The latest trends and career tips in banking and finance, by White & Case
Business climate and recent trends
- Since its development in the 1980s, the syndicated loan market has become the primary source of loan financing for corporate borrowers.
- In 2015, global syndicated loan volume reached US$4.7 trillion (10,561 deals), a 3 percent deal volume decrease compared to 2014 (10,889 deals), but still the second-highest annual total on record since 2007 (US$4.8 trillion). US loans accounted for 49 percent of the global loan volume, totaling US$2.2 trillion.
- The syndicated loan market can be divided into two sections: the market for investment-grade borrowers and the market for non-investment-grade borrowers (the leveraged loan market). Investment-grade transactions involve large, highly creditworthy borrowers and although the amounts involved can be very large, the deals are generally more straightforward and unsecured, with the funds provided mainly by commercial banks. Leveraged loan transactions involve borrowers with lower credit ratings. They are riskier and more complex and typically involve taking a security interest in the assets of the borrower as well as more extensive and more heavily negotiated documentation provisions.
- The market is highly dynamic, with deal terms and structures rapidly evolving in response to economic conditions, fluctuations in interest rates, the ebb and flow of the M&A market and changes in business sentiment. A variety of forces shaped US market activity in 2015. Regulations (particularly the Leveraged Lending Guidance, CLO capital requirements under Basel III and new EU “bail-in” rules), macro-economic conditions, increased competition between financial institutions and non-traditional lending sources, and higher purchase price multiples in M&A transactions all served to influence the US loan market. Although US syndicated lending experienced an estimated 2 percent volume decline in 2015, it was helped by stability in the investment-grade lending market.
- The large supply of capital has resulted in strong competition among lenders and has allowed companies and financial sponsors to push for lower interest rates and more borrower-friendly terms (such as those seen in so-called “covenant-lite” transactions). In addition, in recent years, large financial sponsors who are active consumers of debt products with significant market power have had a strong influence on loan terms.
- Debt financing is incurred by companies for a variety of purposes, such as financing acquisitions, refinancing maturing or more expensive debt, financing dividends paid to equity owners and for general corporate purposes. The predominance of one purpose over another tends to vary over time in line with market conditions and borrower needs.
- Global economic trends also have significant impact – macroeconomic uncertainty and regulatory constraints in the European and Asian markets in recent years have resulted in a dramatic increase in the number of European and Asian borrowers accessing the US loan market in transactions that utilize New York-law governed documents.
- With regulators increasingly focused on banks’ underwriting standards and the impact the performance of high-risk loans could have on the banks’ “stress test” results, regulatory scrutiny and the challenges that banks face as a result are likely to remain the key focal points for market players in 2016. In particular, it is anticipated that a shift towards “non-regulated” alternative capital providers as a source of finance for riskier credits will continue as a consequence of the regulatory clampdown.
What an Up-and-Coming Attorney in This Area Can Expect
- Representing a mix of banks, financial institutions, private equity firms, hedge funds, top-tier financial sponsors and corporate borrowers in connection with a variety of complex and often headline-grabbing financing transactions
- Structuring, negotiating and documenting complex financing arrangements for clients in a vast array of industries and across multiple jurisdictions
- Counseling clients on changes in current market trends and regulatory changes and remaining at the forefront of developing innovative financing solutions, structures and techniques
- Leading deal teams across a global network of offices to address local law issues in complex cross-border transactions and liaising with counsel in focused areas of legal experience to provide one-stop solutions for clients
- Working directly with clients and senior lawyers to provide top-quality service and technical advice in a high-performance and collaborative environment
- Access to extensive training and professional development resources
White & Case LLP’s Bank Finance Practice
White & Case has a market-leading Global Banking Practice that focuses on advising banks, sponsors and corporations in connection with a broad range of financing transactions, including leveraged buyouts, asset-based lending transactions, real estate, structured, trade and investment-grade financings, workouts, restructurings, and debtor-in-possession and exit financings. Our group comprises more than 320 lawyers with established teams in all the major financial markets globally, including New York, London, Frankfurt, Paris, Hong Kong, Tokyo and Singapore, and in many regional financial centers. The international strength of our Global Banking Practice is reflected not only in White & Case’s recognition for its banking work in Chambers Global 2015, but also in more than a dozen Chambers individual market and regional rankings, including rankings for USA Nationwide, Europe-wide, Latin America, United Kingdom, Germany, France and Asia.
About the Authors
Eric Leicht, a partner in White & Case LLP’s New York office, is head of the firm’s Americas Bank Finance Practice. Eric represents major commercial and investment banks, as lead agents and arrangers and borrowers, in a variety of lending transactions, with an emphasis on acquisition and leveraged financings.
Eliza McDougall is a partner in the Bank Finance Practice of White & Case LLP. Based in the firm’s New York office, Eliza represents lenders and corporate borrowers in connection with a wide range of domestic and international secured and unsecured lending transactions, including leveraged and investment-grade acquisition financings, general syndicated financings, asset-based financings and project financings.