The International Who’s Who of Capital Markets Lawyers has brought together three of the leading practitioners in the world to discuss key issues facing lawyers today.
Cleary Gottlieb Steen & Hamilton LLP
Who’s Who Legal: How active have the capital markets been in your jurisdiction in the past year? Has this affected the capital markets legal marketplace in terms of mergers and lateral moves?
Leslie Silverman: Until mid-April of this year, capital markets activity in the United States was relatively strong, particularly for investment grade debt and, with greater volatility, high-yield debt. Activity in the equity capital markets was not as strong, and the convertible debt market was almost nonexistent. Regarding lateral moves, although we do bring in lateral partners from time to time, we historically have done very little of that for our capital markets practice.
Zoltan Martonyi: The Hungarian capital markets are generally suffering from the negative perception that Hungary has been undergoing in the last year. Issuers normally active on the international capital markets are unable to issue. The market is eagerly waiting the conclusion of the IMF deal and we believe that, subsequent to the granting of that facility, the capital markets in Hungary may become active again. The legal marketplace has adapted itself to this new environment. Instead of actual transactions, we are trying to identify those inconsistencies in our capital markets regulations, present since the beginning of our new capital markets regulation era (early 1990s) and we try to ensure a better implementation of EU rules in order to make sure that the Hungarian legal environment is more sophisticated for new, upcoming transactions in the future. Besides that, the deals that we do are a lot simpler than before. This is what people want to buy today. Generally speaking, this period is the best in Hungary for getting the best people on the market.
Michael Pugh: The capital markets have generally been more selective over the last year and favour stronger issuers with the highest ratings. In terms of how this affects our practice, we have been able to strengthen our teams by making lateral hires as we have continued to keep busy during this period while some excellent lawyers have come on to the market.
Who’s Who Legal: Many lawyers we spoke to mention the ongoing negative impact of the European and global financial crises on capital markets in their jurisdiction. Are these crises still affecting your work? How have they affected the type of work you have been seeing?
Leslie Silverman: There is no question that the European financial crisis, and the economic malaise being experienced more widely in the world, have adversely affected capital markets activity. Investment grade debt seems least affected, because interest rates remain at historically low levels. As a result of the tightening of credit availability, other than to strong credits, we are seeing greater activity in our restructuring practice, including for sovereigns (where we have been active in representing the Greek government in connection with its debt restructuring efforts).
Michael Pugh: The European and global financial crises continue to create an unstable backdrop for capital markets issues and, overall, result in lower volumes of issues. It means that we need to act at very short notice to make the most of market opportunities and issues take place at any time (even during August, which was rare previously).
Zoltan Martonyi: The volume of business has dropped significantly; the IMF deal may change this trend. Our work has gone far beyond normal legal business. We need sometimes to be involved in effective deal generation. This is maybe a unique opportunity for us and, to be honest, we enjoy this a lot.
Who’s Who Legal: Are you seeing more lawyers in your jurisdiction branching out more into other practice areas as a result of the lack of work and confidence in the markets?
Zoltan Martonyi: We are, anyway, trying to encourage our lawyers to get involved in various fields of law besides their main practice area. This process starts during their traineeship. In Hungary the average firm is much smaller than in the financial hubs. The relative size of a firm, anyway, leads people to get involved more easily in different matters. As ours is a truly boutique firm in Hungary, this is even more true in our case.
Leslie Silverman: I cannot speak for lawyers in other firms, but in our firm we have eschewed a formal departmental structure, which facilitates greater flexibility among our practice areas. Accordingly, when there is a downturn in a particular practice area, there naturally will be a shift of lawyers to the more active practice areas. For example, most of our capital markets lawyers are engaged in liability management activity. We also are focusing more on our issuer-side practice, counselling companies on corporate governance matters and the like.
Michael Pugh: Hogan Lovells’ capital markets practice continues to grow. The team is extremely versatile and is able to keep busy on a wide range of matters. It puts us in a strong position to support increased demand the markets require.
Who’s Who Legal: Have there been, or are you expecting, any regulatory or legislative changes which will have a positive impact on capital markets work in your jurisdiction? How will they help boost confidence in the capital markets? What impact could they have on the type of work you see?
Leslie Silverman: The recently enacted JOBS Act, which became effective in April this year, may well have a positive impact on the capital markets in the United States, particularly in promoting initial public offerings by so-called “emerging growth companies.” Implementation of the Act requires some additional SEC rulemaking and other guidance, so it remains unclear how significant the impact will be on equity capital markets activity.
Michael Pugh: The Russian regulators have made efforts to stabilise the regulatory position as regards the application of withholding tax to Eurobonds and as regards subordinated debt for financial institutions.
Zoltan Martonyi: Hungarian legislators have started to recognise the problems of Hungarian capital markets regulations. These are not obvious issues and do not block the operation of the capital markets, but can be unsettling in the case of international transactions of various types. These issues have started to be identified (for example, with the help of our firm) and some of them are already resolved. This is a fine-tuning process which needs time.
Who’s Who Legal: According to many of the lawyers we spoke to, there are fewer of the “younger generation” of lawyers specialising in capital markets. Is this the case in your firm or jurisdiction? What impact do you think this will have when capital markets activity increases again?
Zoltan Martonyi: This is true in Hungary, but it was also true before the crisis. The list of Hungarian capital markets experts is very short, and those who have actually made capital markets transactions (especially international ones) is even shorter. I don’t think this will change in Hungary in the immediate future. Capital markets are considered too complicated and too risky.
Michael Pugh: In terms of business flow, we have a good pipeline for the year ahead and the team is well placed to support our clients in vanilla and complex deals.
Leslie Silverman: We continue to see a reasonably strong pipeline of young associates interested in capital markets. Although a sustained downturn in capital market activity may well have an impact in the future on whether young lawyers will join that practice, it is still too early to tell whether that may be the case.
Who’s Who Legal: Are there any causes for optimism when looking to the year ahead?
Zoltan Martonyi: Certainly. Things can only get better for Hungary and I strongly believe that we will have an extremely interesting year. Potentials are huge in the region, much more important than in Western Europe. This is really the time to invest in these countries and this will eventually bring back the capital markets activities. These activities may be different from what we have seen before the crisis but this may be the real challenge for us.
Leslie Silverman: Without trying to sound too pessimistic, it is difficult now to be optimistic about the financial markets generally in the year ahead. If, for example, there is a resolution of the euro crisis that is perceived to be (and is) durable, or if the United States were to make meaningful headway in handling its budget issues, there would likely be a revival of the financial markets generally and the capital markets in particular.