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In the flow in dollars

November 2021

In the arena of leveraged finance, especially in relation to large deals that need to tap the public debt markets, it is essentially for legal advisors to be “in the flow”. What do we mean by that? Where a deal is to be sold in the high yield bond or syndicated leveraged loan markets, lawyers that represent arranging and underwriting banks need to be able to speak cogently about what is both on and off market in terms of documentary provisions. Faced with the demands of their clients, coverage bankers need to understand what may cause indigestion when the deal comes to be sold to bond and loan investors so that they can push back on such terms or provide for the right to flex them out of the deal at a later stage if, having tested the appetite of buyers, it is clear that the transaction will not clear the market at a sensible price if it remains as initially advertised. It is also true that lawyers that act for financial sponsors or funds need to equally be aware of these points so that they can properly advise their clients, especially where to push points and when to withdraw them to avoid a busted syndication or pricing that was worse than anticipated.

How are you “in the flow”? In simple terms it means that law firms and their top lawyers need to regularly act on the leading deals in the market so that they gain both a detailed understanding of controversial points as well as developing an instinct for them even if they are cutting edge and novel. It is also true that such firms should have systems in place to keep abreast of deal terms, to the extent that they are publicly disclosed, even when they are not acting for clients on those transactions.

The size of financial sponsor backed acquisitions continue to get bigger and bigger. Almost all global companies are now possible targets for the industry. From the USD 25.1bn acquisition of RJR Nabisco back in 1988 to the USD 32.1bn paid for TXU Energy in 2007 the numbers continue to reach eye watering levels. What does this mean for legal advisors in the leverage finance space? In short, clients want their lawyers to be totally indifferent as to the source of funding. Financial sponsors have become some of the most sophisticated users of the debt markets in recent years. They will arbitrage different financial products to get the best deal for the investors in their funds when acquiring a business funded with debt, which invariably is the case given the model used by the financial sponsor community. It may be that as the transaction timetable progresses there may be multiple changes of strategy as the deal and market dynamics change. This is why clients need their lawyers to be indifferent as to how the debt for the deal is structured, they need to be just as much “in the flow” in relation to bonds as they are for loans.

Given the ever-increasing size of financial sponsor backed acquisitions, it is very common for deals to need both euros and dollars. This is because most global businesses generate income in both currencies and finance directors will be keen to match the currency of the debt with that of their EBITDA in order to hedge any conversion risk. Commonly this means that the debt for such deals will be sold in both London and New York to tap the investor base in both jurisdictions. This presents a challenge for law firms with their headquarters in Europe and which do not have a meaningful operation in New York. Their lawyers may well be “in the flow” for key deals in London but they will not be able to say the same on the other side of the “Pond.” They may talk a good game but a lack of knowledge in one market or the other presents clients with a real risk that they will not be able to properly assess the key market terms which, in turn, may lead to investors giving a lukewarm reception to the debt package when it is launched to them.

In London this presents a real opportunity for law firms that have a substantial business in North America and who are “in the flow” for the leading deals there as well as being in the same situation for European deals too. They can genuinely pitch their indifference to clients as to the currency makeup of the transaction: they can provide cutting edge advice on both euro and dollar distribution both in London and New York. In a world where deals are getting ever bigger this will differentiate those firms that will be relevant in the upper echelons of the global leveraged finance market for the next decade and those that will not.

If you would like to discuss this topic further please contact Adam Freeman at

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