Legal Business

Punch above weight – the finance teams aiming to take on the City’s heavyweights

  • David Stevenson

    • As confidence begins to re-emerge at City finance teams, Legal Business profiles the mid-market players intent on challenging the Square Mile’s banking heavyweights

    Bernard Sharp, global chair of the banking and finance group at Baker & McKenzie, may be tempting fate when he says: ‘The market has a lot in common now with the market in 2007.’ Still, his comment certainly reflects a more bullish mood among a cadre of players operating just below the largest six or seven banking practices in the City.

    Confidence is seeping back into battered financial markets bolstered by the ongoing commitment of major Western economies to ultra-loose monetary policy, a return to growth in the UK and the relative calming of the market turbulence from the eurozone that cast a shadow over 2011 and 2012.

    Banks are now willing to provide debt on relatively favourable terms for the right type of assets. And, anyway, for larger leveraged deals there are now many more funding options with a wide array of alternative debt providers having entered the market since the credit crunch hit, such as hedge and mezzanine funds or sovereign wealth investors. The high-yield market has also enjoyed huge momentum in recent years, becoming the preferred option on European new-money leveraged finance deals and also on the refinancing of existing debt. Capital markets funding has become an increasingly realistic option for many borrowers.

    Of course, London remains a singularly tough town for new entrants to crack given the evolution of large multi-product practices as industry leaders like Clifford Chance (CC), Allen & Overy (A&O) and Linklaters, not to mention the inroads made in strategic disciplines by US advisers like Latham & Watkins and White & Case. And, of course, there are very effective finance teams at firms like Ashurst, Herbert Smith Freehills and Simmons & Simmons. Scale is also required for major players to handle the increasingly onerous administration and tightly managed rates on the major banking panels.

    But there remain opportunities for players outside the club of the 50-partner London finance practices. The strategies vary, with some deploying national networks to cement ties with retail banking groups while others tightly focus on industry sectors or niche lending. Here we focus on nine of the most ambitious middle-weights.

    Addleshaw Goddard

    Size of team: 81 lawyers; 21 partners
    Practice head: Richard Papworth
    Key clients: Barclays, HSBC, The Royal Bank of Scotland, HBOS
    Recent representative work:

    Richard Papworth, head of Addleshaw Goddard’s finance team, claims the firm is making ‘serious headway’ in a space currently occupied by Hogan Lovells, DLA Piper and Ashurst in corporate and leveraged finance, led by Amanda Gray alongside ‘up-and-coming’ partner Alex Dumphy and former DLA Piper partner John Cutler. The firm is able to offer both strong centralised teams in the City as well as market-leading practices in Leeds and Manchester. It is one of the lead advisers for social housing finance in the UK advising ‘pretty much everybody, on all the largest transactions’ – a claim supported by its first tier ranking in this specific area in The Legal 500 and the fact that the team, led by Lee Shankland, advised on more than £7bn of housing finance debt in 2012.

    The firm has also enjoyed a longstanding reputation as a prolific adviser to building societies on corporate deals and demutualisations, acting for more than half of the building societies in the UK. This summer Addleshaws advised Shepshed Building Society on its acquisition by Nottingham Building Society.

    Another strong area for the firm is restructuring and insolvency, with partners Andrew Smith and Jayne Barton standing out in particular. Papworth also points to the firm’s asset finance practice, with Andrew Maskill advising clients that include Bank of America, BNP Paribas and British Airways.

    However, Papworth makes no secret of his plans to move the wider practice forward: ‘I sense that some firms have really decided to leave the battleground for mid-market work behind. We are very ambitious and want to do more higher value work but the mid-market battleground is still hugely important to us and remains central to our plans.’

    That said, the firm did lose its head of structured finance Mark Thomas to Squire Sanders this year – a significant loss for the firm as the former CC, Mayer Brown and Dechert lawyer had been a partner at the firm since 2005. The departure also comes at a time when many teams are seeing a revival in structured lending.

    Baker & McKenzie

    Size of team: 57 lawyers; 16 partners
    Practice head: Bernard Sharp
    Key clients: Standard Chartered, HSBC, Barclays, ING, Société Générale, Crédit Agricole
    Recent representative work:

    With the London office the largest cog in Bakers’ sizeable global practice, it is unsurprising that Sharp, the firm’s City-based global head of banking and finance, cites particular strength in financing cross-border deals. In fact, the main UK deal that Sharp can recall working on was advising Ontario Teachers’ Pension Plan on its £389m acquisition of the UK lottery company Camelot in 2010.

