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"Our expectations were frankly that we'd have seen less new restructuring," says one partner. "But what has happened is there has been both new restructuring and transactions which had gone through restructuring in 2008 and 2009 which are now going for a second restructuring....

"Our expectations were frankly that we'd have seen less new restructuring," says one partner. "But what has happened is there has been both new restructuring and transactions which had gone through restructuring in 2008 and 2009 which are now going for a second restructuring."

This seems to be the story right across the market, with restructruing still being the dominant force and with secondary mandates now being seen as well, it would look like being a trend that is here to stay.

Some new money deals are being seen though and putting aside the potential impact of numerous macroeconomic factors, practitioners are reasonably optimistic. "We've seen, for the first time since the credit crunch, some serious signs of recovery in terms of new deals being actually down arranged, and this is both for large corporate loans as well as for leveraged buy-outs," says one banking lawyer.

As in many jurisdictions, firms have seen clients turning away from deal shy banks and looking instead towards the effervescent bond markets for fresh liquidity. However whereas in the likes of the UK, Germany and to a certain extent France, high-yield has been the product of choice, less of that has been seen in Italy.

If one was to point to the area of most activity in traditional banking it would be acquisition financing, particularly those deals orginating from the resurgent private equity sector. "We have also done acquisition finance, old style acquisition finance, for private equity too, which means that that is again available to a larger extend, and private equity players are back into the game, are back to the market," says one lawyer. "We see that, we keep seeing that, so it is an encouraging side that the markets are improving." Financing for public acquisitions is not as vibrant as on the private equity side, but it could still be called healthy.

In terms of specific sectors, the money flowing into renewable energy continues to stream forth, despite some uncertainty over the tariff regime in Italy. An area which is not doing so well though is real estate which continues to feel the effect of the global financial crisis. "Real estate financing is still very very slow, so there is basically no real estate finance deals," says one partner. "The corporate loan market has picked up a bit, the level of finance is apparently recovering, but the real estate is still very much dead."

"Last year, 2010, was a year when people thought equity markets would have come back, there was a lot of movement at the beginning of the year towards IPOs, working on a number of transactions, but only one of them happened, that was due to the fact that market conditions were still not right," says one partner. This is the feeling across the market as equity capital markets work, particularly IPOs, remains sluggish....

"Last year, 2010, was a year when people thought equity markets would have come back, there was a lot of movement at the beginning of the year towards IPOs, working on a number of transactions, but only one of them happened, that was due to the fact that market conditions were still not right," says one partner. This is the feeling across the market as equity capital markets work, particularly IPOs, remains sluggish.

Where firms have seen a pick up is work related to Italian banks seeking to increase their capital ratios. Both capital raisings and rights issues have been on the agenda, as they have been right across Europe. "The reason for the rights issues which are going on now is big Italian banks need to strengthen their capital ratios, given the economic crisis and given that the banks have, at the same time, to try to align their capital bases for the Basel requirements, they're going to have to strengthen their core Tier I base," explains one partner.

Another interesting trend has seen Italian companies seeking listings on the Hong Kong Stock Exchange, in the hope that they can tap into the lucrative Chinese market. "It's interesting, because it's Asia, it's where a lot of future growth will take place, companies like Prada are now doing very well in Asia, in China, Japan and Korea, so they see the Asia-Pacific market as a market for expansion.

The debt markets in Italy remain vibrant. "The Italian debt market has always been busier than the other markets, because unlike other markets, retail investors in Italy historically invest in debt instruments," says one partner.

As well as straight bond issuance, practitioners have also noted an increase in more exotic instruments: "We also saw some movement on convertible and exchangeable bonds, again by Italian banks carrying out some capital strengthening by issuing convertible bonds," says one partner.

The real story though has been in the reletively new area of covered bonds. Italy has only recently seen such products but the market wasted no time in embracing them. "There has been very significant activity on the more structured bonds, especially covered bonds, you know that banks had lots of difficulty in raising funds through securitisation deals, or other unsecured debt financing, so there has been a large use of the covered bonds technology, which is fairly new in Italy," explains one partner.

"The market remains difficult, you have a plenty of Italian firms telling you that the market is great and they're doing very well, but the reality is the market is still quite difficult," says one partner.With good targets still rare, banks squeezing liquidity and price discrepency between buyers and sellers, the Italian M&A market is not in the best health....

"The market remains difficult, you have a plenty of Italian firms telling you that the market is great and they're doing very well, but the reality is the market is still quite difficult," says one partner.

With good targets still rare, banks squeezing liquidity and price discrepency between buyers and sellers, the Italian M&A market is not in the best health.

"Expectations are still quite high from sellers, there's just not the same willingness from purchasers to pay high prices, purchasers are much more selective than they were before and also although banks are willing to finance transactions, they are much more careful," explains one partner and another agrees: "There are assets for sale, but then purchasers and also financing banks are more selective in targeting purchases and in targeting companies. This is creating a selection problem generally."

