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

With the LBO market taking a hammering since the onset of the financial crisis, debt refinancing is the focus of most banking practices in the UK, often alongside restructuring and insolvency departments.Most of the refinancing work is going back to the firms which put together the documentation in the first place, but with some banks having a policy to change firms on a debt restructuring, some of the lower-tier firms are getting more work than they had originally expected....

With the LBO market taking a hammering since the onset of the financial crisis, debt refinancing is the focus of most banking practices in the UK, often alongside restructuring and insolvency departments.

Most of the refinancing work is going back to the firms which put together the documentation in the first place, but with some banks having a policy to change firms on a debt restructuring, some of the lower-tier firms are getting more work than they had originally expected. "It's not just our existing clients who we're working for - we've been brought in to work on matters we've not previously been engaged in," says a partner at a US firm.

One thing that has changed over the past 12 months is the power balance between banks and borrowers. Before the financial crisis borrowers had the power to push and drive through transactions in syndicates of as little as three banks. But times have changed, and with increasing numbers of banks in syndications - all demanding more scrutiny - deals are much more difficult and time consuming to get through.

"Now that the banks have the power, ten-bank syndicates are difficult as each bank's comment has to be taken into account as there are no other lenders to push out to," says one partner. "More banks makes being dynamic difficult. The reality is that you have a number of different lenders with different agendas and ideas and individual power structures that they didn't have previously," says another partner.

There have been a few new money transactions in the market, particularly forward start facilities, but most have been typically small-value loans for strong, investment-grade corporates with good relationships with a bank.

With the equity capital markets suffering from a chronic loss of confidence following the Lehman Brothers collapse, the debt markets have been somewhat of a safe haven for investors. The lack of credit available from banks has meant that many corporates have had to turn to the debt markets for external financing, keeping law firms busy in the process....

With the equity capital markets suffering from a chronic loss of confidence following the Lehman Brothers collapse, the debt markets have been somewhat of a safe haven for investors. The lack of credit available from banks has meant that many corporates have had to turn to the debt markets for external financing, keeping law firms busy in the process.

The market has shifted from the first-of-a-kind transactions to more mundane, regular work such as Euro and Global MTN programme updates and bond rescheduling in relation to restructuring and insolvencies.

However as 2009 rolls on, partners are reporting that various debt instruments are coming back to the market as investors gain confidence. "It's getting back to normal - there's an increased appetite for debt as people who want out of equity holdings move into good quality debt," says one partner.

Equity-linked and convertible bonds are proving popular, and the high-yield and lower Tier II markets have come back much earlier than expected, with firms reporting that overseas clients in particular are looking for new issues.

"This is the greatest diversity of work we've ever seen," says one partner, while another adds: "Investors have short memories. If you'd have said that at the start of the year that institutions would sell hybrid instruments, you wouldn't believe it."

"The week of Lehman is still the busiest in memory - it was absolutely unbelievable," is how one partner describes the event that brought not only the derivatives market but the entire financial market to a shuddering halt.The fall of Lehman Brothers changed everything....

"The week of Lehman is still the busiest in memory - it was absolutely unbelievable," is how one partner describes the event that brought not only the derivatives market but the entire financial market to a shuddering halt.

The fall of Lehman Brothers changed everything. With confidence in the more exotic structured credit deals shot to pieces, firms that focused on commoditised, cookie cutter work took a hammering. Cadwalader Wickersham & Taft laid off a number of staff in London as the market for low margin, high volume work disappeared, while other firms face overstaffing issues as their overly-specialised derivatives lawyers are unable to be shifted to other departments.

But it's far from doom and gloom in the sector. Restructuring and repack work has kept a number of London practices ticking over, and these mandates tend to go back to the firms that put them together in the first place. The fall of Lehman Brothers and the Icelandic banks have also kept many firms busy, with countless counterparties needing legal advice to unwind their positions.

Balance sheet management is using CDO (collateralised debt obligation) technology to lose volatility on the balance sheet, while other investors are looking at insurance-related longevity and mortality swaps. Other partners are reporting work from banks looking at CDOs to improve their regulatory capital costs, while commodities-linked swaps are gaining in popularity.

The key features in this market according to partners are innovation and complexity - as well as careful due diligence. "There is a flight to quality and a need for creativity," reports a partner. "Clients are also looking at the base documents more closely. Clients in the past were happy to sign regardless - now they're paying more attention."

While IPOs are a long-forgotten word in the City of London, rights issues and share placements have been rampant this year as the tight bank credit markets force companies to seek alternative financing. While there have been arguably more rights issues in the market this year, lawyers report that sponsors have been unable to make their minds up, flipping between a rights issue and an open offer until the last minute....

