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

The UK banking market is in step with nearly all other Western European jurisdictions in suffering from a severe drought of liquidity. "The market has stabilised post credit-crisis but its stabilised at a low level of liquidity," says one partner....

The UK banking market is in step with nearly all other Western European jurisdictions in suffering from a severe drought of liquidity. "The market has stabilised post credit-crisis but its stabilised at a low level of liquidity," says one partner. Instead the market now bears witness to a 'battle of the banks' on the few deals and prospects in the market that are not viewed with suspicion. "Banks are lending to the right people but there's not enough deals around to satisfy the deals that the bankers want to do," explains one partner. "Because there's so few deals around when a good one comes up there's a feeding frenzy and the private equity sponsors start showing the bad habits developed in the boom years."

But where the bankers fear to tread, the bond market struts with confidence. "The biggest trend that we've seen is the development of the bond market to finance leverage acquisition finance transactions," says one partner. "We are now seeing transactions financed by a fairly sizeable bond element and an almost negligible bank element depending on the transaction."

It is high-yield in particular which has taken up the slack, "The high-yield market has come to fill the vacuum that was left," says one partner, "If you're uncertain about what your growth prospects are going to be you can see how you'd move away from that (bank financing) and towards a bond structure where the covenants are more flexible."

However this has led to a greater tension between the different financing elements present on most deals. "Banks have a sense that high-yield bonds are not in the best interest of the company, they use any excuse they can to keep these vulture fund bond people at 20 cents to the dollar in the process," says one partner. But in the current market such strong arm tactics are proving increasingly unsuccessful as the bond element in most deals is gaining in prominence. "The bond is not a junior piece of debt in the structure it is part of the senior debt," says one partner.

The rise of high-yield has also suppressed the mezzanine market. "Last year we started to see the return of mezzanine financing but it hasn't really taken off and this is down to the rise and rise of high-yield," explains one partner and another backs this up: "Mezzanine is coming back and mezzaniners are being more convenient in acting on deals. But mezzanine had completely disappeared and been overtaken by bonds."

What all of these has led to is a need for finance practices within firms to show that they can be flexible and offer equal strength on both bank and bond sides to be able to deal with the multi-faceted mandates now so prevalent in the market.

Regulation in the form of the Basel III core capital requirements and to a lesser extent the UK Vickers report have also been praying on bankers minds. "I don't think banks have really taken on board the impact of Basle III," says one banking lawyer. "I think a lot of banks have not fully realised the losses inherent in their loans and in their portfolios."

While UK banks can be thankful that they have not been more exposed to the Greek debt crisis, there is still a knock on effect from the various macro-economic issues sweeping across Europe and there is a genuine lack of confidence even in those institutions considered to be healthy. "You get a false impression from some of the international banks and the bonuses they pay out that gives the impression that all is well and rosy, but its not the case at all," explains one partner.

Linked in part to this has been the relatively low level of restructuring, an area of work many had presumed would come back in flood. Again most practitioners were of the opinion that this was a case of the banks not being prepared to face up to the skeletons in their closets. "There hasn't been the number of restructurings that people would have expected," says one banking lawyer. "People don't want to fess up to things, they are hoping that all the ships will rise with the tide."

As on the equity side of the capital markets divide there was a clear sense from debt practitioners that they are working within a volatile market. However with the spectre of the Basel III capital requirements looming over the banks, the debt markets can look forward to the dual promise of an increase in bond issuance as an alternative to straight lending and more mandates relating to liability management....

As on the equity side of the capital markets divide there was a clear sense from debt practitioners that they are working within a volatile market. However with the spectre of the Basel III capital requirements looming over the banks, the debt markets can look forward to the dual promise of an increase in bond issuance as an alternative to straight lending and more mandates relating to liability management.

"There's little in the way of pure bank lending, capital markets issuance has taken up a lot of the slack." says one partner, while another takes the point further: "A lot of the banks are now doing everything they can to avoid bank lending and a lot of these banks are players in the bond markets anyway."

