Global firms witness boom in German asset finance market

A&O, CC Pünder and Freshfields face up to wave of unexpected competition. Aled Griffiths reports

If you had asked German finance lawyers two years ago to predict a growth area, few would have chosen asset finance. Until then the market was dominated by three firms: Clifford Chance Pünder (CCP), Freshfields Bruckhaus Deringer and Allen & Overy (A&O); there seemed little room for competitors, unless they had roots in a particular niche.
CMS Hasche Sigle could point to lease work from its strong shipping practice, but for others the air was thin at the top of the market.
But now the German cross-border leasing market is booming, with investors, arrangers and lessees taking advantage of US tax write-offs, especially as the days of the standard cross-border lease seem numbered.
The aircraft finance market has held up more strongly than many had feared after 11 September, and interest in qualified technological equipment (QTE), real estate and infrastructure transactions is very high, with particular demand among local authority lessees.
In Germany, local authority leasing is only a few years old. The previously well-funded councils have seen tax receipts stagnate and central government has its own problems, most importantly adhering to the European budget deficit guidelines.
The result has been an increasing desire to refinance investment in badly-needed infrastructure projects. The City of Cologne, for example, prefers to spend its money on annual carnival celebrations, so the new sewage system and new rolling stock for the huge tram and underground system was financed through cross-border leases.
So, it is no surprise that international firms have seen the success of A&O, CCP and Freshfields and decided to ape it. The major absentee was Linklaters Oppenhoff & Rädler. Oppenhoff used to have a boutique practice in its New York office, but after the Linklaters merger, partner Thomas Verhoeven moved to head the German law team at Kirkland & Ellis in London.
The team still enjoyed a respectable track record, in particular on real estate and industrial plants, but with the backing of the global network it was perhaps only a matter of time before Linklaters re-emerged as a major player.
Like its major rivals, Linklaters wants to offer an integrated German-US one-stop shop and has demonstrated that the German offices can benefit from the global network. It advised key client Credit Suisse First Boston on the restructuring of 84 US cross-border leases with a total portfolio volume of e6bn (£3.77bn). The German offices (where there is now also US and UK capability) also advised on the 300km pipeline between Stade and Teutschenthal for the Dow Chemical Company.
Norton Rose exploiting its huge asset finance franchise in the German market was also a no-brainer. Although the firm started later than its rivals, it caused headlines by recruiting Ralf Springer, head of the in-house team at KGAL, a Munich-based arranger that is the market leader in aircraft finance.
Norton Rose Vieregge will also focus in Munich on shipping and rolling stock. The signs are that it will be able to capitalise not only on its banking relationships in Germany, but also France. Outsiders point to the close ties between KGAL and Star Alliance, which are in a wide-ranging joint venture that Springer should be able to exploit.
Two other US heavyweights have also arrived. Shearman & Sterling set up its Munich office partly to exploit the asset finance market in the Bavarian capital. It is extraordinary that, alth-ough a number of the most important arrangers and banks have headquarters or a strong Munich presence, only CCP has beefed up its asset finance practice there. Shear-man and Norton Rose, then, see themselves as filling an obvious gap in the market. Shearman relocated New York partner William Yaro, who regularly advises the arranger Babcock & Brown and who last year advised Wupperverband on the US side of a sewage plant lease (with Freshfields advising on the German side).
The other big name to surface is Milbank Tweed Hadley & McCloy. The Ger-man office initially kept a low profile, preferring to act on its imported asset finance clients before recruiting German heavy hitters for a wider finance practice. But Helfried Schwarz, who was well kno-wn in Germany even before moving from New York, has demonstrated the potential in the combination of Milbank's reputation and a German base. He advised Deutsche Telekom subsidiary T-Mobile on a $1.25bn (£800.9m) QTE lease, as well as on the $1.45bn (£929m) Tiwag power generation lease.
But the most interesting development has not been the surfacing of global players. Instead, the past year has seen the emergence of boutiques able to exploit the gaps (and conflicts) left by the leviathan firms, with two names standing out.
Smeets Haas Wolff was founded by three former Bruckhaus Westrick Heller Löber and Hengeler Mueller lawyers in September 2001 and has already raised eyebrows for its important role in the restructuring of the Swissair fleet. Other highlights have been advising the state financing institute KfW (with which many a larger firm would like to know) on a US lease service contract for rolling stock, a huge real estate and rolling stock portfolio for ABB Leasing, as well as aeroplanes for LBBW and the Royal Bank of Scotland.
The other major new player is Thomas Rechtsan-wälte, founded two years ago by an ex-associate at A&O. One of the problems of A&O's practice in Germany has been its seeming inability to grow its practice beyond Peter Hein. With his move to New York, the firm will probably lose ground in the short term, but it must also be hoping to build a more sustainable practice in the long run. Thomas has been highly successful in advising local authorities all over Germany, including a large city in Nordrhein-Westfalen on a sewage network, local authorities in southern Germany on a drinking water network and a North German authority on sewage works.
The breakthroughs for these firms are not just down to their lawyers' entrepreneurial élan. It is rather that they have exploited what is regarded as an overdependence in some firms on their banking and arranging clients, since the latter often recommend outside counsel to the inexperienced local authority lawyers.
So there is a gap in the market for independent firms. They might be able to build up a track record in advising local authorities in a more energetic and aggressive manner in negotiations with arrangers and US investors than some of their big firm counterparts. The days of a dominant triumvirate may be numbered.
Aled Griffiths is editor of German legal magazine JuVe Rechtsmarkt. Research for this column was also conducted by JuVe reporter Jane Dewhurst