Even though the financial crisis hit hard, banking & finance lawyers have found innovative ways to keep busy and keep fee revenues up
Before the GFC banks were eager to lend, cheap money flooded the market and borrowers had their pick of lenders. Yet those halcyon days were quickly forgotten after the credit crunch and unexpected collapse of Lehman Brothers.
Given the severity of the crash, you would expect most banking & finance lawyers to be starving for work. Yet despite the sudden drop in liquidity, lawyers have adapted to the changing needs of their clients in an evolving financial market.
|“Now it is worth lenders’ while to put the time in to do the more complicated deals. They are taking the opportunity to enjoy the market while it lasts and there is incredible pressure on us to get the deals in the pipeline closed,”
Joseph Bevash, Latham & Watkins
Although the crisis is easing in Asia, many banks are still cautious. Legal work has shifted from documenting new loans to advising on refinancing and restructuring deals. “There was a slight sense of concern and panic at the beginning of the year following [the Lehman Brothers bankruptcy],” says Susan Wong, a partner at WongPartnership in Singapore. “But I think, having come through most of the year, the impact of that fallout on Singapore was not as dire as feared and there was a predominance of refinancing and restructuring.”
Lenders in Asia-Pacific are restricting loan conditions and taking the opportunity to engage their lawyers to perform reviews of loan documentation and security positions “The days of covenant light financing are gone,” says Wong. “ has been very different. Banks are very circumspect. There has been a tightening of covenants and a noticeable shift towards greater contributions from sponsors and shareholders – both in terms of equity and security.”
Even the strongest borrowers have had to deal with an increase in governance by their lenders. “In some cases, banks may request that borrowers deposit three months’ interest payments in advance to cover their position if things turn sour,” says Khong Mei Lin, a partner with Shook Lin & Bok in Malaysia.
While there may be a decline in new loans, banking & finance lawyers have gained work from the sale of non-performing loans. Shook Lin & Bok recently acted for the purchaser on two significant sales of non-performing loans, from Maybank and CIMB. The firm conducted due diligence, provided advice on the sale and purchase agreement and continues to advise the purchaser in relation to finance issues.
‘Changes in circumstances’ clauses are now being used with greater frequency and are heavily negotiated to reflect the volatile state of the market. These clauses are introduced to protect banks in the event there is a sharp and sudden change in market conditions, leading to an increase in the cost of lending money.
During the height of the crisis, banking & finance lawyers found themselves revising the language in the clauses to reassure lenders of their ability to cover internal cost of funds. “Market-disrupt provisions are now crafted to make it easier for a bank or club of lenders to trigger,” says Wong.
“What has come out of it though is a lot of rethinking about how the market-disruption clause should work. It has led to some revised drafting which addresses some of the lenders’ larger, more significant concerns,” says Joseph Bevash, an office managing partner at Latham & Watkins’ Hong Kong office. “There has been some evolution and that is constructive because it addresses concerns on both sides. It refines language that was probably as good as it could have been at the time before being tested.”
Despite the economic downturn, Bevash has been busier than ever. Money has been drawn away from less well structured products into funding for projects, which tend to be structured, documented and heavily monitored by lawyers. “Now it is worth lenders’ while to put the time in to do the more complicated deals,” he says. “They are taking the opportunity to enjoy the market while it lasts and there is incredible pressure on us to get the deals in the pipeline closed.”
There has also been an increase in multi-currency facilities requiring significant swap contracts. “Currency hedges are very important now because lenders are sourcing and lending funds in currency other than US dollars. As a result, banks are doing a terrific business in currency swaps – which can sometimes be the most lucrative part of the deal,” says Bevash.
Banking & finance lawyers in Asia are now looking to service a more mature market with a broader product mix. Finance deals are becoming more sophisticated and complicated – as a result, they require a more significant role from lawyers.
If the market continues to settle throughout 2010, borrowers may look for opportunities to refinance with cheaper deals. For example, in Singapore, REITs are already looking to the market to refinance or restructure and acquisition finance appears to be picking up. In particular, the market for enbloc sales of property is experiencing a revival. Financing deals will be created as purchasers generally require substantial funding to complete these acquisitions.
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