    The firm also doesn’t tend to get involved in the commoditised bank panel work that dominates the UK market, focusing on ‘the complex, high-end stuff that is cross border’, asserts Sharp.

    ‘Everyone is much more confident. Lenders are more willing to lend, although a lot of the liquidity is not coming from the banks,’ he adds. He sees a convergence of loan terms between the US and Europe as European banks want to make themselves more attractive to US-style investors, including a US-style provision that is now increasingly part of European loan terms that means a borrower only has to pay a 1% fee if they refinance within the next year. Even as recently as last year, such terms would have only been available from US banks.

    This year was notable for the firm in terms of senior associate hires from Magic Circle firms: infrastructure and private equity finance specialist Paul Hibbert moved from CC in September and private equity specialist Sébastien Marcelin-Rice from Freshfields Bruckhaus Deringer. But by far the most significant lateral hire for the finance team this year was experienced high-yield and capital markets partner Don Guiney from Freshfields, particularly given the increasing popularity of high-yield as a method of funding loans.

    CMS Cameron McKenna

    Size of team: 98 lawyers; 27 partners
    Practice head: Rita Lowe
    Key clients: Lloyds Banking Group, The Royal Bank of Scotland, Barclays, National Australia Bank, Allied Irish Bank
    Recent representative work:

    CMS Cameron McKenna has vast coverage across Europe via the CMS grouping, particularly in Central and Eastern Europe (CEE), with Paul Stallebras, head of banking for CEE, seen as key to the firm’s success in cross-border work in the region. Andrew Ivison, infrastructure and project finance partner at CMS, believes the firm has made ‘great strides’ in its international capital markets and regulatory practice over the last couple of years.

    ‘It’s not as lucrative as it once was, but nevertheless the banks still provide us with a lot of income. We have to work harder and deliver more to the banks to get the same fee income as we used to,’ he says.

    CMS was re-appointed to both the RBS EMEA panel and Lloyds Banking Group’s own account panels last year and the firm has continued to invest in the practice, bringing in partners Peter Crichton and Ashley Smith from DLA Piper in 2012 and A&O counsel Tim Elliott in as partner this year.

    Will Meredith, the firm’s relationship partner for Lloyds, is one of many finance advisers eyeing non-bank debt providers: ‘In the leveraged space you will very rarely see deals proposed without there being some discussions with an alternative lender.’ Despite being on a number of bank panels, both Meredith and Ivison concede that work has become highly commoditised at retail-heavy institutions and pricing pressure has become a problem. For this reason, Ivison thinks that the rising prominence of alternative lenders being involved is positive, as it adds to the complexity of the work and is therefore more lucrative.

    Practice head Lowe agrees, pointing out that the involvement of insurance companies as alternative lenders has picked up in the last 18 months, with Aviva being one of the firm’s clients. She also notes that some bankers have joined insurance companies as they purchase large loan portfolios from banks.

    Lowe also has a strong insolvency practice, particularly in acting in liquidations involving professional services firms. She advised on both the Halliwells administration and more recently Manches, advising first the firm then administrators PwC. CMS clocked up nearly £1m in fees from the Halliwells administration but Ivison describes this as a ‘niche market’, noting that a large part of the finance group’s work is asset finance, with a focus on marine and offshore marine as part of the firm’s overall sector focus on energy.

    Stick and move – the offshore perspective

    The fee pressure felt by UK firms on panels isn’t shared by major offshore advisers such as Ogier, as Chris Byrne, its global head of banking, explains: ‘The pressure on fees for panel firms is for the banks’ own account work. Much of the work we do for banks is where they are arranging a loan transaction where the borrower is picking up the fees.’

    Recent standout transactions for Byrne include advising the Ontario Municipal Employees Retirement System (Omers) when it acquired cinema company Vue Entertainment for $1.45bn in June. Omers is one of Canada’s largest pension funds with more than $60bn in assets.

    Another leading Channel Islands-based firm, Carey Olsen, regularly advises major banks but also real estate funds Frogmore, Hammerson and Mountgrange. One of its most significant mandates includes acting for GE Capital Real Estate on the financing of Blackstone’s £186m acquisition of St Enoch shopping centre in Glasgow and its £115m acquisition of 10 Fleet Place, London.

