The role of lawyers includes advising on legal and regulatory matters, drafting documents, negotiating contracts, and working with bankers to obtain approval from various external parties such as regulators, listing agencies and rating agencies. Some transactions are bespoke and more complex. Junior lawyers cut their teeth on cookie-cutter deals, but as lawyers gain more experience they hopefully work on more specialised deals. Legal and regulatory advice: we looked at equity capital markets above and noted that an IPO is transformatory for a company.
A first-time borrower in the debt capital markets also requires a lot of lawyer time to prepare it for the new transaction. Much of this type of activity is cross-border, which means considerable time needs to be spent working out how various regulations fit together and liaising with local lawyers.
When it comes to drafting documents , there are key clauses to get right, and in many cases huge volumes of documents to prepare and amend. While swap confirmations and other derivatives contracts are often short although complex , the majority of capital markets transactions are just the opposite.
The selling document for securities a prospectus can range from 15 pages to more than , and the contractual documents are not far behind. Securitisation probably tops the charts for most documentation — and therefore worst hours! At university, the longer the essay the more likely you were to stay up all night — nothing much changes when you get to a law firm.
Negotiating contracts is a big part of the job. There are a lot of contracts which need to be signed off by a lot of parties — and every contract is of great importance to every party. As such, negotiations can be protracted. Issuers want the best terms; investment banks need the clauses to be acceptable to their internal credit committees, and in the case of securities, they want terms that make the product optimal for selling.
Regulatory and other approvals are a necessary step. They range from simple listing approvals for frequent bond issuers, to more time-consuming activities like a first listing approval of a securitisation of Russian credit card loans on the London Stock Exchange. Long hours, complex contracts, demanding clients — what is the attraction?
The opportunity to work with a client on a huge transaction; the sense of teamwork involved when grafting alongside people from banks, client companies and other law firms; the fun of negotiation and the buzz of finally creating a transaction that complies with all the different laws and regulations and which an investor will still want to buy.
It is generally accepted that the credit crunch that precipitated the global economic slowdown was caused by the huge market for repacking collaterisatising American sub-prime mortgages. These bundles of mortgages were sold between banks. Because they were easy to repackage and sell, lenders could keep selling more and more of them — they seemed not to care whether the original home-owner borrowers could actually meet their monthly mortgage repayments. Banks were less able and willing to lend money as the asset side of their balance sheets had shrunk, thus leading to a liquidity crisis.
Although the crisis originates in the US, capital markets are such a global phenomenon that what followed was a true domino effect. Within weeks of the old Wall Street bank Lehman Brothers collapsing, Iceland declared bankruptcy and scores of other countries looked set to follow.
There are continuing fears of debt rates in Spain, Italy and even France. This crisis clearly shows that doing business on the capital markets entails risk.
This is good news both for law firms advising on such deals and the economy more generally, as it means lending and borrowing on the up. This recovery is important as it shows investors have increasing confidence in corporate bonds. When that confidence evaporated in , investors rushed to buy-up in government bonds.
But since then big concerns about countries' ability to finance their debt has come to the forefront. In a credit crisis, liquidity the availability of money dries up. Borrowers cannot attract new capital. This effectively stopped most new investments and hit businesses relying on short-term borrowing to finance ongoing activities. Investors also faced problems since many of their investments went down in value or became very difficult to value.
Many institutional investors, such as hedge funds and pension funds, have faced their own crises. The challenges of the credit crisis provided new business opportunities for law firms. Financial institutions, corporates and even governments needed to restructure their balance sheets, pay back governments or other banks and sell off business assets. Investors needed to understand the contractual terms of all the securities and derivatives they were holding.
They too had to restructure. Regulatory bodies were active and their requests had to be met. Litigation ensued. All this activity has required a lot of lawyer involvement. Some of their key activities have included:.
The economic crisis brought great challenges to the law firms that operate in the capital markets arena. Lawyers also get involved in creating the product: the packaging of loans and selling of the interests in them. Lawyers are key players in the transactional processes which permeate the world of capital markets.
They advise debt and equity issuers and the investment banks which structures and sells the financial instruments. Some transactions are bespoke and more complex. Junior lawyers cut their teeth on cookie-cutter deals but as lawyers gain more experience, they hopefully work on more specialized deals. In equity capital markets, an IPO is transformative for a company. Much of this type of activity is cross-border which means considerable time need to be spent working out how various regulations fit together and liaising with local lawyers.
