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

In a turbulent year for global banking it is unsurprising to find that the biggest trend in the market is a reduction in new lending transactions. As one banking partner puts it: "The party is over in terms of lenders pushing anything past the banks....

In a turbulent year for global banking it is unsurprising to find that the biggest trend in the market is a reduction in new lending transactions. As one banking partner puts it: "The party is over in terms of lenders pushing anything past the banks." What new lending that is being done has come in the form of club deals.

This decline has been balanced by a significant rise in restructuring work as old transactions return to the table. "We're all restructuring lawyers at the moment," comments one partner.

Most firms have also found themselves advising over aspects of the collapse of Hypo Real Estate Bank (now nationalised) or its repercussions. The fallout has been a fruitful source of work and looks like it will continue to be so.

Another trend that is common across many practice areas is a desire for simplicity in deal structure. How long this lasts however is yet to be seen. A partner comments: "The highly specialised structures, I think these desires will be there in the future, though for some time there will be a desire for less complexity."

Not surprisingly, regulatory work has been in demand with many clients seeking advice on new rules and procedures. "We do experience a higher level of requests for information about laws and legislation," says one practitioner. Optimistic companies are also seeking advice in an attempt to adapt to the new climate they find themselves in. "It's a traditional cat and mouse game between investors finding loop holes and the regulators closing these loop holes," explains a lawyer.

In the German debt markets, the economic downturn, rather than stifling the sector, has instead caused activity to be focused in particular areas. However it is true that overall activity has decreased....

In the German debt markets, the economic downturn, rather than stifling the sector, has instead caused activity to be focused in particular areas. However it is true that overall activity has decreased. "It was a bit of a strange year last year," says one partner. "Until June and July we were headless [chickens]; we had the summer and had the usual downturn, then when we came back people realised there was a crisis."

Two areas that are still showing signs of activity are corporate and covered bonds. "Corporate bonds have been active; in the last month there have been several issuers with new programmes," says one lawyer. Covered bonds issuance has been boosted by a change in the regulations. "The principle has been abolished whereby only specialised mortgage banks issue covered bonds," explains a practitioner.

The rise in activity in these areas has also been caused by a decrease in demand for complex instruments as the financial crisis continues to spook many investors. "We do notice that people have become more conservative," says one lawyer, while another adds: "Realism has hit the market, but there are still some nutters out there who try complex DCM structures."

In the autumn, firms noticed an increase in work relating to the government's special financial market stabilisation fund (Soffin) after its creation in October. "Initially there was a rush on Soffin then this trailed off," says a partner. There has been less Soffin work in 2009, with most of the companies in need of assistance having already signed up. However there is still plenty of advisory work to be done.

Another growth area that has been seen across Europe is the trend of companies initiating debt buybacks. "We're currently seeing a lot of corporates buying back their own debt," says one partner: "As you buy back at a gain of 20% you make a profit."

The story of the equity capital markets in Germany is similar to the rest of the continent. IPO activity has been sporadic at best since October 2008 and the fallout from Lehman Brothers' collapse....

The story of the equity capital markets in Germany is similar to the rest of the continent. IPO activity has been sporadic at best since October 2008 and the fallout from Lehman Brothers' collapse. As one lawyer puts it: "It's just not possible to do an IPO in Germany right now."

Most firms are finding their practices dominated by rights issues and capital increases, as one capital markets lawyer highlights: "The markets have for some weeks now completely shifted to capital increases," while another adds: "These days companies are looking to increase their capital."

Share buybacks are another area where firms are getting mandates. "We had a few share buybacks at the end of last year and then at beginning of this year there were an extraordinary number," says one partner. However some lawyers were not convinced that this would remain a boom area. "A lot of our clients realised that they need their money for other things so they stopped their share buybacks," reports a partner.

There has also been a move towards breaking transactions down into parts to reduce risk as companies reassess their strategies.

The general feeling surrounding structured finance in Germany is "wait and see". As has been the case in many areas, the collapse of Lehman Brothers in September 2008 had a big impact, as one partner noted: "The last 12 months have been pretty dramatic....

The general feeling surrounding structured finance in Germany is "wait and see". As has been the case in many areas, the collapse of Lehman Brothers in September 2008 had a big impact, as one partner noted: "The last 12 months have been pretty dramatic. Lehman ... was arguably the most dramatic event in structured finance history – there was an enormous amount of advice noted in regard to things related to Lehman."

The main trend on the securitisation side has been a drop-off in work. As one lawyer says: "The securitisation market has changed. Investment business has fallen away – now banks who were investing want to take the risks off their balance sheets." A competitor confirms this view: "As a result of the financial crisis the market has changed – you do not have many securitisations in the market." Of the transactions that are being seen, most have been structured for the European Central Bank (ECB) to access liquidity. Meanwhile, questions have been raised about the health of CMBS after the problems in the mortgage market over the last 18 months. "The question being asked is how much default will there be in CMBS," says one partner. "Law firms that have focused on CMBS have suffered quite a lot."

On a more positive note, several partners comment that restructurings rather than defaults seem to be the order of the day. One observes: "In the public sector we see lots of restructurings. They have been looking elsewhere and have been generating profits by looking at structured finance projects."

As in most jurisdictions, the M&A market in Germany has been sluggish over the last year. Deals are being scuppered due to a discrepancy between the expectations of buyers and sellers, which, combined with the difficulties of getting finance, makes any transaction increasingly difficult to carry out....