While IPOs are a long-forgotten word in the City of London, rights issues and share placements have been rampant this year as the tight bank credit markets force companies to seek alternative financing. While there have been arguably more rights issues in the market this year, lawyers report that sponsors have been unable to make their minds up, flipping between a rights issue and an open offer until the last minute.

Barclays, Lloyds TSB and the Royal Bank of Scotland got the ball rolling with multi-billion pound issuances. When HSBC announced its £12.5 billion rights issue, some commentators were wondering how much liquidity was left in the market.

A lot, as it turns out. The property companies were next to go to market, followed more recently by the commodities companies. "The amount of money raised from rights issues has been beyond expectations," says one partner. Another partner adds: "We're seeing a continued trend for strong companies being able to raise money in this market. The fact that Rio Tinto is getting money means that the cash is still there for the right company."

For law firms, this has led to a strong work flow for equity capital markets lawyers over the past year. Rights issues have fed back into more work, especially the banks that want to buy back their preference shares from the UK government. Cashbox placements have also been on the increase.

The US has been a key destination for most rights issues and share placements due to its bigger pool of investors. "We've seen quiet a few issues where the banks want to go to the US, much more than 6-12 months ago," says one partner. "Documents are getting longer and clients want documents done to US 10B5 standards. It's wider audience; the US has bigger pockets." Herbert Smith and Ashurst have been particularly busy with US placements this year.

However while UK companies have been a solid source of work for law firms, the emerging market work that had been flooding the LSE and Aim markets over the last few years has dried up. This has caused some problems for US firms such as Skadden Arps and Cleary Gottlieb who relied on a steady stream of these mandates from countries such as Russia and Kazakhstan.

Looking forward, IPOs are not expected to reappear in London until 2010 at the earliest. Private-equity companies are expected to be among the first to get involved, using IPOs to spin-off various portfolios. "Private-equity companies are very highly leveraged and need to unwind to make them viable," says one partner. "They need capital injections, but this wipes out the returns of the shareholders over the past few years."

Foreign companies are also expected to make a return to London, with China tipped to be a strong source of mandates in coming years.

A year after the dramatic collapse of Lehman Brothers - "a game-changing event" according to economist George Soros - the structured finance and securitisation market is slowly picking itself up and dusting itself off. The sector was demonised by the press and investors, some say unfairly, but in recent months securitisation in particular has become an important tool for many businesses....

A year after the dramatic collapse of Lehman Brothers - "a game-changing event" according to economist George Soros - the structured finance and securitisation market is slowly picking itself up and dusting itself off. The sector was demonised by the press and investors, some say unfairly, but in recent months securitisation in particular has become an important tool for many businesses.

"Structured finance and securitisation are perceived to have played a part in the meltdown," says one partner. "Now it's part of the solution: central bank liquidity windows require securitisation, which shows it is still a useful platform."

Large firms have been kept very busy securitising assets to swap with the European Central Bank or Bank of England to access liquidity and, according to one partner, 2008 saw around 90% of UK banks securitising their own assets into the schemes.

RMBS work is still popular with clients, while covered bonds have been a handy way of raising funds for some companies. Conduits clients are also becoming bolder after the sector took a hit in early 2009. And while work emanating from the Middle East has slowed dramatically, Greece has stepped up to become a strong source of work for the top firms.

Restructuring work has been keeping firms ticking over as well. Many practices are called upon to advise on the restructuring of transactions they put together in the first place. However the present environment means they are being restructured under very different circumstances. "It's very strange. Deals being restructured in this environment are not conducive to formal enforcement proceedings. You need to think imaginatively," says one partner.

However it isn't business as usual for all firms. The well-worn phrase "flight to quality" is apparent in the structured finance and securitisation sector more than any other, and since the onset of the financial crisis the top three tiers have effectively dominated the UK market. "Below there, there will be tears," notes one partner.

The well-publicised cuts at Cadwalader Wickersham & Taft were an early indicator that a department based on commoditised work can't survive in the present market. "When it all hits the fan it's not always the commoditised lawyers you look to," points out a partner. "Clients want people with experience of the product and who can do some original thinking - experience of enforcement, involvement of pre-pack work etc."

"Once Mifid was implemented the question was what's left for the regulatory lawyers for the next 12-18 months," says one partner. "Then Lehman came along....

"Once Mifid was implemented the question was what's left for the regulatory lawyers for the next 12-18 months," says one partner. "Then Lehman came along." The collapse of Lehman Brothers and the subsequent fallout was somewhat of a blessing for financial regulatory lawyers, who previously were keeping themselves relatively occupied by a combination of Mifid, Market Abuse Directive and payment protection insurance work.

