The Legal 500

Aviation finance and finance in general has had a difficult few years with restrictions on access to capital markets making life especially difficult for leasing companies and private equity investors. The disappearance of insurance companies from the lending markets also led to a virtual closure of the securitization market for aircraft lease portfolios, previously a common source of capital raising. However, clients have been able to look elsewhere for capital and, for example, capital market secured debt-related transactions have featured strongly in recent years. Several airlines have issued high-yield notes secured by certain novel assets such as international flight paths and slots, while credit agency financings have been particularly popular due to high interest rates imposed by the banks.

In early 2010, several markets began to open up again as liquidity returned; hedge fund players started to enter the market and push for portfolio exchange transactions with some law firms also witnessing the return of lease portfolio securitization mandates. High-yield investors started to come back, with an increase in private leasing transactions where new entrant leasing companies were backed by private equity entities. The Enhanced Equipment Trust Certificate (EETC) and bank markets also showed signs of recovery.

New laws and regulations are expected to bring more challenges for the market. Notably, the signing into law of The Dodd-Frank Wall Street Reform and Consumer Protection Act will change the existing structure by attempting to streamline the regulatory process and improve transparency and accountability in the financial system. The Federal Communications Commission also appears to have gone further than before in considering if it will mandate additional discovery for the private market under Rule 144A, a move that would make transactions more complex and expensive. Also, in 2010 the Securities and Exchange Commission proposed rules that would significantly alter existing Regulation AB, which governs registration, disclosure and reporting for asset-backed securities as well as other regulations relating to structured finance products.

The bank lending and leveraged finance sector saw a return of new money in 2010, but clients remain relatively cautious. While loans are being made and many organizations have returned to the market, these loans are on more restrictive terms than previously. Mergers and acquisitions are back in the ascendancy, as is the high-yield market. Among borrowers, private equity firms are returning to the market and notable dividend re-caps have been carried-out by several firms in the market; refinancing was a further area of growth over 2010. Many individuals state that the increase in market activity became more pronounced towards the end of the year, and this trend became more pronounced after Labor Day, when much of the pent-up bank lending market really began to gain a momentum. Although these signs augur well for the future, caution and uncertainty are still prevalent in the market.

2010 was a highly significant year in the capital markets space, both in terms of debt and equity offerings. Overall, there was an increase in work following the relatively quiet 2008-9 period, but not as great as initially expected, particularly with regard to the equity markets. With interest rates exceedingly low, the ‘white hot’ debt markets were saturated with short-term securities transactions, and also led to companies seeking to refinance term loans before their bonds mature. In turn, low coupons for investment-grade debt work made high-yield debt offerings increasingly popular, causing a flood of work in the arena which is set to continue. Private equity sponsors continued to utilize the high-yield market to exit their investments and monetize their companies, and also fuelled the return of leveraged buyout transactions, which had been put on hold during the credit crunch years. Furthermore, innovative high-yield debt deals were done to finance projects that faced a lack of available financing in other areas, contributing to the emergence of a secure high-yield debt market.

The depressed US domestic IPO market continued at a slow pace throughout early 2010. While some IPOs were successfully completed in brief windows of opportunity and in favorable conditions, many were shelved indefinitely. For private equity companies struggling to achieve the desired interest in IPOs, leveraged recapitalisations became popular as an alternative. Elsewhere, the European high-yield debt market boomed, while equity work in the Asia Pacific region, particularly for issuer clients, remained robust. The Latin American capital markets continued to attract much interest in both debt and equity transactions, with US firms advising a host of global corporates and financial institutions.

In spite of the still relatively parlous state of the economy, there have been much fewer Chapter 11 bankruptcies in 2010 than was expected. Troubled corporates have been able to meet funding and refinancing hurdles by being able to tap into the high-yield bond market. There has been a ready demand for these junk bonds amongst hedge funds and distressed investors who, deterred by low interest rates, have been “champing at the bit” to deploy these institutional funds. Another reason behind the relative paucity of formal insolvencies has been the willingness of banks to extend the terms on debt for companies – so called extend-and-pretend. While this has had some impact on the activity of the restructuring lawyers in the market, there are still plenty of large ongoing restructurings to keep teams of lawyers very busy – Lehman Brothers, Lyondell Chemical, as well as several new large 2010 mandates including the likes of General Growth Properties.

Debtor-side mandates attract the most attention and the big-ticket Chapter 11 cases are typically the preserve of large full-service firms, who have the critical mass, ability to tap into other complementary practice areas and international offices – given the often cross-border nature of most significant corporate meltdowns. The sophistication and complexity of bankruptcy work also means there are that specialize in distressed M&A work and debt trading. While firms will often specialise in a particular role, whether it be for the bondholders or the corporates, restructuring practices are a lot less rigid than they used to be, therefore in reality firms will often handle a mix of work on the creditor and debtor side. Many of the high-ranking practices have a strong New York presence, a function of the proximity to the highly respected New York and Delaware commercial courts which handle most major bankruptcies and the closeness to the financiers and banks. Other critical geographic hotspots include the Midwest, which has generated industrial instructions for decades and the West Coast, in particular for tech-related restructurings and those requiring significant input from Asian offices.

Financial services: regulatory is a new section to reflect the increased level of scrutiny within the financial services industry; the ranking covers the gamut of activity within the sector across the transactional, compliance and litigation/enforcement spheres. While as a regulated industry, the financial services sector has always had a degree of scrutiny placed upon it, this was increased manifold in the aftermath of the financial crisis. Most notably, the enactment of the Dodd-Frank Act included provisions strengthening regulatory oversight over financial institutions, making them more accountable for their actions. Many law firms developed working practice groups focusing on this landmark act, aimed at advising clients within the industry on compliance and legislative issues. Practices at the top of the ranking are those that can demonstrate an overarching excellence across all facets of financial services regulatory work including financial services M&A, banking compliance, banking enforcements and investigations, broker/dealer compliance and consumer finance. Although firms are active throughout the country in this kind of work, New York and Washington DC are the main locations, given their proximity to the financial institutions and the seat of government respectively.

Project finance showed a notable upward trajectory in 2010, with stimulus packages and the strength of the renewables sector, particularly the area of wind energy, helping to drive the sector forward. The Department of Energy has been key in fomenting a growth in the project finance market, and has been behind the financing of several of the largest projects. International transactions played an important role in many firms’ operations, with areas such as Latin America and Africa being somewhat insulated from the economic downturn and continuing to provide mandates ranging from mining and oil and gas to infrastructure. The confidence that has returned to the market is not yet complete, but the signs are encouraging in many fields of the project finance sector.

The structured finance section covers all forms of structured finance, derivatives and securitization. After the post-Lehman collapse attrition, most departments have stabilized and there seems little likelihood of any law firm returning to a high-volume, commoditized product, strategy; the emphasis is on expertise, quality, and bespoke advice. Clients confirm that there is still some overcapacity in this practice area and that fee discounts are being negotiated.

The aftermath of the Global Financial Crisis (GFC) has not yet worked through and senior lawyers continue to advise as debt is renegotiated, distressed instruments are bought and sold, and bankruptcies are worked through. New deals returned to market during the latter half of 2010, although law firms are generally cautious about the strength of the recovery. Derivatives activity has been healthy, as have insurance-linked products. Securitized issues in asset classes other than mortgages, such as auto-loans, have been steady and improving. Commercial mortgage backed securities (CMBS) have returned to the market, although Residential Mortgage-Backed Securities (RMBS) are rare. The Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation markets remain very depressed. Lawyers are also busy counseling clients on the current regulatory reform initiatives, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the industry-changing Volcker Rule.