    Elsewhere, Malta is hoping to challenge Luxembourg as a key jurisdiction for funds as more and more hedge funds are registering on the island. Camilleri Preziosi is one of the country’s largest firms and works with the two major banks in Malta, the Bank of Valletta and HSBC, and recently advised on the debt restructuring of Maltese energy provider Enemalta, valued at €600m.

    Louis de Gabriele, head of the corporate and finance group at Camilleri Preziosi, says the reason Malta has become such a popular destination for holding companies to structure investment is because the regulatory framework is similar to both Luxembourg and Ireland and shares an equally advantageous tax regime.

    However, he warns: ‘While banks weren’t hit with the experiences of other banks in different jurisdictions, it did impact on how they are lending. They have less appetite for real estate.’

    Ireland’s funds market remains as buoyant as ever but its banking sector has yet to recover from the country’s property bust. Nonetheless major firms in Dublin, such as Matheson, are reporting an uptick in work. The firm advised HSBC as lead arranger on the $500m lending facility for Petroceltic International earlier this year.

    ‘We would anticipate increased leveraged finance activity next year, as the economy shows signs of stabilising and conventional private equity buyers regain confidence in the Irish economy,’ says Libby Garvey, a banking partner at Matheson.

    However, signs that the mass deleveraging taking place in recent years has already benefited the Irish banking system has been noted by another Matheson banking partner, Peter O’Brien. ‘There is a view that the Irish banking market is on the cusp of a return to some normality and that the greater part of its natural downsizing has now been achieved,’ he says.

    Dentons

    Size of team: 82 lawyers; 41 partners
    Practice head: Paul Holland
    Key clients: Barclays, HSBC, China Development Bank, KeyBank, Standard Chartered
    Recent representative work:

    ‘I don’t agree with some people’s view that bank lending is dead,’ says Paul Holland, head of banking at Dentons, the result of a three-way merger of SNR Denton, Fraser Milner Casgrain and Salans in July. The deal sees two substantial finance teams in Europe come together, harking back to the origins of legacy SNR Denton firm Wilde Sapte, described as an ‘original legacy finance firm in the City’ by Holland.

    The strengths of the combined firm, which is on a number of high-profile banks’ panels, including Barclays and HSBC, makes it a very attractive choice for laterals, claims Holland, who highlights structured finance partner Ed Hickman, who joined from Linklaters in January 2012. It has also made a move into high-yield with the hire of Sylvain Dhennin from Gide Loyrette Nouel this year.

    The lateral hires send out a clear message that Dentons will in no way retreat from banking work. ‘Because this firm has such a long legacy in finance, particularly with UK clearing banks, we will always be in this space,’ says Holland. ‘Some firms might want to exit but not us. It’s a major part of our practice.’

    The firm has a broad practice, with notable strengths in insolvency, where it recently advised on the administration of camera retailer Jessops, on infrastructure, lending, trade finance and Islamic finance.

    Holland also predicts a return of structured finance transactions as confidence has returned to the market, as evidenced by the Thrones 2013 securitisation, which is one of a handful of smaller deals that could be of increasing interest as the re-emergence of cheap securitisation funding should allow funds to help clean up UK banks’ balance sheets.

    DLA Piper

    Size of team: 100 lawyers; 32 partners
    Practice head: Charles Morrison
    Key clients: The Royal Bank of Scotland, Barclays, Lloyds Banking Group, Credit Suisse, Standard Chartered, Santander
    Recent representative work:

    ‘It’s been a very different year this year right around the group,’ says DLA Piper’s international head of finance and projects, Morrison. ‘There’s much more confidence brought about by more lending from the banks as they recover from deleveraging and get to grips with new regulation.’

    Unquestionably the most successful nationally-bred entrant to the City finance scheme, DLA has a rounded, UK-wide practice. Above all, Morrison highlights the London capability in deal finance, in which he says the firm has been particularly active. Phil Butler, the UK group head for finance and projects, is a key name in this team, which also includes another standout partner, David Miles. Meanwhile, Alex Dell is singled out for his work in the asset-based lending market and former CC partner Nigel Drew is acknowledged for his project finance work, including the Intercity Express Programme financing.

