Cross-border work and political tensions are dominating this year’s entries for Finance Team of the Year at The Lawyer Awards.
A complex sanctions and regulation landscape in Europe underpins many of the finance and banking work throughout the past year, with transactions impacted by international disputes and stringent regulatory requirements.
This year, some of the most interesting work from the teams shortlisted for Finance Team of the Year at The Lawyer Awards, sponsored by Hydrogen, involve cross-office or even cross-practice work, with teams of lawyers working on one offering to clients becoming more popular.
Over the past few years the finance world has become increasingly complex, with private equity
funds, trading companies, private investors and even governments taking the place traditionally held by banks in many major current deals.
The work nominated for the awards reflects that trend, with examples including both Slaughter and May’s and DLA Piper’s deals involving the UK and Scottish governments respectively, and Sidley Austin’s deal involving US investor Wilbur Ross.
Last year, Britain issued the West’s first sovereign bond in Chinese currency the renminbi (RMB) in a landmark issuance of RMB3bn (£318m). Clifford Chance advised HM Treasury (HMT) and the Bank of England, with proceeds used to finance the UK’s reserves.
The deal required Clifford Chance to understand and assist HMT in its economic and diplomatic aims, while ensuring the bonds worked from a legal perspective.
This was the first issuance of bonds by HMT since 2003, and they were tailored to follow the terms of HMT’s gilt. Rather than the customary features of internationally offered senior debt instruments, these bonds have no events of default.
“Over the past few years, the finance world has become more complex. The work nominated for The Lawyer Awards reflects that trend”
The timeline to close the deal was short, having been announced on 12 September 2014 and the price issued a month later. During this time, the firm worked alongside HMT and the Bank of England to negotiate the documentation and advise on accurate regulation.
One of the peculiarities of this deal was the number of announcements made publicly by HMT, the Bank of England and individual ministers – which even led to the deal being publicised through
Twitter.
This deal involved the capital markets team at Clifford Chance drafting bespoke documents to agree these terms with the banks. The work also involved litigation, capital markets and tax teams from Hong Kong and London.
The transaction was led by finance and capital markets partner David Dunnigan, who worked closely with capital markets partner Deborah Zandstra, an expert on sovereign issues, and the Clifford Chance team in Hong Kong, led by finance partner Matt Fairclough.
The firm has a long-standing relationship with the Bank of England, acting as the Bank’s counsel on its debt issuance programme.
DLA Piper
DLA Piper advised Serco on its £800m rail contract with the Scottish Government to operate the Caledonian Sleeper Rail franchise: one of only two sleeper rail service operators in the UK.
The service had been provided by the Scot Rail Franchise until the deal closed in February 2015 and the handover completed in April 2015.
DLA Piper acts for Serco across a range of legal work including MA, contracts and litigation.
The involvement of the Scottish Government in the deal caused the deal to become more complex.
The team, led by finance partners Sharon Fitzgerald and Alan Cunningham, introduced a number of bespoke requirements into the standard suite of rolling stock contractual documentation.
This included the use of a tri-partite ‘funder direct’ agreement between the Scottish ministers, Lombard and Serco to govern the milestone funding payments to the manufacturer; address any potential termination; and bond call events and step-in arrangements.
The deal also provided for a fixed-price financing for the training that provided certainty for both Serco and the Scottish government.
Herbert Smith Freehills’ standout finance project last year was a $2bn (£1.32bn) pre-payment financing arrangement between BP and Rosneft that was finalised in June 2014.
The firm represented Deutsche Bank in the transaction, conducted against the backdrop of constantly evolving sanctions in the wake of the Ukraine crisis. The deal was also tricky because Rosneft chief executive Igor Sechin, who is a former Soviet intelligence officer with close ties to president Vladimir Putin, was specifically subject to the sanctions.
“They were enacting new regulations every other day. Some very big banks just could not get rid of the risk” – John Balsdon
There was constant renegotiation of the key terms due to intense client scrutiny of the uncertain implications of the sanctions, stemming from their sometimes ambiguous wording.
Work on the deal, which was one of the largest prepayment financing arrangements ever made, lasted for more than nine months and involved cross-office and cross-practice collaboration.
Finance partner John Balsdon, who led the Herbert Smith Freehills team during the transaction, said this deal was “incredibly important to BP because this was fundamental to trading”. The banks involved were under a lot of pressure, following fines levied on BNP Paribas for trading with sanctioned countries – although BNP was not involved in this deal.
“To use the word ‘nervous’ would be limiting it,” Balsdon says. “They were enacting new regulations every other day. Some very big banks just could not get rid of the risk.
For Rosneft the pressure was incredible.”
UK and EMEA head of finance Malcolm Hitching says Russia is a very challenging environment in which to do business. “The fact that we have got market-leading Russian capability and sanctions and quasi-political capability makes us unique.
“What is particularly interesting is that finance is much more than advising on loans bonds and deals. You need to be able to advise around the regulatory issues that are pervading the industry.”
Hogan Lovells advised lenders on a 45 per cent interest sale, worth $1.2bn, in a Nigerian oil field (OML 18) from Shell Petroleum Development Company of Nigeria, Total EP Nigeria and Nigerian Agip Oil Company to Eroton Exploration and Production Company.
OML 18, which produced around 14,000 barrels of oil equivalent per day in 2014, was part of the package put up for sale by Shell in 2013 following a review of its business in Nigeria.
