IFLR 1000
The Guide to the World's Leading Financial Law Firms

The last 12 months have been positive for the Australian loan markets. "We saw renewed optimism in the markets which led to improved borrower activity," says one partner....

The last 12 months have been positive for the Australian loan markets. "We saw renewed optimism in the markets which led to improved borrower activity," says one partner. The first half of the year saw an increase in lender appetite bringing with it liquidity, although deal flow was limited: "Borrowers were still cautious which meant new money deals were rare," one partner says.

The latter half of 2010 saw an escalated deal pipeline with a large proportion of total loan volume for the year completed in the fourth quarter. Leveraged deals returned and there was an increased focus on bridge facilities and underwriting after a noticeable absence during the global financial crisis.

The standout deal was the A$2.7 billion ($2.9 billion) acquisition of hospital operator Healthscope, where competing bids by both the TPG/Carlyle consortium and KKR were fully financed. The successful TPG/Carlyle deal closed with an A$1.55 billion loan provided by a club of 17 lenders, with a healthy 'take-up' on its subsequent syndication.

A leading partner suggested that "liquidity in the Australian corporate debt market was abundant for the 'right' borrower, generally investment grade rated corporate and industrials and/or solid established existing customers with good track records and prospects."

A great example was Origin Energy successfully closing its A$2 billion refinancing in April 2010 and it has just raised a further A$4 billion to fund its acquisition of energy assets from the New South Wales government and to refinance existing debt.

Following a few false starts in late 2009 and the first part of 2010, the debt capital markets strengthened significantly in the second half of 2010. BBB-rated APA Group's debt issue in July of A$300 million ($323 million) ten year AMTNs (Australian Medium Term Notes) broke new ground for corporate bond issuance in Australia....

Following a few false starts in late 2009 and the first part of 2010, the debt capital markets strengthened significantly in the second half of 2010. BBB-rated APA Group's debt issue in July of A$300 million ($323 million) ten year AMTNs (Australian Medium Term Notes) broke new ground for corporate bond issuance in Australia.

It was quickly followed by SPI (Australia) Assets' debut issue into the Australian market of A$500 million six-year AMTNs. These issues heralded the return of true corporate issuance in the domestic market.

The market's returning strength also saw new Kangaroo bond issuers. Both Korean Development Bank and Hyundai Capital Services established substantial new Kangaroo programmes, whilst Canadian Imperial Bank of Commerce generated great market interest with its successful completion of the first structured covered bond issue in the Australian market.

Australian corporates are also looking increasingly towards the wholesale debt markets to diversify financing, move away from a reliance on bank lending and to push-out maturities. Corporates are also looking towards the offshore debt capital markets and indications are that this trend will continue for at least the next two to three years.

While the wholesale domestic bond market continues to be dominated by Australian financial institutions, in 2010 there was also an increase in activity in the domestic bond market by other institutions.

"The initial public offering market in Australia continues to be subdued," says a leading partner. Recent market nervousness has seen the broader market trade sideways over the period....

"The initial public offering market in Australia continues to be subdued," says a leading partner. Recent market nervousness has seen the broader market trade sideways over the period. Another highly regarded partner comments: "we see a pipeline of potential initial public offering and dual track sale processes, many in the consumer and retail sector and we are hopeful that momentum will develop during the year."

Big-ticket work is still being done and the QR National IPO was Australia's biggest in over ten years, inspiring confidence in the local share market. International investors were particularly active in Australian IPOs in 2010, most notably through the Aston Resources and Miclyn Express IPOs.

The secondary issues market in 2010 and early 2011 has been dominated by accelerated entitlement offers. The amount raised through entitlement offers has been large by historical standards, although smaller than the levels in 2009, which largely reflected debt repayments and recapitalisations.

2010 also saw a re-emergence of Singapore listed convertible bonds, with Commonwealth Property Office Fund, Western Areas and most recently FKP Property being good examples.

There was less appetite for hybrid securities, except at the highly rated bank end of the market or (by contrast) in reconstruction situations. Given the upheaval in financial markets, hybrid securities have not been a popular means of capital raisings during recent years. These types of raisings are limited to 'blue chip' issuers with a focus on APRA regulated entities. Private hybrids continue to be issued, albeit less regularly than in the past.

