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Could Municipal Bond Trash Talk Sink a Dallas Firm?

Dallas-based Preston Hollow Capital claims a much larger rival torpedoed the firm by trashing it on Wall Street. Is it just business as usual?

Preston Hollow Capital is not based in Preston Hollow, as one might expect. It’s downtown, on the 39th floor of Comerica Bank Tower, which is where I met Jim Thompson one June morning in his Feng Shui office, sunlight splashing in.

This is the name’s story: other hedge funds had taken all the interesting monikers, says Thompson, who founded the firm in 2014 after 22 years as CEO of Orix USA. Someone eventually suggested naming it for where he lives. “It had some historical underpinnings,” he says. “On that basis, I convinced myself to adopt it.” Thompson is in the process of moving himself downtown, but, no, he won’t be changing his firm’s name.

OK, I had wondered about the disconnect between the firm’s name and its location and wanted to hear about Thompson’s career. But the real reason I’d reached out, the topic on which I’d squeeze only a few terse words out of him, was the lawsuit Preston Hollow filed earlier this year against municipal bond giant Nuveen.

Both firms work with state governments and municipalities to buy debt related to projects ranging from airports and schools to convention centers and parking lots. That’s the game. Preston Hollow has about $2 billion in assets under management, while Nuveen—the largest player in the high-yield market—has about $150 billion in municipal assets.

The loans are underwritten by banks on Wall Street. And that’s where Preston Hollow says Nuveen and its muni bond chief, John Miller, overstepped competitive bounds and underwent a “campaign of intimidation.” The company alleges Miller threatened to pull Nuveen business from Wall Street brokers—and in one case, did move hundreds of millions of dollars to another bank—if they continued to work with Preston Hollow. It also claims that Miller lied to those brokers about the way Preston Hollow conducts business, alleging misconduct. Preston Hollow claims those actions constitute defamation, interference, and a breach of antitrust law.

But Chicago-based Nuveen contends it has the right to discuss with business partners the operations of a competitor, that it’s just business. The company declined to be interviewed for this story, but in a motion it filed to dismiss the case, it said the “ability to choose with whom to do business is a fundamental economic right,” including the right “to use economic pressure to persuade third parties.”

How important is the outcome here? In his office, I asked Thompson what sort of impact this has all had on his firm. He considered the question with a strained look on his face. “That’s a legal question,” he said. “That’s a sensitive one.” What he offered is that Preston Hollow is a successful company. “We have 80-something shareholders, and our shareholders are happy.”

But if you believe Thompson’s lawyers, those shareholders are enduring some very uncomfortable months. During a hearing, attorney David Wollmuth reportedly told Delaware Chancery Court Judge Sam Glasscock III the case amounts to a “life and death struggle.” According to Bloomberg, Wollmuth proclaimed that broker relationships are Preston Hollow’s “oxygen,” and its larger competitor “is trying to smother it.” Preston Hollow has asked that the court order Miller and Nuveen to stop bad-mouthing the firm to brokers and to undo the harm it has already done. 

In mid-May, Glasscock opted not to side with Nuveen’s effort to get the case thrown out, allowing Preston Hollow’s legal team to move forward with subpoenas of phone call recordings between Nuveen reps and various brokers—recordings Preston Hollow says prove its case. By now those recordings have been laid bare in the courtroom. Miller says that his maneuvering was just bluster, that on Wall Street “sometimes you have to exaggerate to get people’s attention,” as quoted by Bloomberg. Nuveen says there were never solid agreements from brokers to cut Preston Hollow out. Thompson maintains Nuveen’s bully tactics work, to the detriment of smaller industry players.

Glasscock will make a ruling after both sides provide final written arguments, which could be a month from now or longer. According to Wollmuth, it will be a very important one for downtown’s Preston Hollow Capital.

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