Although high-yield continues to be the big story in terms of growth, straight debt issuance is also looking at a substantial upturn in activity.

Uncertainties around the rate of the UK's economic recovery and macro-economic volatility in places like Greece, Portugal and Ireland have also contributed to an atmosphere of uncertainty which has seen banks and corporates alike turning to the bond markets to boost their reserves. "There are some corporates who are not convinced about the speed of the recovery," points out one partner, "so they are trying to build up their cash reserves."

Many practitioners had been predicting a return of volume in the convertible bond market, but there is still more promise than concrete deal flow. "The forecast this year was all about convertible bonds, that has not taken off," points out one practitioner, while another highlights a clear reason for this lack of activity. "Convertibles? Interest rates are still low. You need high interest rates."

Hybrid bond issuance and Coco (contingent convertible) bonds are also being seen and firms are hopeful of further issuance here in light of Basel III. "Everyone's talking Cocos," says one partner.

Practitioners were also keen to stress the continuing compartmentalising of the market, with people drawing on specific geographical strengths to drive their practices. "It's really tested the strength in depth of the law firms and that's really what's starting to distinguish the firms," explains one partner, "because we can all point to the firms who might be strong in Russian Eurobonds or Ukraine, or who might be strong in a particular product."

Key areas of growth, as in the equity markets, seem to be Russia, the CEE (Central & Eastern Europe) and Turkey. "There are some places which are around the European fringe which are showing good signs of growth," says one partner. "We've seen a lot of Polish bonds, a flood of Turkish bonds and some other countries which haven't come in yet."

All the talk in derivatives has revolved around regulation this year. Having had to don a hair shirt in the years immediately following the recession, derivatives practitioners are now walking tall as the market has returned with a vengeance....

All the talk in derivatives has revolved around regulation this year. Having had to don a hair shirt in the years immediately following the recession, derivatives practitioners are now walking tall as the market has returned with a vengeance. However there is an acceptance that things needed to change and on both sides of the Atlantic new procedures are being put in place or updated to allow regulators to take a more stringent approach.

"Obviously the regulatory landscape is a little bit clearer now, but its still not entirely clear, we've seen lots of clients asking how Emir (European Market Infrastructure Regulation) will impact their business, so we've put on various presentations for clients," says one partner.

The differences and similarities between The European Emir regulations and the US Dodd-Frank Act are obviously the biggest issue and firms have found that they are spending a lot of time advising clients on what they can or cannot do in the new world: "We've seen a lot of questions around what the regulations will mean to people's business and we've seen a lot of action in relation to people trying to figure out what they should do next in terms of what Emir will throw up."

The issue that is causing most debate is that of Central Counter Party (CCP) clearing and more precisely what will and will not need to be put through the process. "The biggest change is going to be around CCP because people don't know what's going to happen," explains one partner. "It'll be an interesting area and active area and there's a chance that it will fundamentally change the way that people go about things," says one peer.

Firm's are hopeful that the cross-Atlantic divide won't prove too vast and that even if perfect synchronicity cannot be obtained that at least the systems can be in the same ball park. "The Americans have regulations for certain kinds of products and the Europeans haven't and there is a sort of flurrying around saying 'well hold on its not good to have a different degree of European regulation for what should be cleared through a central counter party." Another partner points out that the nature of the market should be enough to ensure harmonisation of a sort. "I think over time they will have to come close together because we're talking about a global market, I can't see there being a huge amount of divergence."

The equity capital markets remain an area of great promise and optimism even as the realities of a difficult economic climate linger on.IPOs are a perfect example of this....

The equity capital markets remain an area of great promise and optimism even as the realities of a difficult economic climate linger on.

