Putting this Economic Crisis into Perspective: Reflections of a 45-year Nashville Law Career
When I graduated from Vanderbilt Law School in 1975 and started my clerkship with Chief Judge Harry Phillips at the 6th Circuit U.S. Court of Appeals, America was in a stagflation recession triggered by the 1973 oil crisis and OPEC's quadrupling of oil prices. The result was a stock market crash, a 2-year bear market, and 10% unemployment.
An omen for my future career as an insolvency lawyer? Maybe. But the lesson I learned right off the bat, and that’s continued to be reinforced throughout my 45 years in practice, is that the economy moves in cycles. Sometimes things look bleak, but it always gets better, and usually quicker than most of us expect.
By the time my clerkship ended, and I joined the Waller firm, the economy was growing again. In hindsight, it’s obvious that the malaise of the 70s wasn’t exactly the high point of American life, but even those years demonstrated that: (a) the default mode of the economy is growth, and (b) there’s something incredibly special about Nashville’s business environment.
Nashville’s “Go Go Years”
John Brooks, a financial writer and longtime contributor to The New Yorker wrote a humor-filled book called “The Go Go Years” chronicling the rise of stocks in the 1960’s and early 1970’s. During that time, Nashville saw the birth of Minnie Pearl Fried Chicken and other companies whose revenues were derived from sale of franchises rather than operations. Other companies expanded into unrelated businesses, using high PE multiple stock as the currency for aggressively acquiring companies. The transformation of Genesco into a powerful conglomerate (owning Tiffany’s at one time) mirrored the feeling on Wall Street that good managers could operate in any sector.
These were my formative years, graduating from Montgomery Bell Academy in 1967 and Vanderbilt in 1971 (B.E. in civil engineering), and then getting drafted to play baseball with the Pittsburgh Pirates Organization. After a few years of baseball, I was ready to participate in Nashville’s financial growth, and law school seemed like a good way to get started. I couldn’t know then that only four years after earning my law degree I would get the chance to participate in one of the greatest business growth stories in Nashville history.
Senior Counsel at HCA and Private Business
A few months before the 1979 Iran hostage crisis began, I went in-house at HCA as senior counsel in the areas of M&A, financing, and securities regulation. For most Americans, it was an anxious time. The Iranian Revolution sharply increased the price of oil around the world, causing another energy crisis. That, along with tight monetary policy in the U.S. to control inflation, led to another recession.
For the Nashville healthcare industry, it was a golden age. I was privileged to spend five years with HCA watching one of America’s historically significant entrepreneurs – Tommy Frist, Jr. – create an entire industry as well as a corporate empire. I arrived just in time to spearhead the in-house legal team while HCA acquired General Care, General Health, and finally Hospital Affiliates. Working with the emerging stars at Skadden Arps – a firm that pioneered the takeover/acquisition, under the genius of Joe Flom – and with the brilliant financial minds of Sam Brooks and Jack Tyrrell at HCA, was a once in a lifetime experience.
Nevertheless, it was not easy. To counter inflation and interest rates that soared to 20%, President Carter invoked the “Credit Control Act“ in March 1980, mandating that no acquisitions could be funded by U.S. banks or foreign banks with domestic branches. At HCA, we found a loophole for foreign banks that had only loan production offices and not actual branches and were thus not covered by the Act. We went to New York City and secured funds needed for acquisitions in a matter of days. It was ground-breaking and paved the way for many others to follow.
Another favorite HCA memory was my business relationship with former Texas Governor John Connally through his involvement with the HCA hospitals in Texas. Governor Connally was high flying in the real estate sector in the early 1980s, but like so many others, he was forced to file bankruptcy in 1986. Spending time with Governor Connally in good times, then observing his change of fortune, taught me that no one is immune from the influences of a cyclical economy.
I left HCA in 1984 to do real estate development and pursue other business interests. Inflation began to increase, and the Federal Reserve responded by raising interest rates from 1986 to 1989. That, along with the 1986 tax law changes and rising corporate debt, caused a recession in 90-91. I won some and lost some during those years and came out of that recession focused on restructuring financially troubled companies, which would remain my focus for the next 30 years to the present day.
The Roaring 90s, Service Merchandise, 9/11
The 1990s were the longest period of growth in American history. The lesson I learned from those years is that boom times are second only to recessions for keeping insolvency lawyers busy, in large part because lending standards get relaxed and businesses take more risk. The collapse of the speculative dot-com bubble and a fall in business outlays and investments brought the decade of growth to an end. In Nashville, that was most noticeable when Service Merchandise filed Chapter 11 in 1999 – the largest commercial bankruptcy ever filed in the U.S. Bankruptcy Court for the Middle District of Tennessee. The case was actually commenced as an involuntary bankruptcy initiated by a group of creditors, and subsequently converted to a voluntary Chapter 11 by the company.
