Everyone knows what a bank is right? One of those big buildings where everyone puts their money. But what is banking law? And what do banking lawyers do all day? Interviewees at Baker McKenzie explain.
What types of matters do banking lawyers advise clients on?
Jess Viner (trainee): Banking lawyers advise on a variety of specialist types of financing, each with its own structure and set of documents. These can include straightforward general lending to a borrower on fixed repayment terms; project financing where debt and equity are used to finance long-term infrastructure, industrial or public services projects with repayment linked to cashflow generated from the project; financing on a secured basis to purchase or develop a real estate asset; leveraged or acquisition financing where a loan is provided for the purposes of acquiring another company; or asset financing that allows for the purchase and operation of significant assets, such as machinery, aircraft or ships.
Luka Lightfoot (associate): Most banking lawyers advise on non-contentious transactional matters, meaning advising on the provision of some form of financing in one shape or another.
Matthew Smith (partner): We advise our clients across a whole range of financing transactions including acquisition and leveraged finance, real estate finance, trade finance, fund finance and financial institutions lending, syndicated loans; corporate banking facilities; restructuring; and everything in between.
What clients do banking lawyers work for? Just banks?
JV: The type of clients banking lawyers act for often depends on the type of financing involved. They can include banks, sponsors, private equity funds, sovereign entities, real estate funds and corporate borrowers (both domestic and international).
"A huge number of private debt funds have established themselves in Europe... following the financial crisis."
MS: Banking lawyers can generally advise both borrowers and lenders (as well as other parties to a financing transaction, for example facility and security agents), although they can't represent borrowers and lenders on the same transaction. It is important to note the term ‘lenders’ these days doesn't just include banks – since 2008, a huge number of private debt funds have established themselves in Europe with a view to bridging the funding gap left by banks, who significantly downsized their lending activities as a result of the increased regulation and capital requirements following the financial crisis. While banks are now generally in a much stronger financial position since the crisis, their activities continue to be constrained by the tighter regulatory environment enabling debt funds to continue building their market share, particularly in the mid-market. We count a large number of fund lenders as clients, in addition to mainstream banks.
What do partners do?
LL: Often the partner's role is negotiating and reviewing the principle finance documents, advising on the structuring of the financing and playing a key role on the client relationship. That said, the partner will want to ensure that members of their team are getting the right exposure to the right kind of work or responsibilities.
“Partners’ work generally falls into two camps: working on transactions and developing new or existing client relationships.”
MS: Partners’ work generally falls into two camps: working on transactions and developing new or existing client relationships. On transactions, partners' work might involve reviewing facilities agreements, running conference calls and advising on key points of negotiation as well as reviewing the work done by members of the team. Partners also spend a large amount of their time engaging with clients or potential clients in between transactions as well as doing other marketing activities, such as speaking at conferences. In addition to helping to develop or maintain those relationships (hopefully leading to future instructions), constant client engagement also helps to develop a partner's knowledge of the market. Knowledge of what's going on in the market and of the latest developments is very important in the current environment, as the financing landscape continues to evolve following the financial crisis.
What do associates do?
LL: Associates manage the day-to-day workstreams of the deal. Often the lead associate will draft the principle finance documents and coordinate internal and external reviews. Mid-level associates will be preparing ancillary documentation, such as security documents and coordinating any non-English law workstreams. Junior associates will be working on a number of different conditions precedent to funding.
MS: Associates’ work might involve running smaller banking matters independently such as consents, amendments or guarantor and security accessions. In addition, on larger transactions, associates’ work might include negotiating facilities agreements, negotiating security documents and intercreditor agreements and overseeing the work of trainees. We also encourage our associates to spend time doing marketing and developing their own client relationships as they get to know clients more through working with them.
What’s a trainee’s role on a deal?
JV: Trainees work closely with and assist the associates and partners with all aspects of a transaction. Trainee work primarily involves running the conditions precedent process; attending calls/meetings with the client to take instructions or with the solicitors on the other side to negotiate the commercial terms; preparing first drafts of ancillary documentation; and coordinating the signing and closing process, which typically involves collating original documents, preparing closing bibles and registering or releasing security at Companies House.