IPOs are a perfect example of this. Everyone it seems is looking at opportunities and the desire to find success stories on the stock exchanges grows with every day that passes. However, this good will it seems is not enough to grow the market. Like a marathon runner collapsing before the line, many deals are still not reaching conclusion despite the efforts of the parties involved. "All the firms have been advising on deals that have gone some way down the line and then stopped," says one partner. "You look at the actual deals that have been completed and only about 25% have."

This has caused practitioners to look to the headlines for confidence. Such was the case with the well-publicised Glencore dual listing in London and Hong Kong. The figures were large, the name was good and for a brief period there was a feeling that this could be the confidence boost the market needed, as one partner says: "People thought Glencore would be the one to really open things up." However as interest and the price dropped it seemed to be the same old story.

In addition, the listing of Glencore, along with those of Samsonite and Prada seemed to be evidence that as a listing location Hong Kong was burning bright. However how wide ranging this interest is is hard to judge. "At the beginning of last year Hong Kong was the flavour of the month," says one practitioner, "although in terms of regulation it is not as flexible, being close to the Chinese and Asian markets is seen as a plus."

This geographical benefit and the view that the island is a great alternative to the pricing stagnation of Europe fuels optimism, but others point out that unless there is a clear case for expansion into Asian markets, as in the case of the luxury good sector, the benefits are nullified. "There was a sense for a while that people thought that they could just float the same business and get the same price," explains one partner. "People are now saying let's list over there if we have a connection or list over here (London) if we have a connection." The market's current high profile though should not be underestimated when considering market movement. "There's no doubt, the market is very lemming-like so a deal like that [Glencore] will lead to other companies thinking about whether there's an angle for them when looking at Hong Kong."

A clearer area of growth is Russia and the CEE (Central & Eastern Europe) region where work emanating from the natural resources sector is creating a clear pipeline of deals for those firms who can tap the market. "Russia is coming back, we have had a lot of work there, a lot of these deals are going get done," explains one partner.

In more general terms there is an obvious upturn in capital raising work as banks look towards their Basel III obligations, while private equity exits remain an area of activity for many, albeit at a lower level than people would have expected.

Talk of the town, word on the street, flavour of the month, whatever you want to call it; high-yield debt has been a subject and an area of great interest this year in the UK and across Europe. "We're phenomenally busy given the high volume of deals, there doesn't need to be any end in sight....

Talk of the town, word on the street, flavour of the month, whatever you want to call it; high-yield debt has been a subject and an area of great interest this year in the UK and across Europe. "We're phenomenally busy given the high volume of deals, there doesn't need to be any end in sight. Everyone round here is a bit tired a bit beaten down, but it's a good problem to have," says one partner and another agrees: "Demand has been robust, everyone's been overworked, it's a rising tide."

Practitioners also note that the product is being used in a wider variety of ways, refinancing, acquisition financing – often in conjunction with a credit facility. You name the deal and you can guarantee someone's going to try to use a high-yield bond as part of the package. Refinancing though remains its key use, for a simple reason as one partner explains: "It is true that that there are a shed load of companies with a shed load of debt that are going to be coming through soon and someone's going to have to deal with it."

One of the key drivers of this wider increase has been an influx of new issuers into the market, many of whom are European corporates forced to look beyond the bank finance markets due to a lack of liquidity. "We have seen a lot of corporates coming into the market, a lot of companies coming into the market which would not have looked at this market before," says one lawyer and another agrees: "A lot of new entrants to the market, corporate and private equity shops that never really did high-yield, so a lot of probity being put on experience because there's a lot of people who don't have any relying on those that do."

Another clear reason for this trend is simply a case of confidence breeding confidence, with issuers wanting to see deals completed successfully by their peers. "Bonds were always seen as a bit of a dirty product or dangerous products or a difficult product," explains one partner. "But with more corporate issuers having come to the market, there's a greater acceptance that it is doable and life goes on after the bond deal. It's become a more accepted piece of the capital structure more as it is in the US where it never had that sort of taint."

