuveen refused to back off, the private capital provider charged.

Nuveen fired back in an April 10 filing outlining its arguments asking the court to dismiss the case.

If the allegations are taken as true, there’s nothing illegal that occurred, the firm argues.

“If Nuveen may urge its counterparties to share investment opportunities and not support a competitor in the design and execution of exclusive investments, then plaintiff’s claims — regardless of how they are labeled — should be dismissed,” Nuveen argues. “The ability to choose with whom to do business is a fundamental economic right, which includes the right to select business partners based on whether they work with competitors and to use economic pressure to persuade third parties.”

The Nuveen motion also tries to pick apart the lawsuit’s claims that include four causes of unlawful action: Tortious Interference with Contract, Tortious Interference with Prospective Business Relations, violations of the Donnelly Antitrust Act, and Defamation. The filing and many in the case include redacted material and some documents are not available under a confidentiality seal approved by the court.

Nuveen contends Preston Hollow has failed to identify any existing contract that was breached or even threatened to be breached. “Plaintiff says that three broker-dealers have refused to finance a new issuance, but plaintiff does not say — apparently because it cannot— that any of the broker-dealers had a contractual obligation to do so,” reads Nuveen’s filing.

“As for plaintiff’s claim for defamation, as a matter of law, the two purportedly defamatory statements are constitutionally protected statements of opinion and thus non-actionable,” Nuveen’s filing says, referring to Preston Hollow’s accusation that Miller offered a stinging assessment of one Preston Hollow deal.

“According to plaintiff’s allegations, the municipal bond market is one where competitors fiercely compete. In this context, a reasonable, sophisticated, broker-dealer in discussions with Nuveen would recognize that an allegation that a competitor’s deal is ‘rushed’ or ‘corrupt’ and that it charges ‘excessive’ rates is persuasive, exaggerated speech meant to garner business,” Nuveen’s motion says.

Nuveen defends its Feb. 22 letters to a handful of broker-dealers as a response to Preston Hollow’s January 15 cease and desist letter demanding that Miller and Nuveen halt intimidating tactics that had been reported to the firm by market participants.

Nuveen wrote in those letters that it “does not and will not seek any agreement or commitment from your firm concerning the counterparties it does business with. We fully acknowledge your firm is free to conduct its trading business in a manner and with firms and counterparties of your choosing.”

Preston Hollow charged in its lawsuit that the letters served only to remind the broker-dealers of the power Nuveen wielded over them.

Preston Hollow’s subpoenas were served on The Bank of America Corp., Deutsche Bank Americas Holding Corp., The Goldman Sachs Group Inc., Morgan Stanley & Co. and JPMorgan Chase & Co. They seek communications between bank employees and Nuveen representatives related to Preston Hollow.

Representatives of the five firms all declined to comment on the requests.

“All documents and communications between you and Nuveen relating to Preston Hollow, including, but not limited to, recordings of telephone conversations with Miller or Nuveen” representatives, including five additionally named individuals, are requested in the Bank of America subpoena.

The Wabash Building houses Roosevelt University's downtown Chicago campus. Photo taken on June 27, 2013.

One subpoena in the case seeks communication between Nuveen and several banks related to a 2018 deal for Chicago-based Roosevelt University that was placed with Preston Hollow.

Ken Lund

It also seeks communications specifically relating to Chicago-based Roosevelt University’s late 2018 $200 million bond sale that was lead managed by Wells Fargo Securities and privately placed with Preston Hollow, and a $33 million Provident Group-Howard Center deal for a project at Howard University. Bank of America lead managed the latter, which sold through the District of Columbia, in late 2018 and Preston Hollow provided capital.

The request covers any documentation of meetings and credit and underwriting discussions related to those transactions or any others that involved Preston Hollow and it includes related communications with any member or employee of the Municipal Securities Rulemaking Board.

In addition to communications with Nuveen involving Preston Hollow, the Deutsche Bank subpoena seeks “all documents and communications” between the bank and Nuveen relating to changes or revisions to the bank’s tender option bonds and/or funding arrangements with Nuveen. Preston Hollow believes the tender option program was used as a means to influence broker-dealers.

That includes trade confirmations and other documents and communications identifying all tender option bond financings and other financing arrangements between the bank, as remarking agent, and Nuveen as seller and/or beneficial owner with inception and termination dates for each financing, CUSIPs, and par amounts for each of the financing agreements and the underlying securities.

Under an approved schedule that is subject to change, Preston Hollow’s response to Nuveen’s motion to dismiss and Nuveen’s subsequent reply to that filing are due this month. Preston Hollow filed its brief Thursday but a public version is not yet available. A hearing on the motion to dismiss is set for April 30.

If the case proceeds, any requests for documents from third parties, such as the banks subpoenaed, are due May 1 and objections they might have are then due by May 15 with documents then due by the end of the month.

Work then moves toward trial preparation with the compilation of documents and expert witnesses and any challenges by the two sides.

Pre-trial briefs are due July 23 and exhibits due July 26 ahead of a trial that could occur July 29 and 30.

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 a firm with $930 billion of assets under management including $154 billion in municipals and is a top high-yield manager.

The suit names Nuveen LLC, Nuveen Investments Inc., Nuveen Securities LLC, and Nuveen Asset Management LLC as defendants. The public version was released March 5.

The complaint asks the court for a preliminary and permanent injunction ordering Nuveen to cease the alleged conduct in the high-yield municipal bond market, 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 it bars future misconduct.

Preston Hollow “is highly dependent upon its relationship with broker-dealers, since the investment bankers are able to identify which of their issuer clients and transactions will benefit from Preston Hollow’s unique positioning and sector expertise,” and its business will be “significantly impaired” if broker-dealers refuse to participate as an underwriter or share information on deals, the lawsuit claims.

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