    The last two years or so have seen the firm invest into its structured finance practice; notably bringing in former head of Orrick, Herrington & Sutcliffe’s London office Martin Bartlam to lead the structured and asset finance team. This summer, structured finance partner Ronan Mellon joined from White & Case, where he was an associate, before the firm secured a coup with the hire of CC’s high-yield partner Tony Lopez in October.

    The firm is also ranked in the top tier of The Legal 500 in trade finance and has made strides in recent years in project finance, being involved in a number of projects in Africa. On the oil and gas finance side DLA has been working on the financing of the $2bn acquisition of ConocoPhillips’ assets in Nigeria.

    Mayer Brown

    Size of team: 53 lawyers; 19 partners
    Head of practice: Dominic Griffiths
    Key clients: Deutsche Bank, Wells Fargo, Morgan Stanley, Lloyds Banking Group, Nomura, HSBC
    Recent representative work:

    As a firm, Mayer Brown was prolific in the laterals market throughout 2013 and its City banking and finance practice was no exception, bolstering what was already a large practice group with the hires of Richard Todd and Trevor Wood from Berwin Leighton Paisner (BLP).

    Todd, a securitisation specialist, re-joined the firm alongside A&O banking associate David O’Connor. Wood was a partner at BLP with a practice in syndicated lending, leveraged finance and structured finance. Practice head Griffiths’ typical policy is to seek out junior team members, which he says is a lot harder to pull off. However, Todd was his associate before joining BLP and he knew Wood well.

    ‘We didn’t go out and hire top-of-equity Magic Circle partners,’ he says. ‘I’ve targeted those people who our clients work with and like a lot.’ Griffiths has now hired five A&O lawyers in the last few years, ranging from associates to junior partners, including Ashley Katz, joint head of the firm’s restructuring, bankruptcy and insolvency group in London, who joined in 2008.

    Griffiths maintains there is still plenty of good work to be done for banks and feels that the firm’s transatlantic capability gives it a particular edge in London. ‘People feel more comfortable working with a recognisable international firm,’ he says.

    Capital markets: fighting fit

    In the end it took a bust not a boom to make it happen. After 15 years of unfulfilled predictions that Europe would develop a bond-friendly environment for corporate borrowers and leveraged buyouts comparable to America, the last five years has witnessed a sea change. All debt capital market (DCM) advisers agree: not only has bond finance become a genuine feature of the European deal scene but many of the US-driven structures are being ‘Europeanised’ as they are applied to local deals.

    As such, DCM partners are not unduly concerned about a return to market by traditional lenders. Charles Hawes, a DCM partner at Simmons & Simmons, says: ‘Capital markets options will be open in a way they weren’t prior to the financial crisis. Even if they can get a better deal from a bank, capital markets will always be considered, if not pursued.’

    Andrew Roberts, a DCM partner at Herbert Smith Freehills, says that having access to capital markets allows corporates to diversify their sources of funding away from being solely dependent on banks. Banks are certainly in a better position to lend now than they were even a year ago due to schemes such as ‘funding for lending’, which encourages banks to lend, and a relaxation of some of the leverage and liquidity requirements. ‘There will continue to be a secular trend, where bonds will be playing a bigger role in the financing mix,’ says Roberts.

    Although scale is a factor in deciding whether to go down the capital markets route, Simmons advised RBC Europe on the arrangement of a £145m bond to be used to finance additional student accommodation at Hertfordshire University in June this year. Hawes, who led on the deal, says that this would have been funded in the past by a syndicate of banks.

    With conventional syndicated loans becoming more easily available throughout 2013, the New Year looks set to see DCM advisers face a finance sector where senior lenders may become central again. However, the overall improvement in sentiment will likely outweigh any swing back towards bank lending. Likewise, there is much talk of a revival in the structured end of the market, with many banks working on deals to rehabilitate slice ‘n’ dice debt products like collateralised debt obligations for the post-Lehman environment. The push is being led from the US, where structured teams are back in bullish mode, but many expect a similar trend for Europe in the next six months. Overall, 2014 is shaping up to be the most promising year for the hardened debt securities counsel for nearly a decade.