One additional problem this has created in the legal market is that large firms are finding that they have to lower their sites in terms of mandates on which to pitch and this in turn is leading to a squeeze of the lower and mid markets as one partner explains. "Top firms focus on main market transactions, because there are less transactions in the market, this is squeezing all the market down, and squeezing some of the firms that used to be there."

Where there is plenty of work is in renewable energy which continues to thrive despite the threat of the government's feed-in-tariff changes. "I think energy is still quite active, energy is quite active because there is still solar activity under renewable energy investments," says one M&A lawyer, "although probably this is going to slow down because the incentives are going away, as the government is trying to reduce the feed-in-tariff."

Private equity, on the whole is looking more healthy, with various players in the market looking to divest assets or indeed find new ones in which to pump their funds. "Private equity is starting to move a little bit, there have been some very good transactions," says one partner. However it seems that as in all areas, there is simply not enough on the table to allow everyone to feed. "It's not so easy for the big players in the private equity arena to find the right targets," says one partner, "and often they all compete for the same targets, so at the end of the story if you have four or five deals in Italy per year, there will be all the same private equity funds competing, one against the other one."

The big story in Italy in the last year has been the reduction in the levels of the Government's feed-in tariffs to the renewable energy sector. Essentially what this means is that investors into renewable energy projects will no longer be guaranteed such a high secured rate for the energy they produce....

The big story in Italy in the last year has been the reduction in the levels of the Government's feed-in tariffs to the renewable energy sector. Essentially what this means is that investors into renewable energy projects will no longer be guaranteed such a high secured rate for the energy they produce. This has already reduced investor appetite. "Well, there has already been an impact on the market, because we know for sure of a number of investors which have stopped their negotiations on certain projects, because of this uncertainties," says one partner. Another agrees, pointing out that it is a simple cost cutting measure by a government with well known financial problems. "They really do want the foreign investors to leave, because they don't want to pay the incentives to foreign investors,"

The whole issue has created a lot of uncertainty, not just for those thinking about entering the market, but even those with existing projects. "There is of course a problem, because they [investors] have undertaken certain liabilities based on the number [set energy price] which is not going to be the same number, it will be 30% reduced," says one partner.

Th government's strategy however was based on the idea that renewables could be replaced in the country's energy strategy by nuclear power. In the wake of the Fukushima nuclear disaster, this is a plan that neither the government or the people of Italy will be keen on adopting.

How this issue progresses remains to be seen, but many practitioners remain optimistic and indeed despite these problems, the market is still reletively vibrant. "There is still a lot to do if you're creative, especially for example in issuing and refinancing project bonds. But I am sure that most of the work that was done last year by many law firms will not be there anymore," says one partner.

Some firms have also noticed a tendency for straight bank lawyers to begin dabbling in projects as their own work remains sluggish. "There are a lot of lawyers in my opinion, trying to convert themselves from banking lawyers to project finance lawyers," says one partner, who points out that such a move does not guarantee work. "Unfortunately in Italy there was not so much investment in infrastructure as everybody was expecting."

Outside of energy, general infrastructure remains reletively vibrant, with firms still hopeful of seeing mandates related to new roads in particular.

In the legal market, a big story in the last year was the departure of high-profile partner Catia Tomasetti from Allen & Overy to join the team at Italian doemstic Bonelli. The market will be keen to see what impact she has at her new firm and indeed how the UK firm will cope without her.

"I think people were expecting more restructuring coming in 2011, but probably there has been less than the people expected so far, there is some indeed, but not in the big way that people in the restructuring sector probably hoped for."This summary from one partner is indicative of the market where, for various reasons, the levels of restructuring work is not reflecting the overall economic environment....

"I think people were expecting more restructuring coming in 2011, but probably there has been less than the people expected so far, there is some indeed, but not in the big way that people in the restructuring sector probably hoped for."

This summary from one partner is indicative of the market where, for various reasons, the levels of restructuring work is not reflecting the overall economic environment.

This is mainly due to a combination of 'pretend and extend' – where companies put off restructruing in the hope of an economic pick up - and a greater desire among creditors and debtors to reach agreement outside of court. In this respect firms have seen a lot of work related to Italy's US Chapter 11 equivalent, the concordato preventivo (agreement among creditors). "We have done some out of court restructuring, internally organisations of groups, distress, we get a bit of everything," says one partner.

For some, there is a feeling that the trend of delaying big balance sheet issues is not one that can be maintained and that sooner or later the chickens will come home to roost. "Those who were able to resist the first time drag along for a couple of years but are now in a very difficult situation," says one partner. "Maybe if they had restructured earlier, they would now be in a less serious situation, but probably they have hung on too long."

This could lead, according to some, to an increase in insolvency cases and more drastic restructuring mandates. "2011 is probably going to be a year of fewer cases but more serious," says one restructuring lawyer.