What this trend has led some to suggest is that the market will see the development and evolution of a unique European style of product to cater to this new market. "I think you'll see something which closely resembles the US model but you'll also see a very specific European model," says one partner, "The European market seemed to be a more one size fits all model up until 2009 but then we saw a change."

This process starts with more deals being done under local law. English law deals are picking up, but in truth German law governed transactions are the ones making the most headway in the wider European market.

An interesting side issue, which emerged in April was a letter from the European Buyside Forum which raised concerns about certain elements of standard transactions. The key bugbears were the distribution of voting rights on enforcement actions and fuller disclosure of intercreditor agreements. While it certainly encouraged debate, there was a sense among practitioners that it was unlikely to lead to much change. "The fact that the letter was put out there is new, but the issues are not particularly new," says one partner. "I think it's a small group of people who I know who have always been particularly aggravated about that and now they've got a bunch of people to sign on for the letter." While there were clear doubts expressed about whether the letter would have much impact, particularly in such a strong period of workflow, most lawyers did agree with the logic of some of the demands: "I think most of the disclosure is actually pretty solid as it stands, people are fed up of not having the things [intercreditor agreements], because in the last recession it was hard to get your hands on it," explains one partner. "People were making significant bets based upon where they thought the value was breaking in the capital structure and so they're such complex convoluted documents that people wanted to be able to find, or be able to support their views on where the value break would fall."

In the legal market itself there is certainly enough work to keep everyone busy at the moment and the real question was how the group of firms, predominantly the UK magic circle, outside of the traditional US operators, would approach the new market. "I think the little club that has dominated this field since the early 2000s is going to continue to be identified as the leaders but their share will decrease as everyone slowly but surely begins to catch up," says one US partner and a compatriot agrees: "The English, this is their opportunity, they still won't get the positions in the short term but it's a rising tide, the market will get larger and they are very focussed on the market right now."

One of the clearest themes in the market in the last year has been the rise of covered bonds, often at the expense of securitisation structures. "There's definitely a feeling around the market that covered bonds are preferred to securitisation and that will take the rap going forward in terms of the focus on regulation," says one partner....

One of the clearest themes in the market in the last year has been the rise of covered bonds, often at the expense of securitisation structures. "There's definitely a feeling around the market that covered bonds are preferred to securitisation and that will take the rap going forward in terms of the focus on regulation," says one partner. This situation has been born out of the need to seek an alternative to securitisation during the relatively quiet market in the last couple of years and from a new class of issuer. "Covered bonds have changed quite significantly as a product, there's a new generation of investors," explains one partner. "Those guys see real value there and the products has taken to the level where issuers are willing to pay 100-150% more just to get things away." How long this trend lasts is a different issue and some see it as only a temporary change. "Securitisaton will take off and if it does well we will see a reduction in the covered bond market," says one partner.

Where business has been really brisk though is in CMBS restructuring. "The CMBS market is enormous," says one partner, "it's a market that is desperately in need of restructuring because there is so many different opportunities and CMBS is a very conflicted and difficult area." Another partner agrees: "CMBS has been flowing over, it's everywhere."

Not everyone has been getting a slice of the pie and some believe the peak of the market is yet to come: "When the dam breaks, when the maturity comes around it will have to be addressed, we thought that it would be something that people would be addressing now but it doesn't seem to be the case," says one lawyer.

RMBS meanwhile remains sluggish, though some green shoots have been seen. "There's no doubt that work in RMBS has come back in part, I'm not going to suggest at any level that we're back to where we were pre-crisis, but some work is filtering back." says one partner, while another adds: "The UK RMBS market is certainly open, there are a number of issues which have come to the market."

In the wider legal market, a lot of practitioners were keen to stress that the majority of firms and indeed their clients were attempting to broaden their horizons in terms of asset classes. There seems to be an acceptance that focusing on one product is too narrow a perspective both for companies and their legal advisors. "I think there will be a move towards more general teams rather than people having a more siloed approach where you would do just CDOs or CLOs," explains one partner. "Investors are looking at a slightly different product from what they had historically. The market is now trying to take a holistic approach to products as opposed to having a US product, a European product and an Asian product. Firms will have to adapt."

