The magic circle is scooping up international bond work as European telecoms groups flood the market with jumbo debt issues.
With Dutch group KPN following hard on the heels of Spanish giant Telefonica to strike a deal, Clifford Chance and Allen & Overy (A&O) are pushing out the US firms and advising on both sides of the Atlantic.
A&O was finalising the deal for KPN as The Lawyer went to press in a multi-tranche global deal worth $5bn (£3.25bn). The firm was across the table from Clifford Chance, which was acting for underwriters UBS Warburg and Morgan Stanley Dean Witter on local Dutch law.
US giant Shearman & Sterling scooped the work for the underwriters on the New York side. A&O Amsterdam partner Victor de Serière led the Dutch side, with London-based US partners Alex Cohen and Adam Kupitz running US law.
De Serière says: “KPN is a longstanding client of the firm, and we do the majority of its work. Most of it is corporate, but when this sort of securities work comes up they ask me to get involved.
“It was done very, very quickly to a strict timetable. You need a firm timetable because there’s a lot of tapping of the capital markets by the big telecoms companies, so you need to be sure you get your timing right.”
The KPN deal was timed to follow Telefonica’s issue of a couple of weeks ago, with the planned global deal anticipated from British Telecommunications (BT) in mind.
On the Telefonica issue, which closed a couple of weeks ago, Clifford Chance won all the work of advising the Spanish company. In a $6bn (£3.9bn) deal – thought to be the largest debt issue ever made in Spain – Clifford Chance was opposite local firm Uria & Menendez and Wall Street firm Davis Polk & Wardwell for underwriters JP Morgan, Goldman Sachs and Morgan Stanley.
BT is expected to come to the market soon, after postponing its deal at the end of August, saying it wanted clarification on its credit rating before it issued new debt. BT is understood to have instructed Linklaters to work on the offering, with Shearmans covering the US law aspects. The underwriters and their advisers are not yet known.
The current glut of telecoms issuing is the result of a scramble by the telecoms groups to secure funding for the cost of third-generation mobile phone licences.
But the rush of jumbo offerings could start threatening the stability of the market. Latham & Watkins‘ London-based capital markets partner Mark Stegemoeller, who is working on six pending telecoms bond issues, says: “I don’t think the market’s strong at the moment. The pricing is high and there have been some poor performances from some of the companies, in particular the ones that don’t have cashflows yet.
“They’re struggling to find all the cash they need to build out their networks.”
The credit ratings of companies in the sector are under threat due to the potentially huge cost of obtaining the licences, and because of the furious pace of change in the industry. The flood of mergers and acquisitions means it could still be a long while before the final players emerge.
That means the bond issues have to be carefully timed, and once the decision to go is made, the advisers have to act quickly. Once companies have law firms in place which know their prospectuses, they will keep using the same faces on each issue.
Cleary Gottlieb Steen & Hamilton started off the bond market’s busy post-summer period, acting for Deutsche Telekom in its massive $14.5bn (£9.6bn) issue.
London partner Edward Greene led the deal, and says: “We started acting for Deutsche when it was first privatised, and have continued to be their regular US counsel. The lion’s share of the debt was in dollars – the US market is such an attractive place to raise funds.”
The attraction of New York-led deals normally brings in Wall Street law firms, but now that the magic circle is getting a foot in the door on the US side, a steady flow of debt issues should bring a steady flow of work.