Banking and debt finance is a broad practice area, so most law firms divide it into smaller practice groups such as Acquisition Finance, Leveraged Finance, Leasing Finance and Asset Finance.
This area of law is less confrontational and more consensus-driven than litigation and a slightly less adversarial practice area than, for example, Mergers and Acquisition work. This is largely because in this area the bargaining power tends to lie heavily with the lender party.
What does a banking and debt finance lawyer do?
While there are common themes, there are also clear differences in the work of banking and debt lawyers depending on the sub-practice area.
Acquisition and Leveraged Finance
Acquisition and leveraged finance legal work involves handling the financing for leveraged buy-outs, public takeovers, private acquisitions, recapitalisations and asset purchases. The work is complicated, highly structured and involves sophisticated inter-creditor and security sharing arrangements. This practice area frequently requires lawyers to work closely with Mergers and Acquisition lawyers and experts in other fields such as taxation and competition. They also provide debt advice to acquiring borrowers and private equity investors.
Leasing and Asset Finance
Leasing and asset finance legal work involves acting for lessors, financiers, lessees, manufacturers, export credit agencies and operators. Lawyers advise on the financing of specific assets, or of entire portfolios of the asset, and the regulation that governs specific areas. The lender normally takes security over the assets in question. Typical high-value capital assets that are financed include aircraft, ships, telecoms equipment, rail equipment and power stations.
Loan finance or general lending legal work involves advising on loans for public and private sector borrowers as well as financial and industrial institutions. Lawyers also advise the banks that arrange loans (the underwriter) or participate in loans (the investor). These loan facilities are put to a variety of uses including public takeovers, private acquisitions, asset purchases, business expansion, property development or for general corporate purposes.
Banking litigation work is about dealing with financially-related disputes, such as cases regarding mis-selling claims, insider dealing proceedings, contractual disputes, enforcement of rights against lenders and enforcement actions under money laundering regulations. For regulatory investigations, lawyers may act as the investigator or representing institutions and witness in the investigations. Lawyers in this area would regularly conduct contentious disciplinary matters before financial regulators, persuading them not to proceed with enforcement actions against your clients or attempting to gain significant reductions in proposed fines.
Banking regulation legal work involves providing advice to clients on existing and prospective financially-related legislation. In London, this would encompass European directives, the rules of regulatory organisations and central bank practice, including capital adequacy rules. Lawyers need to be continually up-to-date with developments in relevant banking and securities laws such as licensing, banking, marketing rules, conduct of business rules, distribution of securities and mutual funds.
Real Estate Finance
Real estate finance combines the expertise of the banking, real estate and tax departments of a single law firm, requiring the expertise of lawyers in the environment, planning and construction practice groups at times. Real estate finance lawyers advise financiers, real estate developers, borrowers, real estate investment trusts and funds on a broad variety of property investment and development financings.
Trade and Export Finance
Trade and export finance legal work involves organising pre-export financing for oil companies, gold mining companies, petroleum companies, iron and steel mining companies, copper producers, acquisitions of power stations, export credits, political and risk insurance, immunity, sanctions and other sovereign issues, trading contracts and bills of lading and counterparties. Clients in this sector include trade and industry associations, commodity trading companies and other corporate institutions.
Structured finance or securitisation legal work involves the pooling of different types of debt with a fixed income stream – such as mortgages, car loans and credit card debt obligations – and then packaging the debt in a shell company which then sells the debt as bonds to investors. The principal and interest on the debt that underlies the bonds is paid to the investors regularly.
Debt Capital Markets
Debt capital markets legal work involves the raising of finance by means of issuing publicly traded debt securities to investors, who then expect the full amount they have lent to be paid back to them with interest. The work includes structuring, documenting and listing secured and unsecured debt securities issued on a stand-alone basis, the establishment of debt issuance programmes and the issuance of debt securities under these programmes. Lawyers represent a varied range of clients from banks to pharmaceutical companies. As a trainee, you would be required to travel to the office of the company in the role of the issuer, to conduct due diligence and obtain a detailed understanding of its business and other financing arrangements.
The lawyers representing the underwriting banks draft the prospectus which details the securities to be issued. The lawyers representing the issuer then review the prospectus. Both sides need a comprehensive understanding of the issuer’s business in order to draft and review the disclosure contained in the prospectus.
Project finance refers to the financing of two main sectors – energy and infrastructure projects. The amounts borrowed to complete a project are paid back with the cash flow generated by the project. The energy sector includes projects relating to renewable energy, water, oil and gas, electricity and mining. The infrastructure sector includes projects relating to public services such as defence, transport, healthcare, education, government accommodation and telecoms.
In the primary market, project finance lawyers act for procuring authorities, regulators, bidding consortia, sub-contractors, equity investors and various financial parties. In the secondary market, the work involves advising industry investors who are buying and selling assets. The work could also see lawyers advising financial investors on initial fund establishments, portfolio sales, portfolio acquisitions, financings and re-financings or advising investors in connection with IPOs and fund management matters.
What skills are required?
In all sub-practice areas of Banking and Debt Finance, strong numeracy skills are essential. An excellent understanding of economics and finance is a plus for a trainee, but a necessity for a mid-level or senior associate.
As you become more senior, your contact with clients will increase. This will involve translating their finance terminology, equations and financial models into plain language and attention to detail is required as this kind of work can be very technical.