Firms fight it out as Italian securitisation ups the ante
28 October 2002
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Last week marked the start of a new, post-Grimaldi era for Clifford Chance in Italy. It had been forced to move into new offices by former senior partner Vittorio Grimaldi, who quit the firm in the summer with a rebel faction of some 30 lawyers and an office lease with his name on it.
For Luigi Chessa, Clifford Chance's new joint managing partner for Italy, the disarray of the eventual office move could hardly have come at a worse time. While many of Italy's lawyers have never been so quiet, Chessa is at the heart of a market left unscathed by current conditions - securitisation.
Since the introduction of securitisation to Italy in the mid-1990s, the market has become the second-largest in Europe after the UK.
Competition between firms has inevitably intensified, with new participants eager to enter the fray. Not surprisingly, mandates from the banks remain largely the preserve of the truly international practices, with Allen & Overy (A&O), Clifford Chance and Freshfields Bruckhaus Deringer dominating. Securitisations can now be conducted almost entirely under Italian law, thus lowering the legal costs, but it is unthinkable to structure an Italian deal without some advice from a UK or a US-qualified lawyer.
Italian firms are more often seen on the originator side, where fees typically stand at around a third of those paid by the banks. But quasi-international practices Chiomenti, Bonelli Erede Pappalardo and Gianni Origoni Grippo & Partners have been expanding into securitisation work and are seen on the arranger as well as originator side.
The trick for the market leaders is to spot new opportunities and move away from deals that have become commoditised through repeat transactions, such as those involving residential mortgage loan receivables. And they have reason to be optimistic. Italy's corporate law reform - expected around the year end - is set to include a measure that will allow whole business securitisations for the first time in Italy. Lawyers are also looking forward to feeding off the Italian government's major infrastructure plans, which will be funded through a combination of project finance and securitisation techniques, prompting a new wave of legal engineering.
With its benign attitude towards securitisation, the Italian government has set the tone for the private sector. It has enhanced the credibility of securitisation by becoming the Italian market's biggest originator, making asset-backed bond issuance a key part of its spending and debt management. And just as the market has been showing a growing interest in the cost savings of synthetic securitisations of late, the government is also considering this route for one of its own real estate securitisations.
Through its close links with state departments, Clifford Chance has been heavily involved, gaining a near monopoly on acting for the government's chosen investment banks. Grimaldi is notoriously well connected and competitors are now waiting to see what impact his departure might have on these relationships. Chessa was originally rumoured to be among those set to quit Clifford Chance with Grimaldi, so the firm must be thanking its lucky stars that he took the sweetener of the new managing partner role.
Meanwhile, Chiomenti has made the most of its historic Rome origins by acting for the government itself. Partner Francesco Ago has been instrumental in growing the firm's securitisation practice.
But the republic's enthusiasm looked set to wane in the summer, when a bunch of EU statisticians - known as Eurostat and little loved by lawyers, let alone anyone else - issued its four principles on the accounting treatment of sovereign securitisation. As the legal profession has been quick to point out, the principles smack of a real lack of understanding of securitisation.
Eurostat also issued a review of particular sovereign securitisations and ruled that the Italian finance ministry could not use proceeds from either its first real estate transaction or its securitisation of lottery revenues to write down debt.
But against these odds, Italy was the first country to announce new securitisation plans in the aftermath of the Eurostat decision. The government is pressing ahead with plans for a second real estate securitisation. These transactions will, of course, have to be structured to comply with the new accounting procedures, bringing new challenges to bear on the legal profession.
Clifford Chance already has the new real estate securitisation in the bag. But for the 2003 programme, the treasury has not yet started a selection process for investment banks, leaving Italy's leading securitisation lawyers dreaming of a slice of the action. There is a certain level of expectation that the government will open up the work to a wider range of law firms, based on the view that Clifford Chance is no longer the only obvious choice for securitisation. This is work that is important for image purposes and for gaining new technology, rather than fees. Firms will price themselves much lower than for deals of similar importance involving a non-sovereign originator.
Despite its annus horribilis in Italy, Clifford Chance remains in an enviable position. The departure of the Grimaldi camp left its securitisation practice intact, although it did take project finance star Francesco Novelli. More damaging to the securitisation practice, however, was the departure of one of Italy's best-known experts, Alberto del Din, to Slaughter and May's Italian best friend Bonelli in November 2001. Del Din, who jumped ship with Milan finance partner Paolo Olivieri, was head of Clifford Chance's London Italian desk and now divides his time between Italy and London, where Bonelli plans further investment.
The Bonelli attack is further intensifying competition in the non-sovereign securitisation market. The question is whether A&O, Bonelli, Freshfields and Gianni will tip the playing field and make a serious challenge to Clifford Chance's position when it comes to the government's 2003 securitisation programme.