Securitisation markets worldwide have improved markedly over the past 12 months, however liquidity still remains an issue for many financial organisations, which, unlike banks, do not have deposit funds and have not had access to the Federal Government's guarantee scheme.For many of these financial organisations, selling their assets or their business has been the only way forward....

Securitisation markets worldwide have improved markedly over the past 12 months, however liquidity still remains an issue for many financial organisations, which, unlike banks, do not have deposit funds and have not had access to the Federal Government's guarantee scheme.

For many of these financial organisations, selling their assets or their business has been the only way forward. "There have been a lot for vendors and purchasers in these M&A transactions where the funding regime underpinning those assets or that business has been by way of securitisation," says one partner.

The Australian market has been seeing a lot of changes in regulatory and commercial developments. Firms have increased their activities in advising clients and industry bodies in respect of a range of exciting legislative and regulatory changes concerning covered bonds, Basel III implementation and related prudential reform, IOSCO reforms including "skin in the game" (internal stock purchases), and disclosure requirements. There is also the introduction of the Personal Properties Securities Law (PPSA) which will set up a new regime in personal property security regime in October 2011.

The government's package of reforms in competitive and sustainable banking released in December 2010 included changes to permit covered bond issuances by Australian banks. This has led to the introduction of a covered bond framework in Australia. Firms have needed to provide clients with a comprehensive view of the reforms in Australia and overseas markets which may affect their business on funding and capital markets issues.

It was expected that there would be changes in the competition practice but few envisioned the groundbreaking decision by the Asutralian Competition and Consumer Commission (ACCC)'s on the Axa APH transaction. "The most high profile case in competition law had to be when ACCC cleared the AMP bid in April 2010, but decided to oppose National Australia Bank's (NAB) bid," says one partner....

It was expected that there would be changes in the competition practice but few envisioned the groundbreaking decision by the Asutralian Competition and Consumer Commission (ACCC)'s on the Axa APH transaction. "The most high profile case in competition law had to be when ACCC cleared the AMP bid in April 2010, but decided to oppose National Australia Bank's (NAB) bid," says one partner.

Despite NAB's proposed complex divestment undertakings to divest to IOOF a part of the Axa business, the ACCC blocked the NAB proposal again ending the NAB agreement with Axa APH. Most of the issues turned around the North software platform which is used as a distribution hub for wealth management products sold through Axa's planners.

With the boom in the energy and resources sector and the rise of the digital economy demands for access to infrastructure are increasing and considered essential for effective competition. The New South Wales Government's energy asset privatisation and the Australian Government's proposal to construct a national broadband network are two of the most significant and complex infrastructure deals in Australia's history.

The market continues to await the first cartel criminal prosecution following the introduction of criminal sanctions in June 2009. The prohibitions on cartel conduct have been actively prosecuted by Australian competition enforcement agencies, and the Federal Court of Australia has imposed significant penalties on companies and individuals who have engaged in cartel conduct. The most notable actions in relation to the local cardboard box cartel, for which a penalty of A$36 million ($38.8 million) was imposed on a single company, and more recently in the air freight industry.

In 2010/11, Australia's M&A market continued to be strong compared to the European and US markets. More than 95 deals were announced and approximately A$78 billion ($84....

In 2010/11, Australia's M&A market continued to be strong compared to the European and US markets. More than 95 deals were announced and approximately A$78 billion ($84.1 billion) in funds were committed, signalling a growing confidence by investors whether domestic or international.

Australian bidders were back in business accounting for a significant portion of the bids exceeding A$1 billion in the financial year 2010, compared to 2009 where all A$1 billion transactions were initiated by foreign investors.

However, the later group has continued to underpin ongoing momentum in M&A activity and there have been a significant number of transactions completed or announced during the past 12 months involving foreign acquirers.

Another trend has been the emergence of the "loan-to-own" deal in Australia; the buy-up by investors of discounted debt in a distressed context with a view to implementing a debt-to-equity play. "Certain sectors where Australia is thriving on deals involving China could possibly be willing to head down this road", says a partner from a respected law firm.

