Shearman & Sterling has bolstered its leveraged finance practice in New York with the hiring of three partners from Orrick Herrington & Sutcliffe and one from Fried Frank.

Ronan Wicks previously served as global co-head of the banking and debt capital markets practice at Orrick. Patrick Flanagan and Jason White co-founded the practice there along with Wicks. Gus Atiyah was previously a partner at Fried Frank.

All four lawyers have experience in leveraged finance. Wicks and Flanagan both advise major financial institutions on leveraged finance transactions, acquisition financings, and restructurings. White, a former Americas head of the finance legal practice at Barclays Capital, counsels clients with respect to leveraged and high-grade debt finance, divestitures, and distressed investments. Atiyah represents parties on both sides of the table – borrowers and lenders – with respect to syndicated senior facilities, leveraged buyouts, second-lien facilities, recapitalizations, and debt restructurings and investments.

In a discussion with IFLR1000, Wicks analyzed a number of trends he has been observing in the leveraged finance and acquisition finance market. The M&A market has not yet rebounded and people are still holding their breath, he said.

“I think the strange thing that goes along with all of this is that the default rates are at an all-time low, and restructurings are few and far between. It is not the good-old bad-old days, post-financial crisis, when it looked like there would be a tsunami of restructurings,” Wicks commented.

At the same time, there is a great deal of liquidity, and it is a "hot" market in which M&A may pick up significantly in the immediate future.

Wicks described a thesis by which it is possible to end up with a bifurcated market. While the OCC and the Fed are generally proscribing what they consider to be unsafe practices in the leveraged lending market, that may push riskier deals into the non-traditional, shadow market, he said.

“For a while that didn’t seem to be happening, but we believe there is pressure from the leveraged lending guidelines and from the regulators, and that may act as a catalyst to accelerate the trends,” Wicks added.

In the corporate legal realm, a possible uptick in transactions does not necessarily mean more work to be shared among different law firms.

“On the legal side, if the M&A markets pick up, on top of what we’ve got now, you’ll find that the legal market will change in response to that. The legal market has become more concentrated. Some law firms that have tried to become new entrants have found that it’s extremely difficult,” Wicks stated.

Atiyah said that the debt fund space has expanded rapidly over the last four years and continues to expand, taking advantage of friction or “hiccups” in the leveraged loan market. While that market tends to be the cheapest and most liquid form of financing, lead arrangers and participants in the market may shy away from taking part in certain credits, for a variety of reasons.

“Certain debt fund families have grown to such a size – not the CLOs and funds focusing on buying portions of Term Loan B credits which the money center banks are arranging – that they are able to provide financing solutions, particularly in the middle market, or provide anchor orders or stop gaps for special situations in the debt space,” Atiyah said.

“They pick up where the leveraged loan market might stop from time to time for whatever reason. These fund families have expanded to the point, that although they are looking for different levels of yield than the syndicated loan market, their importance and contributions in the debt space are increasing dramatically. We continue to focus on this area as an increasingly important component of the debt space,” added Atiyah.