But since the onset of the financial crisis and the political fallout that went with it, the regulators are now wanting to be seen as taking a stricter approach to regulation in the City, for example introducing short-selling regulations.

The FSA is also seen to be targeting individuals to show they're taking action at board level and that they've got their finger on the pulse. "We've seen more regulatory activity from the FSA. They've been going after a non-executive director of a client - it's the first time we've seen them go after someone specific to blame," says one regulatory lawyer. "The trend will continue. They're looking for a scalp, that's why they're concentrating on high-profile clients."

The rash of financial sector mergers also created a strong workflow for regulatory lawyers, with many firms advising on the numerous regulatory hurdles that needed to be cleared before the acquisitions could take place. "Regulation is a very important matter, clients are more sensitive and advice is immediately strategically relevant rather than ongoing compliance advice," says one partner.

Regulations regarding bank regulatory capital is tipped to be the next source of work for non-contentious practices, with the proposed regulations said to be far advanced. The proposals for a European super-regulator would also mean a "fundamental change for Europe" according to one partner, and could give firms an avalanche of advisory work over the coming years.

On the contentious side the Madoff and Stanford fraud cases are keeping many practices busy, while various FSA and Financial Ombudsman investigations have also provided mandates.

Without a doubt the big story in the M&A market this year was the raft of mergers and nationalisations in the financial sector.Bradford & Bingley's nationalisation was followed by the distressed sale of Lehman Brothers' assets, the nationalisation of parts of the Royal Bank of Scotland, and Lloyds TSB's purchase of HBOS and its subsequent part-nationalisation....

Without a doubt the big story in the M&A market this year was the raft of mergers and nationalisations in the financial sector.

Bradford & Bingley's nationalisation was followed by the distressed sale of Lehman Brothers' assets, the nationalisation of parts of the Royal Bank of Scotland, and Lloyds TSB's purchase of HBOS and its subsequent part-nationalisation. For a time, corporate lawyers were effectively responsible for keeping the UK banking system alive.

But as 2009 has rolled on, the M&A sector has dropped off dramatically as the credit crunch takes hold. Deal volumes and values are way down, as the gulf between valuations of buyers and sellers remains wide.

"There's a lot of talk, but it's tougher to put a deal together," comments one partner. "A lot of people are nervous about valuations - there are not as many buyers, as people are worried about overpaying."

Lawyers report being at their wits' end as a result of trying to push through a deal but seeing it fall at the final hurdle. "You're less likely to reach an agreement as everyone's more cautious," says a partner. "CEO confidence drives the M&A market."

Clients and private-practice lawyers also note that experience is key in this situation. "Clients are more concerned at having the older, more experienced lawyers around as they are the ones that know the strategies," explains one partner. "It's the time for the more experienced M&A lawyers, rather than the 12-year-old M&A lawyers who all seem to have disappeared."

With the shortage of liquidity seeing private-equity houses step back from the market, cash-rich strategic buyers were tipped to be eyeing up purchases. But while the pharmaceutical and food sectors have been relatively active, this boom hasn't eventuated.

Similarly, distressed M&A transactions haven't been as prevalent as expected, with partners blaming the lack of liquidity in the market.

Opinion is mixed about when the market will pick up. Some partners think the green shoots are appearing and late 2009 will see an uptick in work, while others point to the increasing UK unemployment rate as evidence that there's a long road to travel yet.

The private-equity sector has been surrounded with doom and gloom this year, with partners in other practice areas jokingly suggesting that, since the onset of the credit crunch, the only thing private-equity partners have completed is a Sudoku puzzle.Private-equity partners tell another story, obviously....

The private-equity sector has been surrounded with doom and gloom this year, with partners in other practice areas jokingly suggesting that, since the onset of the credit crunch, the only thing private-equity partners have completed is a Sudoku puzzle.

Private-equity partners tell another story, obviously. Restructuring and advisory work is keeping things ticking over nicely, as lawyers counsel companies on how to avoid potential problems such as covenant breaches.

There are three types of private-equity players out there according to partners: the ones that have overpaid for assets; the smaller bunch who have largely stayed out of the market over the past three years such as Montagu and Silverfleet and can do deals; and the new funds which have been raising money over the past two years and have buying power, and see good opportunities to do acquisitions if they can get the debt.

Partners note that take-privates are beginning to get back on the agenda, with some investors deciding that the market has found the bottom and are looking for opportunities. "They're getting in now and looking at exit strategies in three years' time," says one partner.

"We're starting to see some all-equity stakes and vendor finance," says another partner. "RBS is beginning to lend into the mid-market, which will annoy some people as they were really supposed to lend to the lower market." Partners also single out the food and beverage and healthcare sectors as beginning to show some life: "They are the two things that never change - we need to eat and we need to die," says one.