"There's an avalanche of regulatory reform coming at UK, Euro and global level and we're spending a lot of our time advising on this." This comment from one regulatory partner sums up succinctly where the market finds itself with a raft of new regulation and legislation coming at the market from all sides....

"There's an avalanche of regulatory reform coming at UK, Euro and global level and we're spending a lot of our time advising on this." This comment from one regulatory partner sums up succinctly where the market finds itself with a raft of new regulation and legislation coming at the market from all sides. No practice area has escaped and indeed most finance and corporate partners have found themselves offering their clients regulatory updates on a more frequent basis than they would have had to do in the past. "The big thing is the constant march of regulation into every single area, which perhaps to date had not been regulated," says one partner. "So if anything has the slightest nexus with the financial market, the view now is that it should be regulated."

On the domestic front a major talking point has been the reorganisation of the UK Financial Services Authority. Effectively the organisation is being split into three parts: The Financial Policy Committee (FPC), The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The FPC will govern the wider financial system rather than institutions, the PRA will be responsible for prudential regulation of institutions relating to capital, liquidity and other structural matters and the FCA will regulate the conduct of business of all regulated entities.

It is rare to find an issue where you can claim to have a full consensus, but in this case everybody interviewed for our research possessed a wholly negative opinion of the proposed system. "On the face of it, a rather disruptive and unnecessary piece of re-ordering of the architecture," was one partners opinion and another concurs: "I think the pure logistics of that let alone the impact on the industry hasn't been addressed properly yet, so while they are making lots of warm reassuring noises I think there's a lot of very difficult stuff to come. The idea that you can entirely re-order the whole thing and not feel any ill effects from doing that in an 18 month timescale is close to ridiculous."

The main point of contention is the possibility of overlap, particularly between the PRA and FCA as regulated firms will be examined by both. "There's clearly overlap, there's clearly a need to work together I think its going to take a lot of people in those organisations to make the two things work together over and above the staff you'd need if they were to be combined into one organisation," says another partner. Another adds: "You'll have two regulators interpreting the same law and the worry is duplication, inconsistent interpretation and I think the concern is that there needs to be stronger legislative support to ensure that these two bodies speak with the same voice on the same issues."

There is also annoyance at the increased bureaucracy and disruption brought about by the change, as one partner explains: "In the mean time, the day job, which gets busier and busier and more and more difficult still has to be done and we're seeing real problems in terms of turnaround times on perfectly normal business as usual activities."

In the wider arena practitioners have noted a need to broaden the scope of their advice, bringing up points of European and global regulation even on matters which would be perceived to be largely domestic. "The UK market is being beset by issues not only from the UK but also from Europe and increasingly internationally," explains one partner. "People are realising that it is not enough to have just a UK or European response to an issue, we see an increasing dovetailing of the regulatory approach to common issues which impact upon, not just global systemically important global institutions, but even through a process of osmosis into those which are only domestically centred, so it actually has a knock on effect on issuers who regard their market to be solely European or solely UK."

Linked to this is the ongoing development of the ESAs (European Supervisory Authorities) which will introduce three new bodies: the European Securities and Markets Agency (ESMA), the European Banking Agency (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA). The question surrounding these bodies is really how they co-exist with national regulators: "One of the things that is very clear is that the decision of national regulators will cause some of their decisions to change," says one partner. "They can only step in in quite an extreme situation if there is a perception that a particular regulator is being particularly lenient towards its national banks." Where the limits are though and how much muscle these bodies will show is yet to be seen, as one partner points out: "The biggest issue is that the ESAs have a lot more power, but will there be a ramp up where they do what they have to do?"

