Banking & Debt Finance Law
Banking and Debt Finance is an extremely broad practice area, and in most law firms, you will find that they sub-divide this category into smaller practice groups such as Acquisition Finance, Leveraged Finance, Leasing Finance, Asset Finance, Loan Finance (or General Lending), Banking Litigation, Banking Regulation, Real Estate Finance, Trade and Export Finance, Structured Finance (or Securitisation), Debt Capital Markets, Project Finance. These would encompass a very wide range of transactions.
Aside from the transactional nature of this practice area, giving clients regulatory advice would also be a recurrent feature of your job, especially with the increased regulation in the EU and individual nations clamping down on the banking sector.
As a banking lawyer, you could be advising lender-side clients such as investment banks, corporate banks, institutional investors, high net-worth investors; as well as borrower-side clients such as corporate borrowers and issuers, private equity funds, sponsors and funds.
Finally, you could also be advising the other parties to a finance transaction such as insurance providers, administrators, regulators and industry bodies. Banking and Debt Finance is definitely a less adversarial and more consensus-driven practice area than Litigation, and a slightly less adversarial practice area than, for example, M&A; largely because here, the bargaining power tends to lie quite heavily with the lender party.
What does this type of lawyer do?
The stages of a transaction generally are: Development of an acquisition / financing structure, conducting of due diligence, drafting of a term sheet, negotiations with all transaction parties, drafting of the main documentation including the loan agreement, drafting of the ancillary documentation, execution, and lastly, post-closing matters, which will continue for the life of the loan.
Acquisition Finance and Leveraged Finance involves handling the financing for leveraged buy-outs, public takeovers, private acquisitions, recapitalisations and asset purchases. The work is often complicated, highly structured and leveraged, and involves sophisticated inter-creditor and security sharing arrangements. This area frequently requires its lawyers to work closely with M&A lawyers and experts in other fields such as taxation and competition. Besides working on transactions, a lawyer in this area could also expect to provide debt advice to acquiring borrowers and private equity investors.
Leasing Finance and Asset Finance involves acting for lessors and financiers as well as lessees, manufacturers, export credit agencies and operators. You could advise on the financing of specific assets or of entire portfolios of asset, as well as the regulation that governs specific areas, e.g. aviation. The lender normally takes security over the assets in question. Typical high-value capital assets financed would include aircraft, aircraft engines, ships, telecoms equipment, rail equipment, power stations, waste incinerators, supply networks, sewage plants, printing machines, paper machines, films and satellites.
Loan Finance (or General Lending) involves advising on loans for public and private sector borrowers and financial and industrial institutions, as well as advising the banks that arrange the loans (role: arranger / underwriter) or participate in the loans (role: investor). These loan facilities are put to a wide variety of uses – in public takeovers, private acquisitions, asset purchases, business expansion, property development or for general corporate purposes.
Banking Litigation is exactly what it sounds like – disputes that are financially-related. Such cases could include mis-selling claims, insider dealing proceedings, bankruptcy-related contentious issues, contractual disputes, enforcement of rights against lenders under financing agreements, enforcement actions under money-laundering regulations, fraud actions, asset tracing, insolvency-related disputes, criminal prosecutions, Department of Trade and Industry inquiries and other regulatory investigations and enforcement. For regulatory investigations, you could be acting either as the investigator, or representing institutions or witnesses in the investigations. In addition, you 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 involves providing advice to clients on existing and prospective financially-related legislation. In London, this would encompass EC directives, the rules of regulatory organisations and central bank practice, including capital adequacy rules. You would need to be continually up-to-date with the developments in the relevant banking and securities laws, such as licensing, marketing rules, conduct of business rules, distribution of securities and mutual funds and banking laws.
Real Estate Finance usually combines the expertise of the banking, real estate and tax departments of a single law firm. It also requires 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 involves 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 would include trade and industry associations, commodity trading companies and other corporate institutions.
Structured Finance (or Securitisation) involves the pooling of different types of debt with a fixed income stream – such as residential mortgages, commercial mortgages, automobile loans, credit card debt obligations – and then packaging such 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. The concept of securitisation has opened up new sources of financing to consumers; but it also arguably contributed to the degradation in underwriting standards for the various types of debt that were securitised, which led to both the inflationary credit bubble of the mid-2000s and the credit crash and financial crisis of 2007-2009.
Debt Capital Markets involves the raising of finance by means of the issuance of 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 (such as high-yield bonds), the establishment of debt issuance programmes and the issuance of debt securities under such programmes. You could be representing a very varied range of clients from banks to pharmaceutical companies to chicken producers. As a trainee, you would probably 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 will usually be in charge of drafting the prospectus or “offering memorandum” which describes the securities to be issued and the lawyers representing the issuer will usually be in charge of reviewing this prospectus. Thus, both sides will need a comprehensive understanding of the issuer’s business in order to draft and review the disclosure contained in the prospectus.
Project Finance usually refers to the financing of two main sectors – energy projects and infrastructure projects. The amounts borrowed to complete a project are paid back with the cash flow generated by the project. The energy sector would include projects relating to renewable energy, water, oil and gas, electricity and mining. The infrastructure sector would include projects relating to public services – defence, all forms of transport, healthcare, education, government accommodation and telecoms. In the primary market, project finance lawyers would 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 buying and selling assets; or 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 the above sub-practice areas of Banking and Debt Finance, strong numeracy skills and an excellent understanding of economics and finance is definitely a plus as a trainee and pretty much a necessity as a mid-level or senior associate.
As you rise in the ranks as a Banking and Debt Finance lawyer, you will deal less with the “strict” law aspects (i.e. proofreading and negotiating the representations and warranties in documentation) and much more with the big-picture structuring and direct contact with your clients, translating their finance-speak / equations / financial models into English (not even legal-speak). In addition, the work across all the areas can be very technical, requiring an immense attention to detail.
When the economic crisis occurred, the Banking and Debt Finance departments of all law firms took a big hit. Things have somewhat recovered now though, and what lawyers in this practice area have found is that they are/were able to adapt and use their transferable skills to work on financial restructuring, refinancings, insolvency law-related matters and recapitalisations and still continue to do billable work.
A lot of the news at present is about governments around the world strengthening or attempting to strengthen regulatory controls on their banking communities.
This means that Banking Regulation, as a practice area, is increasingly busy as clients depend more on updates on the latest regulatory developments, advice on the most current compliance issues and the legal and business implications of recent financial reforms.
Finally, in the area of Debt Capital Markets, high-yield debt offerings are especially active. High-yield debt provides an increasingly popular and relatively easier financing alternative for clients struggling against the increased cost of borrowing, the greater caution of banks, the more stringent credit committee conditions set by banks and the general decrease in traditional bank lending. U.K. investment banks were cautious of the European, U.S. and Latin American high-yield debt markets a decade or so ago, but this is quickly changing.
The student guides to the legal profession have useful information on working in Banking and Debt Finance. Look at:
- LawCareers.Net: http://www.lawcareers.net
- Chambers and Partners Student Guide: http://www.chambersstudent.co.uk
- Target Law: https://targetjobs.co.uk/career-sectors/law-solicitors