Cal­i­for­nia’s Stradling Marks 40 Years Of Growth in Pub­lic Fi­nance Arena

The Bond Buyer - - Far West - By Kee­ley WeB­ster

LOS AN­GE­LES — Stradling Yocca Carl­son & Rauth’s four-decade-old pub­lic fi­nance prac­tice has grown and evolved along with South­ern Cal­i­for­nia, the place where it started.

Pub­lic fi­nance at­tor­neys at the Or­ange County-based firm shared tales of their years in the muni in­dus­try as the firm cel­e­brated the prac­tice’s 40th an­niver­sary.

Those years have brought the Or­ange County and San Bernardino bank­rupt­cies, the elim­i­na­tion of re­de­vel­op­ment agen­cies, changes in Cal­i­for­nia’s tax laws and more oner­ous fed­eral reg­u­la­tions for the mu­nic­i­pal bond mar­ket.

In Jan­uary 1978, bond lawyers Fritz Stradling, John Mur­phy and Tom Clark joined the firm, which had been founded three years ear­lier.

The trio had es­tab­lished bond mar­ket­place ac­cep­tance at their old firm, Rat­tan & Tucker, and were tak­ing a chance that their rep­u­ta­tion would carry over, said Mur­phy, who re­mains of coun­sel with Stradling. Fritz Stradling has re­tired, and Clark re­mains a share­holder.

At the time, Or­rick, Her­ring­ton & Sut­cliffe and O’Mel­veny & My­ers were the big firms whose opin­ions were ac­cepted by the Cal­i­for­nia mu­nic­i­pal bond mar­ket, Mur­phy said. The trio had worked hard at Rat­tan to be­come the third firm that govern­ment is­suers looked to for bond coun­sel.

Af­ter Nick Yocca, Craig Carl­son and Bill Rauth left to start their own firm, Mur­phy said he and his col­leagues be­gan to ques­tion whether Rat­tan was still the best plat­form for a pub­lic fi­nance prac­tice.

Yocca, Carl­son and Rauth were Rat­tan’s ex­perts on fed­eral reg­u­la­tory mat­ters and the pub­lic fi­nance trio had counted on them for ad­vice in writ­ing bond coun­sel opin­ions, Mur­phy said.

The pub­lic fi­nance prac­tice’s first deal at its new firm was as sole bond coun­sel on a trans­ac­tion for a lo­cal wa­ter district.

Today, the full-ser­vice law firm with 121 at­tor­neys in nine of­fices has risen to con­sis­tently rank in the top 10 na­tion­ally as bond coun­sel, dis­clo­sure coun­sel, and un­der­writer’s coun­sel. Dur­ing the last four years, the firm has closed more pub­lic fi­nance trans­ac­tions than any other firm in Cal­i­for­nia, said Carol Lew, a share­holder in the firm’s tax and pub­lic fi­nance prac­tices.

“I think we were for­tu­nate to be in the right place at the right time — and to add the right peo­ple,” Mur­phy said.

The New­port Beach-head­quar­tered firm’s pub­lic fi­nance prac­tice grew along with the South­ern Cal­i­for­nia re­gion.

The com­bined pop­u­la­tion of the three coun­ties orig­i­nally served by Stradling — Los An­ge­les, Or­ange and San Bernardino — grew from 10.3 mil­lion to more than 15 mil­lion be­tween 1980 and 2010.

“We were at ground zero dur­ing this ex­tra­or­di­nary growth,” Mur­phy said. “We now have sub­stan­tially more of­fices than we had lawyers at the be­gin­ning.”

The prac­tice was chal­lenged right away by the 1978 pas­sage of prop­erty tax-lim­it­ing Propo­si­tion 13, leav­ing lo­cal gov­ern­ments strug­gling for fund­ing to pay for in­fra­struc­ture.

Among the tools that bond lawyers ap­plied was a new one: 1982’s Com­mu­nity Fa­cil­i­ties Act, com­monly known as Mello-Roos af­ter co-au­thors Sen. Henry Mello and Assem­bly­man Mike Roos.

It al­lows prop­erty own­ers to levy a spe­cial tax to back bonds that pay for in­fra­struc­ture im­prove­ments and was com­monly used to fund new de­vel­op­ment.

The post-Propo­si­tion 13 en­vi­ron­ment also spurred the in­creased use of re­de­vel­op­ment agen­cies, which the state au­tho­rized in 1945 to en­cour­age eco­nomic growth in blighted ar­eas.