On the contentious side, practitioners have noted that the regulators are pursuing issues with more aggression than had been seen in the past. "They are becoming a lot more combative and a lot more intrusive so we're helping clients deal with the new FSA's approach," says one partner. "The FSA remain keen to show that they can bring criminal investigations on the market review side, they have yet to get any significant names or big institutions and no doubt they would like to do that."

A part of this new approach is try to instil in companies a greater sense of individual responsibility. This has come down not only through increasing individual liability but also from greater scrutiny of company directors. "I think from the regulatory perspective the enforcement division has really come of age, they've now got real clout, real muscle and they're exercising it," explains one disputes lawyer. "There is much more focus now on individuals and individual accountability and the role of a single person can be quite a worrying state."

The drive will see directors and executives being forced to go through much more rigorous regulatory training with the aim of removing the idea that maintaining regulatory knowledge is something that can delegated. "Ultimately whether something is the right thing to do or the wrong thing is down to individual judgement so you have to have individuals who are in the right frame of mind," explains another lawyer. "Historically compliance has been looked as something of a box ticking necessity, it's a back office thing. Individuals now need to have an appropriate eye for compliance."

Another issue, which is gaining a lot of press attention, has been the FSA's focus and campaign on payment protection insurance (PPI) and the miss-selling of this product by banks and insurance companies. This issue has already thrown up cases for firms and no doubt there will be more to come.

M&A activity in the UK has been fragile of late. Mirroring the bank market, practitioners have seen a situation where good targets are few and far between, resulting in many pitched battles over the best assets particularly with private equity investors....

M&A activity in the UK has been fragile of late. Mirroring the bank market, practitioners have seen a situation where good targets are few and far between, resulting in many pitched battles over the best assets particularly with private equity investors. "Private equity is back which puts more pressure on strategics to move now, they are getting more focused," says one partner and another agrees. "Private equity is coming back and will continue to come back and that will effect the M&A market."

There is still activity, but even when a deal is underway practitioners are finding it difficult to get through to conclusion. "Before [the financial crash] there was a lot of cookie cutter work, clients were basically deal machines," explains one partner. "Now it's more difficult to get these done and get them across the line. Now issues, which would have been left, are now being brought up as the deal goes along."

This has elongated the bid process and there is now no such thing as a simple deal. "Deals are more partner heavy in terms of time, you need heavy partner involvement in deals," explains another partner. "They are not deals where you can rely on your precedents to get you through, there's a lot of blue sky thinking." Practitioners have also had to ensure that the desire to get the deal done is not an overarching one. "It's a dangerous route if you let it affect your behaviour," says one M&A lawyer. "Its important for a lawyer, if you want to be trusted by a client, to be able to tell them to walk away."

In the wake of the acrimonious takeover of Cadbury by Kraft last year, there has also been greater attention placed on the takeover of domestic businesses by foreign entities. "I do think that the aftermath of Kraft Cadbury and other Euro-protectionism is making some US companies think twice about aggressive moves," says one partner.

Following the public outcry over the Kraft deal, the UK's Takeover Panel announced a series of potential reforms to the Takeover Code in October 2010. The one which garnered the most attention was the so-called 'put up or shut up' stipulation whereby a potential bidder would have to make their approach formal within 28 days of its commencement. While there is a keen desire to, as business secretary Vince Cable said: "Throw sand in the system" and reduce the image of the UK as a light touch jurisdiction for M&A, the reforms are unlikely to change the landscape dramatically. However it may well reduce the sort of cautious dithering, which has been rife in the market over the last few years.

Private equity has made a partial comeback in the past 12 months. "I think its been a better market, there's been more debt finance available, people are trying to divest of assets, so we're seeing increasing activity," says one partner....

Private equity has made a partial comeback in the past 12 months. "I think its been a better market, there's been more debt finance available, people are trying to divest of assets, so we're seeing increasing activity," says one partner.

Deals are being seen again, although not in the number that may have been expected. "Now we have many transactions in the pipeline but the percentage reaching completion is still a bit low," says one partner. "The debt markets have opened up again for the right deal."