When it comes to drafting documents, there are key clauses to get right and in many cases, huge volumes of documents to prepare and amend. At university, the longer the essay the more likely you were to stay up all night, nothing much changes in a law firm. Negotiating contracts is a big part of the job.
There are a lot of contracts which need to be signed off by a lot of parties and every contract is of great importance to every party. As such, negotiations can be protracted. Issuers want the best terms. Investment banks need the clauses to be acceptable to their internal credit committees and in the case of securities, they want terms that make the product optimal for selling.
Regulatory and other approvals are a necessary step. They range from simple listing approvals for frequent bond issuers, to more time-consuming activities like a first listing approval of a securitization of Russian credit card loans on the London Stock Exchange.
Long hours, complex contracts, demanding clients — What is the attraction? The opportunity to work with a client on a huge transaction; the sense of teamwork involved when grafting alongside people from banks, client companies and other law firms; the fun of negotiation and the buzz of finally creating a transaction that complies with all the different laws and regulations and which an investor will still want to buy.
What do you love about Capital Market Transactions? Save my name, email, and website in this browser for the next time I comment. Check your mailbox for the joining link. All was rosy until the housing bubble burst, mortgages defaulted and the ugly truth emerged.
Don't let this put you off; there still is and will be demand for structured finance lawyers, but the order of the day is caution. For a leisurely introduction to the topic, watch 'docudrama' The Big Short.
At its most basic, a derivative is a financial instrument used by banks and businesses to hedge risks to which they are exposed due to factors outside of their control. They can also be used for speculative purposes by betting on the fluctuation of just about anything, from currency exchange rates to the number of sunny days in a particular region.
The value of a derivative at any given time is derived from the value of an underlying asset, security or index. Futures, forwards, options and swaps are the most common types of derivatives. Forwards are agreements between two parties that one will buy a certain product from the other for a fixed price at a fixed date in the future.
Hedging against future price risks and speculation over the price movement of the underlying assets are the big attractions. Futures are standardized forwards, which can be traded on the futures market. Options are optional futures, where a buyer has the right but not the obligation to purchase or sell a product at a certain date in the future for a certain price. Swaps are agreements between two parties to exchange assets at a fixed rate, for example to protect against fluctuations in currency exchange rates.
Notwithstanding the differences mentioned in the descriptions above, there are big similarities between the work of lawyers on debt, equity and other securities transactions. Capital markets.
Chambers Associate Practice areas Capital markets Capital markets. In a nutshell Capital markets lawyers feel all the highs and lows of market forces more than any other practitioner, and when the Great Recession hit the practice took a hit too.
Equity capital markets Within equity, there are initial public offerings IPOs and follow-on offerings of common and preferred stock. Debt capital markets This covers many types of debt instrument, but generally speaking it deals with a borrower raising capital by selling tradable bonds to investors, who expect the full amount lent to be paid back to them with interest.
Structured finance and securitization This can get gloriously complex, but its aims are simple: to increase liquidity and structure risk, which in turn offers up extra funding for borrowers.
Derivatives At its most basic, a derivative is a financial instrument used by banks and businesses to hedge risks to which they are exposed due to factors outside of their control. Do due diligence on the issuer company and draft a prospectus as part of the registration statement that provides a welter of information about the company and its finances, as well as past financial statements.
Help the accountants draft a comfort letter, assuring the financial soundness of the issuer. File with the SEC and wait 30 days before getting initial comments from them. Undergo multiple rounds of commentary back and forth with the SEC. This can take one or two months. Negotiate approval of a listing on the stock exchange. This involves the submission of documentation, certifications and letters that prove the client satisfies the listing requirements.
Finalize the underwriting agreement and other documentation. Debt offering Plan out the deal with issuer and underwriter. A timeline is drawn up and tasks are allocated between the different parties. Conduct due diligence on the issuer to examine its creditworthiness, make the disclosure accurate and highlight any associated risks. Deliver to the underwriters at closing a legal opinion and a disclosure letter on the offering based on due diligence.
Draft the indenture: a document describing the bond's interest rate, maturity date, convertibility and so on. Draft the purchase or 'underwriting' agreement. Securitization Work with the underwriter and issuer to draw up the structure of a security, and help the parties negotiate the terms of that structure.
0コメント