As in most jurisdictions, the M&A market in Germany has been sluggish over the last year. Deals are being scuppered due to a discrepancy between the expectations of buyers and sellers, which, combined with the difficulties of getting finance, makes any transaction increasingly difficult to carry out. "Any deal that requires too much bulk is very difficult to pull off – that has changed the M&A landscape," says one lawyer.

A lack of confidence is also causing problems throughout the market. "Strategic buyers are very wary. People haven't been sure whether the bottom has been reached," says one lawyer. Another partner puts it this way: "Buyers have become very risk averse and the question is whether they can walk away without bloody hands."

It is not surprising then that most of the deals being done are in the mid-cap area where financing is easier to acquire, although even here the market is slow.

Other problems surface once deals have been completed, with companies desperate to maximise their benefit. "In the aftermath of transactions there is more discussion about the purchase price. It's getting more and more litigious," says one practitioner.

A potential trend is increased interest in the public sector, with this being perceived as a more stable area in which to invest. "We expect a lot of work coming from companies trying to increase their stake in public companies," says a partner.

Over the last year the private-equity market has seen a dramatic drop-off in the number of new transactions as the impact of the financial crisis took its toll.A key reason for this reduction in new deals has been the reluctance of investors to enter a market which they believe has not yet bottomed out....

Over the last year the private-equity market has seen a dramatic drop-off in the number of new transactions as the impact of the financial crisis took its toll.

A key reason for this reduction in new deals has been the reluctance of investors to enter a market which they believe has not yet bottomed out. There is also a desire for deals with minimal risk: "We have mid-cap activity but the large houses are still cagey about what they do," says a partner.

Another issue is the inability of investors to get debt financing. "The debt market has pretty much dried up – we are looking at new acquisition structures," comments a lawyer.

These issues have led to a shift in emphasis towards restructuring and portfolio management as companies focus on their existing investments, as one lawyer notes: "Nowadays when you are asked whether you are a PE lawyer you could say that you are a restructuring lawyer."

Some practitioners though are keen to sound a note of optimism: "I don't think the standstill will last," says a partner. "Some deals need to be done. The opportunistic deals may not be happening right now because people are still unsure whether the market has reached the bottom – nobody wants to catch falling knives." A partner at another firm adds: "The paralysis that was in the market in the fall has now gone. People are beginning to look at things again."

There is a clear sense however that when deals do come back it will be a changed market. "The market is quite diverse but it is not the same as previous years when you could just put your money on the table and wait," says one partner.

With investment cycles in project finance being much longer than in other areas, the sector has not been as dramatically hit by the global financial crisis. However this is not to say that there has been no impact....

With investment cycles in project finance being much longer than in other areas, the sector has not been as dramatically hit by the global financial crisis. However this is not to say that there has been no impact. "Transactions do get delayed," says a partner, "but my impression is they do not get called off."

Those transactions that have export credit agency funding are also taking longer to see through to completion due to the less flexible nature of the lenders.

There is also doubt as to whether there will be additional government funds made available for projects to boost the economy, "My personal feeling is that the government is watching its funds," says one partner. "I would doubt that these projects would increase because of the downturn."

One sector that looks like it will be riding out the downturn better than most is renewable energy. "Four to five years ago we would not have done many renewable projects, but now with fewer brighter projects we are doing more," says one lawyer. Offshore wind and solar look like two likely areas of growth, however any increase will be gradual. "Offshore wind farms are a growing sector," says one lawyer, "although offshore people would have thought that the market would take off more quickly."

The sector will also provide a boost to Germany-based firms, as the prominence of German technology in the renewables industry translates into a number of roles on cross-border financings.

The level of restructuring work has naturally increased following the onset of the economic downturn and there is a feeling in the market that the heights have not yet been reached. "We see the high [point] of restructuring and insolvency still in front of us....

The level of restructuring work has naturally increased following the onset of the economic downturn and there is a feeling in the market that the heights have not yet been reached. "We see the high [point] of restructuring and insolvency still in front of us. At the moment we are still looking at balance sheets up till the end of 2008," says a partner.

One consequence of this increase has been a migration by the market into this area. "Since the recession it became obvious for a number of niche players to realign themselves because restructuring is kind of hip," says one lawyer. Another partner agrees: "People are now being asked for advice as to how to restructure a debt situation and that is why they've become restructuring lawyers."

Looking forward, an area where firms may expect to see growth is in leveraged finance, as one partner says: "In the next few years there are a number of leveraged finance deals that will need to be restructured. The situation is also exacerbated by local companies needing to restructure."

In the insolvency area there has not been the level of work that some people would have expected. One development has seen companies looking at the insolvency rules of different jurisdictions. "People now are still thinking about moving companies abroad and taking advantage of different insolvency regimes," says one partner.

This led to a fear among some that insolvency work would be taken by foreign offices. However, as re-domiciling is not always an option for troubled companies, local law experts remain vital to any deal. "People were afraid that the insolvency work would go to the UK," says one lawyer, "but people have realised that this is not going to work."

It was also noted by several partners that a lot more insolvency deals are cross border during this downturn than in previous economic slumps. "The German Ministry of Justice has touched base with its clients [law professionals] in regard to cross-border insolvency, which shows there is awareness," says one partner.