IPO exits and divestments have been surprisingly few on the ground "The interesting thing about 2010 is that people that thought they would be lots of IPO exits and lots of investments but in fact there was just one IPO exit and people don't expect to see more secondaries." Part of the reason for this is simple price discrepancy "There are more pre-emptive actions, people are looking to pre-empt bigger prices, but it's still difficult to get deals over the line." There is also a sense that houses are engaging more with their assets and are not willing to divest at the earliest opportunity. "People are realising that they have to make money from improving assets not just holding them."

Practitioners are hopeful of increased activity born out of the end of the life-cycle of certain funds: "I think the fund raising cycle is promoting activity because you've got funds who are having to go out and extend investment periods, they're actually up against the clock in terms of being able to spend cash they've got available under existing funds and also they're looking at going out to fund raise next year and that promotes activity because you actually have to make exits," explains one partner.

In addition to this, there is a sense of greater competition in the funds space, with managers needing to promote themselves hard to secure investment. "I think another thing is that the fund raising, its not just exits, they are looking to do investments where they are already well provided for in a particular sector, to show that they have more strings to their bow," says one partner and another agrees: "Fund raising has been very tricky and a number of partners have come out to try to encourage people into funds by giving discounts."

There has also been a trend for both houses and funds to diversify their portfolios and also, in the case of the largest players, to look outside their traditional hunting grounds. "For people who are looking at doing multi-billion dollar deals, they are now looking at the mid market," says one funds partner. "There's an element of the bigger boys lowering their sights." Another adds: "There is a less narrow focus, a much broader focus. If you look at the most successful private equity houses they are the most diverse."

Some practitioners have also pointed out that there are more opportunities within the sector than there were in the past, as one partner explains: "Five years ago people used to think that private equity relationships were for life because private equity clients were the most loyal clients out there, but as they matured they were not so reliant on the partner relationships." With several firms boosting their private equity capacity in recent years there is clearly a sense that new clients are there for the taking. Another partner points out that this is part of wider shift: "I think the industry has grown up in the last few years, it realises that it is such an important part of the system, they are much better placed to cope with the PR."

UK project finance lawyers are increasingly finding their sights drawn to Africa, Russia and the Middle East. These three geographical regions are far and away the clearest source of mandates due to their insatiable appetite....

UK project finance lawyers are increasingly finding their sights drawn to Africa, Russia and the Middle East. These three geographical regions are far and away the clearest source of mandates due to their insatiable appetite. The African continent in particular is awash with activity. "Africa has been remarkable," says one partner. "The African markets have reached a big level of stability." Another agrees and highlights the fact that nowadays there are very few jurisdictions considered out of bounds. "What we've seen is more difficult deals in more difficult jurisdictions. "There have been a few deals which have given people confidence and the development agencies have a lot of money to put into these things."

Linked to this, practitioners also note that the sources of finance are also diversifying, which has caused a lot of traditional sponsors to sit up and take note. "A lot of the Chinese investors are coming in and financing the whole thing so if you are a sponsor you either sit on the sidelines and do nothing or you start competing by doing project finance."

Outside of Africa, Russia and the broader CIS (Commonwealth of Independent States) region has also brought in mandates, predominantly in oil and gas related work. In this light the strong Russian practice of the magic circle and select US firms have proved to be a major boon.

Renewable energy continues to grow and received a (admittedly unfortunate) shot in the arm in the form of the Fukushima nuclear disaster in Japan. Many European jurisdictions, including the UK, have revisited their energy policies in the aftermath and there is hope of more mandates in the forms of wind and solar projects.

Project bonds have also continued to make headway and while they are still something of a novelty, the need to diversify financing sources becomes clearer all the time. "There's a lot of discussion about sources of funding particularly in the context of Basel III and partly in the recognition that they are different types of funding available, that's been a big theme," explains one partner. "Project bonds that's one of the areas which is being looked at much more closely."

