The Finance View – Polish and range assured but does CC still have ambition to excel in the cut-throat levfin world?

Victoria Young and Georgiana Tudor assess the Magic Circle firm’s deal finance practice

‘Clifford Chance (CC)’s decline has been significant,’ one leading leveraged finance partner opines. ‘Ten years ago I would have pegged them as in the leading three or four in this space, but they are gently scaling down.’

Such views are not uncommon and remarkable in being directed at one of the City’s finance leaders and a pioneer in Europe’s leveraged finance and private equity markets. Its team, of 18 partners in London and 84 associates, is still a major force in the City, but the brand – fairly or not – does not carry quite the magic it once did.

While the threat of US rivals to the City elite has been well documented, for CC the added challenge is generational change, with highly-rated operators such as James Johnson retiring last year and Mark Campbell taking a part-time role. Throw in Malcolm Sweeting’s senior partner duties and, most damagingly, the retirement of the hugely admired Alan Inglis and CC finds itself light of éminence grise in its core deal finance team at a time when competition has never been more intense.

This dynamic leaves Charles Cochrane (pictured) as the face of the practice – ‘Charlie’s an absolute star,’ gushes one Magic Circle finance head; ‘Cochrane is a big player and gets a lot of respect,’ notes another veteran – and by far its most cited operator. Cochrane argues that there is a ‘perception gap’ and is bullish on CC’s prospects, commenting: ‘A lot of the legal press are focusing on the US firms and who they’ve had to poach from the Magic Circle. We haven’t got that story because we’re mature in the market.’

Cochrane says that over the past five years there has been a steady increase in the leveraged finance group’s revenue. ‘It’s not double digit,’ he concedes, ‘but that’s because we have a different starting point.’

‘Yes Latham has grown more quickly than us but, of course, they’ve grown from a very low base. Because they were the new entrants there has been a natural tendency to say “CC has lost out” – but we are happy with the resilience of the practice. We adapt, we evolve and we innovate.’ Cochrane adds that the team’s revenue split is roughly 50/50 between banks and sponsors, a substantial shift from the pre-Lehman days when three quarters of its work was lender-side.

CC, likewise, maintains that it was relatively quick to move with the Americanisation of the deal markets, investing in the key product line of high yield early with the recruitment of Cahill Gordon & Reindel associate Michael Dakin as far back as 2005, as well as Latham associate Fabio Diminich in 2011, with both joining as partners. However, though Dakin gets solid notices, and five other partners cover some bond work, with only two dedicated partner-level specialists in the London market, its practice considerably lags behind Allen & Overy (A&O), which has four partners, and Latham, which has eight.

Cochrane adds: ‘As the market continues to grow, we will grow. We see ourselves as having a permanent high-yield capability. The question is how big is the market, only a few can do it credibly in the City and it has been a great market for us, but it switches on and off a bit.’

Here CC understandably counters that the European market is past the mania for junk bonds, with leveraged loans in the last three years rapidly moving to incorporate comparable terms at a lower cost, noting as well that the firm has built strong coverage on the increasingly popular Term Loan B financings.

Other key players in the practice include James Butters, who in 2014 returned from a stint in the firm’s Paris arm and partner Jim MacHale, who names HSBC as a key client. CC’s relationship with the Loan Market Association on the creation of widely-used standard documents, still led by Mark Campbell, has for years been a key element of its levfin brand – and Taner Hassan has assumed much of Inglis’ work with key private equity client EQT. Other noted lawyers in the team include partners Emma Folds and Richard Sharples. However, rivals still claim there are not enough names to fill what has been a big practice for the firm.

‘There has been a tendency to say “CC has lost out” – but we are happy with the resilience of the practice.’
Charles Cochrane, Clifford Chance

Cochrane insists that CC’s profile has been a victim of the maturity of its practice in a sector that can favour flashy hires and figures. ‘The story I’m giving might be a bit boring but it’s very stable. There are people out there doing the same business with different models. There are different ways to work.’

Butters adds: ‘It is unsurprising that a young partner who has been at an eat-what-you-kill firm may think it is the best thing to have big names, but they have different drivers and they are much more disruptive to the business. Clients will follow them rather than stay sticky, but the firms will have much bigger succession problems when they leave after two years rather than have 25 years to shape the business.’