As more prop­erty tax rev­enue was di­verted to re­de­vel­op­ment tax in­cre­ment, the state struck back and abol­ished RDAs, ef­fec­tive in 2012.

“Un­der Tom Clark’s di­rec­tion, early on the firm also be­came a leader in re­de­vel­op­ment trans­ac­tions in Cal­i­for­nia, do­ing work for Ana­heim, Los An­ge­les, San Diego, San Fran­cisco, Sacra­mento, Chula Vista and many oth­ers,” Lew said. “This ex­per­tise has al­lowed the firm to con­tinue to as­sist cities in eco­nomic de­vel­op­ment and af­ford­able hous­ing pro­grams even af­ter the dis­so­lu­tion of re­de­vel­op­ment agen­cies with Ce­leste Brady and now Vanessa Leg­bandt lead­ing that prac­tice area.”

While the firm’s ini­tial clients “were pre­dom­i­nantly in South­ern Cal­i­for­nia, the firm’s ex­per­tise in hous­ing, land se­cured, re­de­vel­op­ment, and wa­ter trans­ac­tions, fu­eled by the growth in Cal­i­for­nia and the need for af­ford­able hous­ing and in­fra­struc­ture, en­abled the firm to ex­pand its client base to the rest of the state,” Lew said.

Lew said the at­tor­neys ex­pect the firm’s af­ford­able hous­ing prac­tice to ex­pand sig­nif­i­cantly as Cal­i­for­nia grap­ples with a hous­ing short­age. One of the firm’s first growth trends was in mort­gage hous­ing bonds.

Stradling was also at ground zero when the 1994 Or­ange County bank­ruptcy rocked the in­dus­try af­ter the county trea­surer’s ques­tion­able in­vest­ments in vari­able rate debt went awry.

Mur­phy said that pe­riod was the prac­tice’s most chal­leng­ing, be­cause the bank­ruptcy af­fected lo­cal gov­ern­ments and spe­cial dis­tricts.

“The bank­ruptcy froze out of the mar­ket all of the Or­ange County-based is­suers and the is­suers who had in­vested in the Or­ange County in­vest­ment pool,” Mur­phy said. “It was sev­eral months be­fore peo­ple started to say we think we can ac­com­mo­date an Or­ange County-based bond is­sue.”

The firm strug­gled through the drought of fi­nan­cial is­suers in its core area, Mur­phy said.

In 1995 the firm de­cided to di­ver­sify both into dif­fer­ent prac­tice ar­eas and dif­fer­ent regions, Lew said.

In 1996, a San Fran­cisco of­fice was added, headed by David Cas­nocha, ex­pand­ing the firm’s ed­u­ca­tion prac­tice into the largest in Cal­i­for­nia, Lew said. It also added Kevin Ci­vale and Doug Brown to bol­ster its bond coun­sel, un­der­writer’s coun­sel and dis­clo­sure prac­tice, she said.

In the re­cent San Bernardino bank­ruptcy, Stradling at­tor­ney Paul Glass­man was the city’s out­side coun­sel.

The firm has ex­panded to of­fices in Ne­vada and the Pa­cific North­west.

It also has main­tained its orig­i­nal ex­per­tise in fed­eral reg­u­la­tory mat­ters. As reg­u­la­tions have be­come more com­plex, it has added to its bench. Those ad­di­tions in re­cent years in­clude two full-time pub­lic fi­nance tax at­tor­neys and a for­mer SEC en­force­ment of­fi­cer, Kath­leen Mar­cus.

Lew is among the lawyers who have helped build the firm’s deep bench of ex­per­tise through the years.

Lew, who joined in 1991, has chaired the firm’s pub­lic fi­nance tax prac­tice and has served as pres­i­dent of the Na­tional As­so­ci­a­tion of Bond Lawyers.

Lew has worked with the Trans­porta­tion Cor­ri­dor Agen­cies as the dual agen­cies in charge of two sep­a­rate Or­ange County toll roads worked through some tough times when an­tic­i­pated toll rev­enues failed to ma­te­ri­al­ize when the coun­try en­tered a re­ces­sion in 2008. The toll­ways have since been able to suc­cess­fully re­fi­nance bil­lions in debt.

Stradling’s pub­lic fi­nance team, led by Mur­phy, rep­re­sented the toll road agency as bond coun­sel on the trans­ac­tion.

They say tim­ing is every­thing, and Lew said the firm has been for­tu­nate to have been founded at the right time to be able to grow along with Cal­i­for­nia. ◽

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