Hogan Lovells advised the African Export-Import Bank on a syndicated $663m reserve base lending facility for Eroton Exploration and Production Company, set up by the Canadian-Nigerian Martwestern consortium as a special purpose vehicle (SPV).
The backdrop to this deal was the political uncertainty in Nigeria due to the imminent elections and a febrile oil market, as this was a transaction designed to provide term financing to a borrower dependent on the future trade flows derived from the sale of oil and gas.
As the borrower was an SPV and had to acquire assets in the first place, there was no option to use a more traditional prepayment facility.
This transaction used reserve base financing techniques to support a term acquisition facility.
To do this it was necessary to put
in a hedge mechanism, which proved challenging due to the leveraged nature of the facility, but this was achieved through an embedded pricing mechanism built into the off-take arrangements.
The Hogan Lovells London banking team advising African Export-Import Bank was led by consultant Andrew Gamble alongside partner David Leggott.
Milbank Tweed Hadley McCloy
Milbank Tweed Hadley McCloy advised both Nomura and Goldman Sachs on the €1.3bn (£932m) cross-border acquisition of Paris-based medical diagnostics company
Sebia.
The deal involved the firm’s clients as arrangers of the first lien (transfer ownership) financing arranged without using a double-luxco structure (a structure developed in response to the risk of centre of main interests relocating to France and financing the acquisition of French assets).
According to the firm, there has been no such financing structured by any other law firm for over seven years. It was also only the second true English law covenant-lite TLB (term loan B or institutional term loan) financing in the European market.
The Milbank team was led by banking and finance partner and London co-head Suhrud Mehta alongside partner Neil Caddy, advising Nomura and Goldman Sachs for the entire financing.
The advice provided to Goldman Sachs during the second lien financing issue was led by Milbank finance partner Tim Peterson.
Goldman Sachs and Goldman Sachs MBD are key clients of the firm in London and New York, and have been represented by the firm in a number of financings.
Despite the unusual aspects of the deal, the first lien facilities were oversubscribed and the terms were reverse flexed so that the margins were reduced and the OID (original issue discount bond) was removed.
In 2014, the firm was also involved in deals such as the €1.3bn acquisition of consumer products company Constantia Flexibles from One Equity Partners representing JPMorgan and UniCredit; and a €1.2bn financing to support the $17bn bid by Clayton Dubilier Rice to acquire industrial package company Mauser Group, representing leaders Crédit Suisse, Nomura, Barclays, BNP Paribas ING and Natixis.
Sidley Austin
A team from Sidley Austin led by London global finance partner Matthew Cahill acted for the Bank of Cyprus in raising €1bn of new share capital through a series of equity offerings in July 2014. The raise was achieved in the face of public scrutiny and strict EU-wide banking regulation.
The firm’s relationship with the Bank of Cyprus began with the high-profile bailout by the Troika of the European Central Bank, International Monetary Fund and European Commission in March 2013. This rescue followed a series of adverse economic developments in the eurozone, including the downgrade of Cyprus’ credit rating. This unprecedented situation also resulted in the Bank of Cyprus’ depositors involuntarily becoming shareholders.
This deal involved the company offering unlisted shares privately to a large group of potential investors while having to deal with sensitivities arising from the 2013 bailout. This increased the pool of shareholders by 40 per cent and provided new capital to the bank in order to pass a stress test.
“What made it unusual is that we had a very large number of investors, each of whom had separately negotiated a non-disclosure and due diligence agreement,” Cahill explains. “The company went through a cleansing process. It published additional information practices so that they could avoid claims of insider information.”
Cahill says that despite having a large team working on it for many months, the deal was completed in a relatively short timeframe. “There were extensive negotiations with traders for the cleansing of that data. Phases two and three were there to allow existing shareholders to participate in the equity raise. One of the technical features was that existing shareholders could claw back up to 20 per cent of the equity offering.”
The Bank of Cyprus was still subject to listing requirements on the Cyprus and Athens stock exchanges, even though its listed shares were suspended for trading.
This meant that the bank was subject to restrictions and disclosure obligations but did not have the benefit of a liquid and tradeable market in its shares.
To resolve this issue, Cahill’s team created a hybrid deal structure combining a secondary equity offering by a listed company with private equity and MA elements.
The relationship with the Bank of Cyprus started with client contact partner Cahill and has grown since he re-joined Sidley Austin from Clifford Chance in October 2012.
Slaughter and May
Slaughter and May represented Scotland-based INEOS Grangemouth Group in a €285m five-year public bond offering guaranteed by HM Treasury.
The deal’s objective was to finance the construction of an ethane storage tank and import terminal to import feedstock from the US. This deal is part of the company’s strategy to increase the supply of ethane to run at full capacity in the future.
Andrew Johnson
As a result of historical financial difficulties dating back to losses of around £150m in 2013, INEOS was likely to struggle to find traditional borrowing without credit support.
Slaughters finance partner Guy O’Keefe, supported by partner Andrew Johnson, led this deal arranged through the UK Guarantees Scheme. Scots law was provided by Anderson Strathern.
Allen Overy represented the arrangers and bookrunners in the bond, while Infrastructure UK was advised by Ashurst.
The deal allowed the company to put in a covenant package providing the Autonomy it needed and the legal architecture for more super senior debt to be incurred in future.
The Slaughters team had to put in a hedge mechanism through an embedded pricing mechanism built into the off-take arrangements, which “proved challenging” due to the nature of the facility.
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