hOUSTON -- Fredric Weber might be the first to concede that few bond lawyers are crying poverty these days.
Still, the president-elect of the National Association of Bond Lawyers is quick to point out what his colleagues would surely acknowledge: The golden era of the bond counsel fee is a fading memory.
"It's not nearly as profitable as it used to be," said Mr. Weber, a partner at Fulbright & Jaworski in Houston. "There was a time when, per attorney, our practice was the most profitable area in the firm. In recent years, it has been among the least profitable."
That is saying something when you consider that last year Fulbright & Jaworski's overall revenues were estimated at $197 million with a net profit of $282.4 million, according to the trade newspaper Texas Lawyer. Even then, the firm was number two in the state.
Although bond volume has slipped, Fulbright & Jaworski has held its position as one of the top bond counsels in the tough Texas market. But dollar for dollar, Mr. Weber said, his 25-attorney public law department is bringing in less money.
The reasons, he said, are a glut of attorneys left from the boom years of the 1980s, a smaller volume of bonds nationally, and a push by issuers of all sizes for lower counsel fees.
In Texas, he said, cost-cutting by issuers is worse because financial advisers are justifying their own expense by negotiating lower fees from bond lawyers and others.
Others also see the trend.
"With the pressure that is on people to cut fees, more small issuers are more likely to choose whoever has the lowest fee," said Linda Bright, assistant vice chancellor for financial affirs at the University of Houston. "I think there is pressure on large [state] level issuers to do that too."
Several state agencies already have resorted to negotiating hourly bond counsel fees with a present cap on state deals. The Texas Public Finance Authority is most notable in cutting its cost of issuance using that method.
While reduced fees may be a good thing now, Mr. Weber and others said that as the economic incentive is reduced, more firms and individuals may decide that bond counsel work is not worth their time.
Mr. Weber also offered a well-known argument for fair fee structures. "In the long-term, if state and local government is going to have access to lawyers who are bright and talented, the economic return needs to be comparable to other areas of practice," he said.
On the other hand, when asked he was hard-pressed to say what a "reasonable" fee is. In Texas, bond lawyers say that fees average about 75 basis points, which is half of what they drew before the 1986 tax reforms made the work of a bond counsel more complex.
Increasingly, deciding what is reasonable is a matter for negotiation between bond lawyers and issuers.
Judson Bailiff, director of finance for Fort Worth, said that holding down issuance costs was a key consideration in the city's recent review of its bond counsel arrangements.
The city settled on a fixed rate after debating an hourly fee structure, he said, adding, "We decided that if we had to pay a bond counsel for every hour we had them here, we'd be in bad shape."
As fees have declined, bond lawyers have either quit the business or diversified their practices. Many said they now do hourly work specializing in securities law or advising issuers who file for Chapter 9 or go through workouts.
Not everyone is surprised by the shifting economics.
"I think that for a long time it was a seller's market. Now it's a buyer's market," said Allen Moon, a bond lawyer with Jenkens & Gilchrist in Dallas. "The result of that is that people will have to work harder, work smarter, and probably earn less."
Mr. Moon, who entered the bond counsel business during the golden days of the early 1980s, has become a controversial figure in Texas because of his bottom-line bids for legal work with the Texas Public Finance Authority.
"There are going to be victims of this kind of competition," Mr. Moon said. "A public issuer's responsibility is not to make sure we have a healthy bond counsel industry. Their job is to get the best quality for the lowest price."
Certainly, large issuers are already squeezing fees to cut costs. Many believe that trend may have pushed up the cost of bond counsel work for small, infrequent issuers.
Traditionally, bond lawyers say that the fees earned on mega-issues have -- in a sense -- helped to subsidize fees on smaller deals. Nationally, deals of $25 million or less account for 27.6% of the $104.7 billion issues done in 1991, according to figures from Securities Data Co./Bond Buyer.
For instance, three bond lawyers estimated that an average of 40 hours of legal work goes into any bond issue, whether it is $100,000 or $100 million. In fact, some smaller issuers can require more work because of their complexity. Despite tha fact, they have historically paid a disproportionate fee.
But will the squeeze on bond lawyers change that? "That's a possibility," said Mr. Weber. "At some point, the smaller issuers are going to have to face higher fees."
