Magic circle rides the wave of debt issue popularity

It is not just corporate lawyers that have reason to cheer the M&A boom. The increasing use of capital markets to raise funds for acquisitions has given a fillip to the debt markets.

A year-on-year comparison shows that, for the first six months of 2006, lawyers advised on 3,711 debt issues, compared with 3,456 during the same period in 2005.

And despite threats of a slowdown, debt lawyers are confident that demand is set to continue.

Allen & Overy (A&O) head of international capital markets Boyan Wells says: “We keep hearing rumours of a slowdown, but it hasn’t happen yet. In any case, debt tends not to be as volatile as equity.”

Wells certainly has reason to be so bullish. Once again the firm came top for advising managers on all international debt issues both by number of deals, at 298, and by deals volume, with $159.51bn (£85.67bn) and has a 7.9 per cent market share, according to the Thomson Financial tables.

The introduction last year of the Prospectus Directive is also having a positive effect. In particular, the passport system, which allows issuers to seek approval for securities documentation in one EU jurisdiction for use across the EU. This has made it easier for deals to reach European investors.

“The passport system is really working. The major banks have taken advantage of it to sell structured notes around the EU,” says Gide Loyrette Nouel London partner Scott Cameron.

For Clifford Chance partner Robert MacVicar, the use of capital markets by institutions to clean up their balance sheets is helping to keep volumes up. “I’d pick out Tier 1 regulatory capital and hybrid capital as two areas where we’re seeing growing demand,” he says.

The one thing that has not changed is the law firms that are leading the way in European debt capital markets. Apart from Sidley Austin, England’s top tier firms still have a clear lead over their US and UK rivals.

In the manager adviser tables, A&O is followed by Linklaters, which acted on 226 debt issues worth $140.61bn (£75.52bn), and then Clifford Chance with 150 issues, with a value of $111.28bn (£59.77bn). The wide gap between the top three and the rest is illustrated by the fact that the combined total of the next three firms in the table, Sullivan & Cromwell, Latham & Watkins and Gide Loyrette Nouel, fails to reach Clifford Chance’s volume.

On the issuer side, Sidley breaks the UK stranglehold, taking the number-one position by advising on 108 deals equal to $91.75bn (£49.28bn) and a 2.9 per cent market share. Sitting closely behind are Clifford Chance, A&O and Linklaters.

The issuer table shows more of an even playing field than the manager table. Just 93 deals separate Sidley at the top of the table from Simpson Thacher & Bartlett at the bottom, compared with the 283 transactions dividing A&O at the top of the manager table from Weil Gotshal & Manges at the bottom.

When broken down into various product lines the rankings change. Latham & Watkins claims first place in the high-yield table for both issuer and manager mandates. Cahill Gordon & Reindel, Shearman & Sterling and Skadden Arps Slate Meagher & Flom are also strong performers in the European high-yield market.

However, what is clear is that US firms have yet to seriously dent the prominence of the magic circle firms.

And MacVicar thinks this is unlikely to change anytime soon: “US firms are good at certain streams of work and you can pick out a handful of good lawyers. But in capital markets you need breadth and depth and that comes from having a global reach that US firms just can’t get close to.” Or as Wells succinctly puts it: “The figures speak for themselves.”

Top 20 firms for intl debt – issuer adviser
Rank Legal adviser No of Market Value Value
issues share (%) ($bn) (£bn)
1 Sidley Austin 108 2.9 91.75 49.28
2 Clifford Chance 80 2.2 56.63 30.41
3 Allen & Overy 67 1.8 58.47 31.40
4 Linklaters 64 1.7 45.40 24.38
5 Gide Loyrette Nouel 46 1.2 11.08 5.95
6 Orrick Rambaud Martel 37 1.0 19.50 10.47
7 Sullivan & Cromwell 35 0.9 45.39 24.38
8 Matheson Ormsby Prentice 31 0.8 11.82 6.35
9 Latham & Watkins 28 0.8 11.87 6.38
10 Cleary Gottlieb Steen & Hamilton 27 0.7 23.45 12.59
11 Davis Polk & Wardwell 24 0.7 26.33 14.14
12 Skadden Arps Slate Meagher & Flom 22 0.6 19.73 10.60
13 Cadwalader Wickersham & Taft 21 0.6 13.54 7.27
14 Mayer Brown Rowe & Maw 20 0.5 19.41 10.42
15 A&L Goodbody 19 0.5 17.33 9.31
16= LeBoeuf Lamb Greene & MacRae 18 0.5 11.46 6.16
16= Shearman & Sterling 18 0.5 15.14 8.13
18 Thacher Proffitt & Wood 17 0.5 2.67 1.43
19 Freshfields Bruckhaus Deringer 16 0.4 13.66 7.34
20 Simpson Thacher & Bartlett 15 0.4 12.49 6.71
Top 20 firms for intl debt – manager adviser
Rank Legal adviser No of Market Value Value
issues share (%) ($bn) (£bn)
1 Allen & Overy 298 7.9 159.51 85.67
2 Linklaters 226 6.0 140.61 75.52
3 Clifford Chance 150 4.0 111.28 59.77
4 Sullivan & Cromwell 41 1.1 48.22 25.90
5 Latham & Watkins 40 1.1 18.62 10.00
6 Gide Loyrette Nouel 37 1.0 6.66 3.58
7 Cleary Gottlieb Steen & Hamilton 34 0.9 31.04 16.67
8= Davis Polk & Wardwell 32 0.9 38.33 20.59
8= Orrick Rambaud Martel 32 0.9 20.86 11.21
10 Simpson Thacher & Bartlett 30 0.8 46.99 25.24
11 Hengeler Mueller 27 0.7 24.81 13.33
12 Sidley Austin 24 0.6 18.97 10.19
13= Shearman & Sterling 19 0.5 17.27 9.28
13= Skadden Arps Slate Meagher & Flom 19 0.5 16.42 8.82
15= Thacher Proffitt & Wood 18 0.5 3.55 1.91
15= White & Case 18 0.5 8.49 4.56
17= Cadwalader Wickersham & Taft 17 0.5 11.70 6.29
17= Lovells 17 0.5 5.05 2.71
19 Freshfields Bruckhaus Deringer 16 0.4 31.41 16.87
20= Cahill Gordon & Reindel 15 0.4 12.28 6.60
20= Weil Gotshal & Manges 15 0.4 11.08 5.95