Service Merchandise had a real chance to effectively reorganize. During countless conversations with Steve Moore, who was General Counsel and Chief Restructuring Officer at Service, I learned that Service could have been Amazon before there was an Amazon. However, 9/11 wiped out any hope. It brought about the end of Service Merchandise, and with it many other businesses up and down the supply chain. Despite Service Merchandise’s emerging online presence, technology to establish it as a dominant online retailer was still years away. Timing, as they say, is everything.
The September 11th, 2001 terrorist attacks rocked the country and led to a brief, but serious, recession. The business world seemed to stop after 9/11 as Americans were reluctant to travel, shop, or dine out (the pandemic quarantine of the last several months has felt eerily reminiscent of that time). In addition to Service Merchandise, it brought about the demise of Nashville institutions such as Castner Knott and McClures. But the wheels kept turning, and the dark times quickly faded from memory as the economy took off like a rocket for the next several years.
The Subprime Mortgage Crisis and Great Recession
Of course, sometimes rockets crash and burn, and that’s what happened at the end of the housing boom. For at least a year before the fall of 2008, it was becoming clear to me that the economy was on shaky ground. I distinctly remember having lunch with my good friend (and now law partner) Robert Gonzales that spring at legendary Rotier’s on Elliston Place. Despite the fact that the dogwoods were in bloom, and all the economic indicators were pointing up, we shared the same sense of impending doom.
The subprime mortgage crisis led to the collapse of the U.S. housing market. Falling housing-related assets contributed to a global financial crisis, even as oil and food prices soared. The crisis led to a stock market crash and the failure or collapse of many of the largest financial institutions: Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, and AIG, as well as a crisis in the automobile industry. Locally, General Motors cut 1,700 jobs at its Spring Hill plant causing a ripple of more than 250 Spring Hill businesses to fail. Bellevue Mall shuttered its doors, and countless other Middle Tennessee businesses struggled or closed. The federal government responded with an unprecedented $700 billion bank bailout and $787 billion fiscal stimulus package. Notwithstanding all the interventions, the years after the crash was a dark time for most.
Recovery from the Great Recession was slow to get started, but eventually blossomed into an extraordinary period of growth, especially for Nashville and Middle Tennessee. One especially bright spot for me was having the privilege during those years of practicing law with my son, Warner Jones. It’s an experience I’ll always cherish. We ran so many loan workouts, Chapter 11 reorganizations, and orderly liquidations that he decided he’d had enough and went off to focus full-time on his real specialty of estate planning.
The COVID-19 Recession
The economic crisis we find ourselves in today is unlike anything I’ve seen in my 45 years as a lawyer. While I certainly don’t have a crystal ball, and can’t say with any certainty what the recovery will look like, my experience informs me of a few basic truths:
The world hasn't ended yet. Even when things look very bleak, and uncertainty reigns, remember that the world hasn’t ended so far, and I don’t expect it to end now.
Our economic and legal systems are custom made to adjust and adapt. In many ways, our economic system is custom-made to adjust to chaotic times, and our legal system of limited liability entities, and bankruptcy as a right under the U.S. Constitution, encourages the best kind of risk taking.
Capitalism produces winners and losers. Some businesses will fail, and many others will need to get restructured to survive. But strong, smart, adaptable, well-capitalized businesses will always press their advantage and thrive.
Early intervention is always better. Many businesses will need help, and owners and managers who seek help early from a restructuring professional will maximize their chances for success. Getting help from a professional before it is too late can make or break a business.
Heed lessons from past crises. While pandemic-related economic conditions are unlike any financial crisis in my lifetime, there are valuable lessons to be learned from past times of darkness, and we should heed them.
Forty-five years sounds like a long time in the profession, and I suppose it is. I’m grateful for the perspective that comes with each trip around the sun, and especially to be healthy and strong and feeling as good as ever. When asked if I ever plan to retire, I like to say that I intend to practice law until I get it right.
With all the years under my belt, and the many hundreds of financially distressed business clients I’ve represented, I find I can now reflexively figure out how to maximize value in just about any situation. As I gear up for another busy run, I’m excited to be working side by side with a group of exceptionally talented lawyers to implement complex business solutions and help good people through difficult times (the story of how Robert Gonzales, Nancy King and I all formed EmergeLaw, PLC is another great tale for another day).
The chemistry of working with my current colleagues, at a time when more companies than ever will need our help, makes me feel like I’ve got it right – and also keeps me too engaged to consider doing anything else. Here’s to the next 45 years – may they be just as interesting, challenging, and rewarding.
Elliott Jones guides companies and their owners through workouts and business bankruptcy cases. He is a 1975 graduate of Vanderbilt Law School.