LL: I think a trainee’s role is as broad as the trainee wants to make it, depending on their application and enthusiasm. Typically trainees assist with conditions precedent to funding (e.g. preparing board resolutions) and check documentation before it is circulated to the client. Trainees may also be involved in coordinating any non-English law advice and participating in client calls. However, a trainee may also want to get involved in the more 'associate-level' type tasks such as preparing first drafts of some of the key finance documents, such as security documents. Trainees are also likely to assist with preparing fee proposals and client pitches, as well as assisting with work preparation for any conferences.
What was your involvement in the last transaction you worked on?
JV: I recently assisted with a project finance deal relating to the financing of three photovoltaic plants in Egypt, which involved input from our colleagues in Cairo, Madrid, Hong Kong, Amsterdam, China and Bahrain. I was responsible for managing the conditions precedent process and liaising directly with the client, the solicitors for the other side and our overseas colleagues to finalise execution versions of the transaction documents (including, for example, opinions, security documents and all corporate authorisations) in the lead-up to signing and closing.
“I recently assisted with a project finance deal relating to the financing of three photovoltaic plants in Egypt, which involved input from our colleagues in Cairo, Madrid, Hong Kong, Amsterdam, China and Bahrain.”
MS: My role on the latest transaction I worked on involved running financing commitment papers and facilities documentation for potential lenders to a sponsor in support of its bid for a company being carved out of a UK Plc. The bid was run on a very tight timetable so it was a case of all hands to the pump and quite an adrenaline-fuelled week!
How does working on international matters affect the job?
JV: It’s rare to work on a transaction that's confined to one jurisdiction. I recently worked on a matter that involved our colleagues in China, Hong Kong, Luxembourg, the Cayman Islands and the US. In these instances you are working across different time zones and you need to adapt your schedule and manage your time effectively. Different jurisdictions often have different signing formalities or security registration processes and as a trainee you should be looking to ensure that these jurisdiction-specific points are reflected in the transaction documents and factored into the signing/completion timeline.
“The time zones involved it also means that you might have more emails in your inbox when you wake up in the morning!”
LL: International elements make the transaction a lot more interesting. Not only do you have to appreciate details of laws other than English laws but you are also working with other people from different cultures, which brings a different perspective to the transaction.
MS: Most of the transactions we are involved in have an international element to them – as a result we work very closely with and have very strong relationships with colleagues in our other offices. We view ourselves as a single team being able to work seamlessley across borders. Depending on the time zones involved it also means that you might have more emails in your inbox when you wake up in the morning!
What are the challenges the banking sector currently faces?
JV: There’s a lot of liquidity in the market. We’re starting to see funds take a more active role in transactions, which in turn puts pressure on banks and often results in more borrower-friendly documentation. There are a number of new entrants in the market, such as private equity style funds, who are lending rather than buying companies. This development requires new or adjusted deal structures, which creates interesting change. Additionally interest rates are low – however, we would expect to see a rise in the not-so-distant future and as a result we may see a downturn in new money lending but with a consequential uptick in financial restructuring.
MS: Navigating the complex regulatory environment remains the biggest challenge for banks, alongside trying to retain market share on financing transactions as pressure from an ever-increasing number of (less regulated) alternative lending institutions, such as private debt funds or asset managers, grows. In the US circa 90% of event-driven financing is currently done by non-bank lenders – whether this trend is replicated to the same degree in Europe remains to be seen but certainly banks are struggling to maintain market share.
How is Brexit affecting the sector?
JV: There is a lot of uncertainty surrounding Brexit, which is making it difficult to predict the impact this will have on the banking sector. It is likely that the volatility we are seeing in the financial markets will continue. However, we would expect to see the majority of businesses remaining in London, perhaps moving some of their back office operations to mainland Europe.
“There is a lot of uncertainty surrounding Brexit, which is making it difficult to predict the impact this will have on the banking sector.”
MS: So far we haven't seen a huge impact on financing activity (other than immediately following the referendum result when some financing transactions and processes were halted in their tracks as people tried to analyse the impact in some sectors). I'm sure that is likely to change as the post-Brexit relationship with the EU is negotiated but for now activity remains high – the European (including UK) banking markets are extremely hot at the moment.
What opportunities does Baker McKenzie offer?
JV: The team is ambitious and continuing to grow. This presents junior lawyers with the opportunity to get involved in a variety of different types of financing, which provides a more varied skillset and a better understanding of the sector.
LL: Multi-jurisdictional work across a number of different product areas.
MS: Great exposure to clients, top quality transactional work and the opportunity to develop close and lasting relationships with colleagues around the world.
This feature was first published in July 2018.