The overall picture is one of new lenders, more lenders and more complex financing structures. "We have seen a shake up in terms of which banks are active in this area. There is a desire to source as much money as possible," says one partner. "People were predicting the death of project finance a few years ago but you still need to fund these projects somehow."

It's a strange time to be making an assessment of the state of the UK restructuring and insolvency market. Certainly looking back over the last 12 months one would conclude that the boom period, if one could call it that, that occurred after the 2008 financial crisis had slowed considerably with practitioners reporting a slow market particularly on the domestic front....

It's a strange time to be making an assessment of the state of the UK restructuring and insolvency market. Certainly looking back over the last 12 months one would conclude that the boom period, if one could call it that, that occurred after the 2008 financial crisis had slowed considerably with practitioners reporting a slow market particularly on the domestic front.

However there is an increasing sense that we could be experiencing the classic 'calm before the storm'. The European debt crisis continues apace drawing more EU states towards the cliff edge with every passing day, while in the US the country has witnessed the first debt downgrade for over 100 years with rating agency Standard & Poors ripping away its treasured AAA rating.

Even without mentioning the Japanese nuclear disaster or more pertinently the expected 'wall of debt' refinancing which draws ever closer and you could confidently predict that there is plenty of worry and struggle ahead and in its wake a rise in work for R&I departments.

Of all these issues it is the EU debt crisis which is closest to home and may well be the first source of new work, as one partner says: "If any of those [States] were to fall over and were to put extra pressure on the Euro, it would be cross your fingers time."

All of this however is in the increasingly uncertain future. Looking back and the market, in the UK at least, has been relatively quiet. The Bank of England's continued low interest rates and an unwillingness by creditors and the banks to face up to the issues on their balance sheets has left the market somewhat in limbo. "Because interest rates are so low, most corporates are OK." says one partner, "It's a market that's generating some restructuring but because of the liquidity in the secondary bank market there's not a huge amount."

The key point raised by practitioners though was that this relative slowdown in mandates was not a sign of true economic recovery but simply a case of delaying and ignoring the issues, hoping that all the ships would rise with the tide. "Banks are unwilling to take a hold of their balance sheets," explains one partner. "The theme of 2010-11 has been extend and pretend, it's quite a brave move to take on a restructuring."

The same signs are seen in terms of insolvency: "Those who are waiting on formal insolvencies, people are waiting for an interest rate hike," says one partner. "I think it's going to come, I think it's going to come at the end of the year. Then there's the more discreet work going on behind the scenes."

There's only so long that you can ignore big problems on balance sheets though and even without considering external factors, many entities will have to restructure or refinance assets sooner or later. Although the oft-used description of these looming issues as a 'wall' of debt was much ridiculed by partners, with many offering their own metaphor – "I wouldn't call it a wall, it's more a wave really, it'll come in waves," says one - there was a common surprise that clients had not yet tackled some of these issues. "The wall of debt is used often to say things will get busier," says one partner, "but I think generally a lot of corporates are still in denial. It can't last much longer."

Where business has been brisk has been in CMBS restructuring. "The CMBS market is enormous," says one partner, "it's a market that is desperately in need of restructuring because there is so many different opportunities and CMBS is a very conflicted and difficult area."

Pockets of activity have also been reported elsewhere: "The automotive sector will continue to throw up work, there will be an increase in retail, there'll be pressure on things like nursing homes, healthcare is under pressure," says one lawyer. "The real trend that we have seen is real estate restructuring," says another. Firms have also seen increasing work outside of the domestic arena: "There hasn't been a lot of domestic UK work but further afield there's been an awful lot going on," suggests one partner.

Firms are also optimistic about the increased interest in parts of the UK R&I toolkit from other jurisdictions: "There's a lot of people looking at using UK schemes of arrangement in other jurisdictions like Germany," says one partner and another agrees, "It's a natural development, at times like these clients are looking at all their options and all the structures and procedures to see which one fits them best."