Other partners note that they're seeing an increase in companies raising cash from private-equity houses so they can keep their powder dry for when they go back to the banks.

But closing these deals is another matter entirely. "There are a lot of new deals out there but they are falling out on price, and everything is dragging on a lot more," says one partner. "There's a lot fading away on price, confidence, or the bank falls out of the deal. That really pisses me off."

The talk of the project finance sector this year has been the shift of emphasis from commercial lenders to export credit agencies (ECAs). The ECAs have always been available to borrowers in the past, but were avoided due to their stricter terms....

The talk of the project finance sector this year has been the shift of emphasis from commercial lenders to export credit agencies (ECAs). The ECAs have always been available to borrowers in the past, but were avoided due to their stricter terms.

But with commercial lenders avoiding anything that is even remotely risky, ECAs have been a key source of finance on nearly every prominent deal this year. "People have laughed at these banks in the past, now they're crawling back to them for liquidity for projects," says one partner.

However, the project finance sector is not immune from the tight credit market. Partners report that deals now need a number of sources of debt, from ECAs to 144A debt placements to Islamic financing, in order to get the larger deals off the ground.

This has naturally favoured the firms with the larger financing practices such as Allen & Overy, Clifford Chance and Linklaters. "If you can't do all the financing types, you can't do the mandates," says one partner. "You need to tap into every source of finance, and not all firms can do that."

Infrastructure has been the most active sector, with governments and lenders keen to put their money into safer, long-term projects. "Infrastructure is high on everyone's agenda," says one partner. "All countries need infrastructure work - it's a catalyst to economic change and one of the tools governments use to support an economy that's in troubled times."

The Middle East has also been a key destination for investors. While the Dubai-led real-estate boom is over, project finance investors have also taken advantage of the recent low oil price in the belief that when the price of oil rises again, so will the value of the assets. LNG (liquefied natural gas) tankers, IWPPs (independent water and power projects) and oil refineries are the most common projects in the region.

Renewable energy projects have remained popular in Europe, especially wind farms. And while PPP (public-private partnership) and PFI (private-finance initiative) projects have somewhat fallen out of favour in the UK, the Airtanker and Military Flight Training System defence projects have shown that this financing source is still of use.

"This has been the most comprehensive downturn I have ever seen. There have been SIVs hitting trouble, then Bear Stearns and Lehman, and then the banks getting capital poured into them," says one partner....

"This has been the most comprehensive downturn I have ever seen. There have been SIVs hitting trouble, then Bear Stearns and Lehman, and then the banks getting capital poured into them," says one partner. "This led to the credit constriction and the knock-on effect is hitting good corporates [that are] unable to raise finance."

While the news is generally grim around the City, every cloud has a silver lining. Yes, markets have been through some of the most difficult times since the onset of the 1930s depression, but it has never been a better time to be a restructuring and insolvency lawyer. "The level of activity is extraordinary. April 08 saw the market change and it's really been increasing ever since," the partner says.

Much of the work over the past 12 months has had a restructuring angle to it, meaning the quality of a firm's R&I practice is increasingly defining its position in the UK market as a whole. Freshfields Bruckhaus Deringer's and Linkaters' respective roles on the Woolworths and Lehman Brothers collapses have done wonders for their reputations, with strong client and peer feedback propelling the pair into the top tier.

The innovative and tactical nature of the work means that clients are calling for a lot more partner time than in the past. While some firms are rebranding banking and M&A partners as restructuring specialists, clients say they are drawn towards the experienced names they know and have worked with for years. Clients also state that they are keener on partners who are proactive and can balance being commercially aware with a strong knowledge of the law.

Insolvencies, however, have so far been rather thin on the ground compared to what commentators were expecting after the fall of Lehman Brothers and Woolworths. With so much uncertainty in the market at the moment, lawyers say that banks are holding back on calling in debts as there's no point pulling the trigger when there's no market to sell into.

The conditions haven't been a boon for all firms, however. Cadwalader Wickersham & Taft was the big loser this year, suffering from the departure of three of its key names and leading many to question its position in the market going forward. And given clients' reticence to turn to mandate new, and therefore risky, firms from outside the top two tiers, commentators note that it may be difficult for the practice to regain traction in the market.

On the whole there also haven't been a lot of other partner movements in the market this year. The most notable saw White & Case leading lawyer Dan Hamilton leave for Ashurst, while in August 2009 Ashurst restructuring head Nick Angel announced his intention to move to Milbank Tweed Hadley & McCloy to spearhead its foray into the UK R&I market.