Securitisation lawyers descended on Barcelona to party last week. And why shouldn’t they?
The market is still buzzing
As Europe’s top finance professionals gathered in Barcelona for their annual securitisation shindig last week, talk of an impending economic slowdown was firmly off the agenda.
“There is so much work going on in Europe at present that there isn’t a firm in London with the manpower to do everything it is being offered,” said one leading securitisation lawyer.
And it was almost impossible to find anyone among the champagne-swigging throng to disagree with him.
The European securitisation market is unquestionably buoyant and shows no sign of abating.
Its increasing popularity as a financing technique has been given further impetus by recent turbulence in market conditions, particularly in the States.
Because securitisation is largely protected from the vagaries of the interest rate markets it is rivalling straight capital markets financing as the tool of choice during tough market conditions. And the deals have happened across all sectors. In the pub market alone, analysts predict that more than 40% of all pubs will be owned by the financial sector by 2003.
Bass’ £625m sell-off of 998 pubs to Nomura this year made the Japanese investment bank the biggest pub landlord in the UK. It also proved lucrative to Allen & Overy (A&O) and Clifford Chance which advised Bass and Nomura respectively. But why is Europe proving such a happy hunting ground for securitisation lawyers?
Whereas securitisation was actually developed as a financing technique in the US some years ago, the market has now matured to such an extent that the more innovative multi-jurisdictional deals are to be found in Europe.
The technique is now being applied across a range of asset classes, a trend shown by the recent £650m Rank Hovis McDougall refinancing – the first securitisation to rely on income generated by branded goods.
“The US investment banks are spreading the work around in London, but the pool of expertise is not huge so those with an acknowledged capability are seeing a lot of work,” says Sidley Austin Brown & Wood’s UK head of structured finance, Howard Waterman
“The US investment banks are willing to give the US firms a shot at convincing them that their London office can service them in the same way that New York does.”
Sidleys has just completed the first European aircraft loan backed CLO on behalf of Italian bank IntesaBci.
Freshfields Bruckhaus Deringer, led by securitisation partner Peter Green, advised Merrill Lynch in its capacity as arranger and Note Placement Agent on the deal. The transaction was structured to enable IntesaBci to acquire credit protection for a reference portfolio of $1bn (£706m) of aircraft loans.
Nonetheless, the number of US firms that can purport to have any securitisation practice in London can still be counted on one hand.
Shearman & Sterling is one such firm targeting securitisation, poaching A&O rainmaker Mark Raines last year after a protracted search for a senior UK securitisation lawyer.
Weil Gotshal & Manges partner Jacky Kelly, who was also once understood to be on Shearmans’ wishlist, is another lawyer rated highly by the banks and private equity funds.
Given the relatively small offices of most US firms, it is perhaps not surprising that few other US firms are making an impression in London for securitisation work.
However, if US firms keep building up at the rate of recent times – research carried out by Legal Week shows that US firm in London have almost doubled in the last two years – this could change, depending on the state of the currently tight market for securitisation lawyers.
So what of the UK firms? “Of the London firms it is Clifford Chance, A&O and Freshfields – in that order,” according to one securities lawyer in London, an opinion backed up by many dispassionate observers who also rate Linklaters as a force to be reckoned with.
Linklaters has attracted work away from A&O and Clifford Chance including clients such as Morgan Stanley, Royal Bank of Scotland and Barclays Capital, thanks to focusing resources to pick up on the overstretched market.
The firm recently split off its structured finance group from the rest of its finance division in recognition of its success during the last two years – its team has doubled to six partners and 25 assistants. Clifford Chance and Linklaters went head to head last month, advising on an innovative £132m pan-European property securitisation on behalf of ProLogis.
The deal is expected to become a landmark in the property securitisation market as the first structure of its kind to be cash funded and cross-collateralised on a pan-European basis.
Clifford Chance securitisation partner Peter Voicey led the team advising JP Morgan Securities and ABN Amro as joint lead arrangers. Linklaters partners Simon Small and James Harbach advised the ProLogis European Properties Fund.
It is clear that the future for securitisation lawyers in London looks bright. The US firms are beginning to export their natural advantage on Wall Street into the London market but are still struggling to cope with the muscle of the magic circle.
Citibank’s recent overhaul of its European legal panel sums up the situation neatly. Weils and Skadden Arps Slate Meagher & Flom were appointed for UK finance work largely because of the quality of their US practices.
Freshfields, meanwhile, while frozen out of virtually every panel due to its decision to act against the bank on behalf of another client two years ago, was nonetheless retained for securitisation work due to Citibank’s options being severely limited elsewhere.