    Olswang

    Size of team: 40 lawyers; eight partners
    Head of practice: Charles Kerrigan
    Key clients: Lloyds Banking Group, HSBC, The Royal Bank of Scotland, UBS, Bank of America
    Recent representative work:

    The evolution of Olswang’s banking practice has mirrored the development of the firm as a whole, with a focus on financing in the TMT and real estate sectors. But while the firm is best known for its media and telecoms work – the firm regularly advises around 20 UK banks on media finance for example – department head Kerrigan notes that size is still a factor for winning work from banks. ‘We have a high level of technical knowledge in the TMT sectors and apply it directly to financing transactions. With IP-rich businesses in particular the success of a lend is all about understanding the business – making the documents work for the specific assets. We have a lot to live up to in the firm’s brand for TMT but it’s an area we’ve been successful. Scale is relevant, so you still need to be of a certain size to be able to support financial institutions. A&O and CC certainly represent the high watermark of this, but there are opportunities in the sectors for nimble, specialised teams,’ he says.

    The firm also specialises in lending against intellectual property assets, a skill further developed, according to Kerrigan, during the financial crisis when the firm worked on the Nortel insolvency, which had major IP issues.

    The firm’s real estate work has seen a great deal of funding come from alternative providers such as sovereign wealth funds. Of course, the firm’s TMT focus has given it plenty of exposure to venture capital clients. For example, the firm advised app-based taxi network Hailo on its $17m fundraising from global venture capital firm Accel Partners last year.

    Stephenson Harwood

    Size of practice: 31 lawyers; nine partners
    Head of practice: Jayesh Patel
    Key clients: The Royal Bank of Scotland, HSBC, Native Land, ING, Deutsche Postbank
    Recent representative work:

    Stephenson Harwood’s banking practice has been bolstered significantly in the last five years through a sustained lateral recruitment drive. The nine-partner practice is led by real estate finance, debt restructuring and corporate trusts partner Patel, who joined the firm in 2010 from legacy Denton Wilde Sapte.

    According to the firm, between 60% and 65% of the firm’s revenues come from banking and finance – although this includes banking and financial services litigation, a discrete strength of the firm. The core transactional banking team concentrates on niche areas such as rail and aviation finance as well as its longstanding strength in shipping finance.

    However, the firm’s preferred route into the mainstream banking arena is through real estate finance. Last year, for example, the firm advised Deutsche Hypothekenbank and HSBC on an £82m investment facility to Crosstree Real Estate to refinance the acquisition of prime London real estate locations, 3 Berkeley Square and 69-73 Piccadilly.

    ‘One of the biggest issues in the legal market is that everybody is trying to get into banking and not everybody is going to succeed,’ says Patel.

    However, he says: ‘You need to be brave to say we’re not going to be on the panels.’ Banks such as RBS and HSBC still provide the firm with lots of work – as recently as November, HSBC instructed the firm on the financing for the development of the Raag Hotels business stemming from Wellcome Trust’s 50% acquisition of Raag Hotels. Pound-for-pound there are very few firms in this weight class achieving this quality of work.

    Travers Smith

    Size of team: 28 lawyers; eight partners
    Practice head: Jeremy Walsh
    Key clients: Bridgepoint, The Royal Bank of Scotland, Lloyds Banking Group, HSBC, International Capital Group
    Recent representative work:

    ‘The senior bank loan market is reviving. It’s been open for business for a while, but the difference is that now you’re seeing arrangers willing to underwrite the whole loan,’ says Travers banking head Jeremy Walsh.

    In addition, the leveraged finance market has been through a notable revival, with banks’ maintenance covenants not as strict as they were even a year ago. ‘The owners and sponsors are getting good terms,’ says Walsh.

    The firm specialises largely in acquisition finance, real estate finance and restructuring. The restructuring market is particularly quiet according to Walsh, partly due to the low interest rates and banks’ unwillingness to crystallise losses. The firm’s most noted strength in private equity has seen it win work for the banks opposite some of its traditional buyout clients. For example, the firm won instructions from Silicon Valley Bank after working on the other side when Carlyle acquired The Foundry from Advent Capital.

    Travers’ relatively small size allows it to be fairly nimble, which Walsh says is an important factor in the current market. ‘You have to be very flexible, doing senior debt/junior debt/asset finance/capital markets – borrowers are able to select the best option for them, which means lawyers have to be capable of doing a wide range of things, which makes it more interesting.’ LB

    david.stevenson@legalease.co.uk