Debt Issues and Structured Finance

Debt segment highly volatile, derivatives come under pressure

The tragedy in the Mittelstand bond segment continues to play out with further bankruptcies and cleanup operations. The bond market as a whole was otherwise strong in the latter half of 2015, but the economic situation in China and fluctuating oil prices ensured this was followed by much volatility in the first half of 2016. When the ECB announced in March that it was extending its bond-buying program to include corporate bonds, this triggered a run on the bond market and issue volumes soared.

The upcoming Brexit referendum, however, did the opposite. It was thus all the more astounding that several German companies ventured onto the market just a few days before the British people voted. Vonovia executed by far the largest issue with a benchmark bond of over €1bn, with Braas Monier raking in a cool €435m shortly after.

Brexit will fire up the finance market

Brexit is having a dynamic effect on the market. It may be that roles will have to be redistributed among the European financial centers and if that be the case, it is likely that Frankfurt will play a significant role in securities trading. Should the merger between the London Stock Exchange and Deutsche Börse actually take place, then it is also likely that euro clearing and settlement will also be transferred to Frankfurt.

The European PRIIPs Regulation (Packaged Retail Investment and Insurance Products) which came into force on January 1, 2017 is an important development for derivatives trading. It stipulates that both issuers of listed derivatives and providers of OTC derivatives must publish a Key Information Document (KID). European banks are then obligated to provide their clients with a KID, e.g. for foreign currency or swap transactions. This obligation is giving rise to considerable demand for advice, which is covered, for example, by Allen & Overy and Ashurst.

Market leaders consolidate their position

Freshfields Bruckhaus Deringer, Hengeler Mueller and Linklaters continue to hold their ground at the top of the debt market. Close behind, Allen & Overy, Clifford Chance and White & Case hold significant market share and are setting themselves apart from the rest of the pack with their diverse approaches.

Gleiss Lutz has seen particularly positive development: the debt practice was increasingly seen advising on restructuring cases as well as high-yield bonds and also profited from the arrival of a well-known financing partner from Linklaters.

After Brexit: new role for Frankfurt?

Even in structured finance, the top of the market looks the same, with Clifford Chance, Freshfields Bruckhaus Deringer, Hengeler Mueller and Linklaters boasting the greatest share. The Frankfurt offices of British firms in particular could be set to profit from Brexit, if business moves here from London. However, Britain's exit from the EU also holds a multitude of uncertainties for British LLPs.

For the market leaders, the key to success lies in combining a broad palette with a wide staff base, like Hengeler Mueller does, for example, and in skillful specialization, like at Freshfields Bruckhaus Deringer.

In contrast, King & Wood Mallesons has undergone a comprehensive overhaul: following the departure of its practice head the previous year, the one remaining partner specializing in derivatives also left the firm (for K&L Gates). Derivatives work also came under great pressure, however. The firm thus bolstered its team with a DCM partner from Latham & Watkins whose experience in public takeovers ought to promote the integration of capital markets and corporate issues. In view of this, the staff unrest may actually prove to be an opportunity.

Spotlight lands on Latham

Latham & Watkins also set tongues wagging when its primary structured finance partner moved to DLA Piper. For the latter firm, this arrival represented an important boost for its Frankfurt office after the small team spent years operating mainly from Berlin.

Calm was briefly restored to Mayer Brown's practice, which has been plagued by high fluctuation, before a long-standing counsel left in early 2016 to join Otto Mittag Fontane. He brings numerous contacts to banks and could give the specialist outfit a shot in the arm.

 


 

This subchapter deals with practice areas within debt capital and structured finance (securitizations, derivatives, distressed loans). The two segments occasionally overlap, as the boundaries between some debt products and structured finance are blurred. Clients are often advised on both practice fields by one firm. However, only a few firms operate in both fields with the same intensity, and they usually have separate teams in each. There are therefore separate tables for debt issues and structured finance.