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> You are David Nemecek, you are the lawyer the most aggressive distressed hedge funds fear
> You get your law school degree from Harvard Law, obviously
> You work at Cravath, Gibson, Skadden, and then the leading law firm recruits you
> You become a Partner at Kirkland & Ellis nine years after law school
> Over the next 15 years, you absolutely kill it. You work on literally every innovative LME. You are the LME market.
> Legends start about you. Associates bring you the docs, you examine them and find chink after chink in the armor
> The Financial Times calls you the "most powerful adviser to distressed companies"
> In 2026, Simpson Thacher poaches you to become Head of Simpson Thacher’s Capital Structure Solutions for a reported $30mm figure
> You join. And you are not alone. Every major company (Xerox, Leslie’s, Springs Window) drops K&E and rehires you through STB. You are officially greater than Kirkland and Ellis.
> Xerox comes asking for help. They need cash, but assets are pledged and docs are closed.
> You find yet another chink in the docs. Subsidiary baskets are closed, but why should the recipient of the assets be a ‘Subsidiary’ at all? You design the JVCo dropdown.
> You pull it off; more will come, Pari Passu writes about you. Of course they do. You are Dave Nemecek.
> You get your law school degree from Harvard Law, obviously
> You work at Cravath, Gibson, Skadden, and then the leading law firm recruits you
> You become a Partner at Kirkland & Ellis nine years after law school
> Over the next 15 years, you absolutely kill it. You work on literally every innovative LME. You are the LME market.
> Legends start about you. Associates bring you the docs, you examine them and find chink after chink in the armor
> The Financial Times calls you the "most powerful adviser to distressed companies"
> In 2026, Simpson Thacher poaches you to become Head of Simpson Thacher’s Capital Structure Solutions for a reported $30mm figure
> You join. And you are not alone. Every major company (Xerox, Leslie’s, Springs Window) drops K&E and rehires you through STB. You are officially greater than Kirkland and Ellis.
> Xerox comes asking for help. They need cash, but assets are pledged and docs are closed.
> You find yet another chink in the docs. Subsidiary baskets are closed, but why should the recipient of the assets be a ‘Subsidiary’ at all? You design the JVCo dropdown.
> You pull it off; more will come, Pari Passu writes about you. Of course they do. You are Dave Nemecek.
NON-SUBSIDIARY DROPDOWN PRIMER | PUBLISHED
This week, we are passing the pen from our financial analyst to our legal analyst to put the Xerox transaction structure under the microscope to understand how the Non-Subsidiary Joint Venture works, and where it sits alongside other landmark dropdown transactions.
We do this by looking at the history of both asset dropdowns and non-subsidiary LMEs (yes, Xerox was not the first, actually!), before running through a simple hypothetical transaction to demonstrate how the Xerox-style non-subsidiary dropdown works step-by-step and its use case: to get around popular asset dropdown blockers.
From there, this write-up takes an analytical and critical turn.
We think there are some features of the non-subsidiary dropdown that everyone is missing.
So we want to bring them to your attention and contribute to the wider discussion around these transactions. Our first claim is that it is too narrow to equate non-subsidiaries with minority-owned joint venture corporations. If we start from first principles, we can see that a joint venture corporation is a means to accomplish a non-subsidiary dropdown, but it is conceivable that there are other ways to achieve this.
Next, we claim that it is worthwhile to explore other options, as joint venture corporations do come with significant legal disadvantages for the borrower. In light of these disadvantages, we propose two alternative non-subsidiary structures, using US and UK law, that a borrower can use to avoid giving the incumbent lender majority voting power / an equity position in the entity with the valuable assets.
We then conclude with some thoughts on recent market developments and how to think about Xerox Blockers given what we’ve learned today.
We are incredibly excited to bring this analysis to you! Read belowView quoted post on X
