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As the securitisation market becomes more sophisticated, it is no longer adequate just to be on the scene. With increasing numbers of firms entering the market the pressure is on and the top-tier firms need to find ways of differentiating themselves from the riffraff. And it seems as though they may have found one.
Mortgage-backed deals have lost clout. As standard transactions that are often repeat issues, these deals no longer represent the cutting edge. Allen & Overy (A&O), Clifford Chance and Freshfields Bruckhaus Deringer still cut a market share, but Sidley Austin Brown & Wood, Weil Gotshal & Manges, Tite & Lewis, Lovells, Simmons & Simmons, Norton Rose and Herbert Smith are all visible; and as the market continues there will undoubtedly be others ripe for the picking.
Clearly, mortgage-backed deals will continue to be an important market and not one to treat lightly, but the challenge now lies in transactions that use securitisation as part of a corporate finance, such as leveraged deals and restructurings.
Two recent examples are Telereal, which securitised properties housing equipment for BT's UK fixed-line network, and the Marks & Spencer (M&S) deal, which securitised rental income from 59 stores as part of a deal to raise £800m from its property portfolio.
Cash flow-backed securitisations may not be new but it is unusual to see big household names such as M&S and BT using their asset bases to finance themselves. If this is to become a trend in major corporates, there is huge potential for law firms.
Magic circle firms would have us believe that only they have the capability to advise on complex restructurings that include both a leverage element and a securitisation. Granted, it was A&O and Freshfields on the BT deal and A&O and Clifford Chance on the M&S deal, but this does not detract from the fact that there are a handful of other firms getting more than just a look in.
Simmons is targeting its structured securities practice, which includes securitisation. Its relationship with the British Land Company landed it the instruction on the Broadgate securitisation in 1999, J Sainsbury supermarkets last year and the Meadowhall shopping centre securitisation, which closed in December. So far, its visibility in the cash flow-backed market is restricted to advising the issuer, but it does have strong relationships with ING Barings and Dresdner and last year it advised on its first deal for BNP Paribas. But despite the fact that Simmons has the finance capability to do securitisation and leveraged finance, it has yet to convince the banks of its capability and has not yet been seen advising the banks on a leveraged acquisition or public takeover acquisition. These kinds of financings play to the strengths of the big firms.
The other route into this market is through links with private equity houses. Dickson Minto, for example, advised opposite A&O on the General Healthcare Group securitisation. It also advised the private equity house on the Madame Tussauds deal.
In the same vein, Lovells advised on the RHM FoodBrands securitisation on the back of its relationship with private equity house Doughty Hanson. Simmons is not fortunate enough to have a similar relationship.
For the arrangers, the options are more limited. Because the banks make significant acquisition loans, they need to be confident that firms are comfortable doing a leveraged finance bridge that will restrict the consequences for their balance sheets. The magic circle firms have a clear advantage here, and as the securitisation market polarises into a variety of sections, they are still monopolising the high-end.
The challenge is for a tier two firm to win an instruction from an arranger on a corporate finance acquisition which includes a securitisation. Any bets on which firm that might be?