However, it is not just US firms determined to eat CC’s lunch. Linklaters has made a long-term commitment in leveraged finance and boasts top-rank deal lawyers like Adam Freeman and Nick Syson (not to mention its managing partner Gideon Moore). Freshfields Bruckhaus Deringer, meanwhile, has certainly had its office politics in finance, but has benefited from a clear strategy priority on leverage finance and a series of headline-grabbing investments in the sector, most prominently in 2015 with the hire of high-yield heavyweight Ward McKimm.

And, to be blunt, its old sparring partner A&O is out there hustling more aggressively in the market and striving to position in partners, junior, mid-level and senior, in the minds of potential clients.

The assets

If the omens are mixed in mainstream leveraged finance, there is no doubting that CC has built an enviable niche in infrastructure transactions through partner Michael Bates, whose practice, which partner James Boswell also works in, makes up around 15% of leveraged finance revenue. Recent deal highlights include Bates leading a team advising consortium Quad Gas on a £2.3bn loan facility to back the acquisition of a 61% share of National Grid’s regulated UK gas distribution networks.

Cochrane notes: ‘The infrastructure side sprang out of a strong skillset in regulated entities and securitisation. If you talk to the US firms, that was a more difficult arm for them to break into because you need a lot of service departments.’

Hassan stresses that breadth of practice – not to mention a sizeable restructuring practice – still helps the firm win business. He says: ‘We’ve got an amazingly balanced finance practice. That level of sector expertise plays in the leverage space. It allows us to call on a deep bench of CC to get solid advice in a range of issues. Other firms would struggle with that.’

It is widely conceded that CC has been successful in deploying its substantial European network, which has one of the strongest acquisition finance teams in Germany and a very credible position in France. One notable deal saw the firm take a lead role for French furniture marker BUT, advising the arrangers Goldman Sachs, BNP Paribas, Bank of America Merrill Lynch, Deutsche Bank, ING, Barclays and Royal Bank of Canada in relation to the €480m high-yield and super senior revolving credit facilities for the purchase.

‘The interbreeding of the product types has been great for us.’
James Butters, Clifford Chance

As Butters comments: ‘There has been interbreeding on the product types, and that’s been great for us because of the strong European network. The big problem with the importing of US products into Europe is that the US has one homogeneous regime – Europe doesn’t. It has separate areas with idiosyncrasies and if you take the BUT deal, that was run in London but for a French retailer; if you don’t have a French leveraged finance function you can’t do those deals.’

The duo are likewise upbeat about the flow of work coming from CC’s private equity team, which despite some losses in recent years is obviously still a very significant force in Europe’s buyout scene. Butters argues: ‘We differ in that we have a strong private equity and leveraged finance offering whereas other firms are one or the other.’

Still, despite CC’s formidable reputation and undeniable assets in deal finance, it is hard to entirely escape the issues of succession and people. The shape of its practice is basically fine – albeit accepting that a little more US investment of the sort seen at A&O and Freshfields would not go amiss. The wider issue is that a firm now goes out of its way to emphasise institutional clout but in reality built its reputation on flair and a string of big-name individuals.

The most measured – and conversely damaging criticism – of the team is that CC has not taken succession as seriously as it should and now risks being out of step with a leveraged finance world increasingly dominated by strong and ambitious individuals. The brand of the team comes first, especially if you intend to handle key substantial lender-side work, but it is hard to escape the conclusion that CC will need a touch more thrusting individuality in its levfin game if it is not to be marginalised in one of its core disciplines.

Cochrane counters that CC’s elder statesmen put in place ‘brilliant succession’ and describes its positioning as: ‘There’s less of a cult of personality here and more of a focus on client, firm and collegiality.’

That is a claim that will – and currently is – being put to the test and possibly tested to destruction. One City finance head concludes: ‘They’ll be back, it’s a good firm with a strong culture. The spread of its expertise is impressive so they’re troubled, but not down and out. We regard them as serious competition.’

But the competition is heating up.

georgiana.tudor@legalease.co.uk