The past year was also the year of friendly deals as 60% of announced deals were launched with the initial recommendation of the target board and 42% of deals were structured as schemes of arrangement rather than takeovers compared to 33% of deals in the previous financial year.

Cash was king, but premiums were lower. The number of deals involving purely cash consideration almost doubled from 2009 to 62%. Premiums offered however were generally lower, confirming that bidders were prepared to offer higher prices in order to secure target board support.

The project finance market saw a return of confidence in 2010/11 as a number of the legacies of the global financial crisis were gradually removed. "Although the market has clearly not returned to the pre-global financial crisis levels, renewed confidence and stability and a steady pipeline of transactions led to a fairly buoyant year," says a leading partner....

The project finance market saw a return of confidence in 2010/11 as a number of the legacies of the global financial crisis were gradually removed. "Although the market has clearly not returned to the pre-global financial crisis levels, renewed confidence and stability and a steady pipeline of transactions led to a fairly buoyant year," says a leading partner.

Last year also proved to be significant for the evolution of the Australian public-private partnership (PPP) market. "Project finance is in a lot better condition than it was two to three years ago," says a partner.

Most of the work has been born out of a number of key projects. Led by the successful closure of the Peninsula Link project in Victoria, each of the Federal Governments (through Single LEAP 2): Western Australia (Mundaring Water Treatment Plant); South Australia (New Royal Adelaide Hospital); Victoria (Ararat Prison and the Victorian Comprehensive Cancer Centre); Queensland (Gold Coast Rapid Transit); and the Northern Territory (Northern Territory New Secure Facilities Prison) have promoted the PPP model to deliver key infrastructure projects.

In addition the New Zealand Government (through the Wiri Prison) has also now embraced the PPP Model.

"The enthusiasm for investments in natural resource and related infrastructure projects showed no sign of waning last year," says a lawyer. Investment to support a number of LNG (Liquified Natural Gas) projects in northern Australia and investment in port and rail infrastructure to support a number of mining projects "will continue for the foreseeable future," the lawyer continued. One interesting development in this area will be the potential growth of these significant and expensive projects.

With the country needing to "develop a strategic blueprint for infrastructure", says a law firm partner, the government has committed A$3.2 billion ($3.3 billion), the largest chunk of its initial round of funding from the Building Australia Fund, to Melbourne's regional rail link. This project will see new track built from Werribee in the city's outer southwest to the edge of the Central Business District, thus removing regional rail services from crowded suburban tracks.

The last twelve months have featured the most complex restructuring in Australian corporate history in the Alinta Energy deleveraging transaction, which took 18 months to complete and reached new levels of complexity. The restructuring transformed into a debt-for-equity swap agreement, with shareholders of the company voicing its displeasure with the move as it was seen to benefit the lenders more than the shareholders....

The last twelve months have featured the most complex restructuring in Australian corporate history in the Alinta Energy deleveraging transaction, which took 18 months to complete and reached new levels of complexity. The restructuring transformed into a debt-for-equity swap agreement, with shareholders of the company voicing its displeasure with the move as it was seen to benefit the lenders more than the shareholders. According to a partner the company was in debt for a long period of time and "it was just too hard [for it] to escape from such a deadly embrace".

The impact of the credit crunch followed by the global financial crisis continued to play out in Australia over the last 12 months, driving significant activity in the restructuring and insolvency space.

The secondary market in distressed debt has continued to develop, with a greater focus on trading loans on specific deals rather than on a portfolio basis (and an upswing in credit fund and hedge fund involvement), and a significantly greater appetite of debt holders to trade out of positions they had held only 18 months ago.

Distressed corporate restructuring and pre-insolvency workouts, have also been on the rise, particularly in the property, retail and infrastructure space and those sectors affected by natural disasters.

In addition firms have been kept busy on complex restructuring of managed investment schemes (the regulated form of trust) following the collapse of those schemes. A greater number of agricultural and infrastructure schemes were affected during this period, such as the Rivercity Motorway Group Administration.

There were also a large number of regulatory actions by Australian Securities and Investments Commission (ASIC) and liquidators as a result of previous large corporate collapses such as Octaviar and ABC Learning Group.