The debt set

Everyone – barring maybe Dome bosses and a few failed dotcom entrepreneurs – will tell you that we are in the middle of the biggest bull market in years.

The UK and US in particular, though watching oil prices with a nervous eye, are riding high on a wave of optimism not seen since the early 1980s.

Yet right in the middle of a sunny summer of contentment, two law firms suddenly announce the time is right to take on the transatlantic insolvency and restructuring market.

Both coming from different sides of the pond – Bingham Dana from the US and Clifford Chance Rogers & Wells (CCRW) from the UK – they wield an optimistic plan, not only to expand their own practices, but to capture the domestic markets as well.

Both poach partners from rival local firms. Bingham takes James Roome from Cadwalader Wickersham & Taft, the only US firm in London already pinching domestic restructuring work from the UK firms, and CCRW takes a highly-rated team from Morgan Lewis & Bockius in New York.

But there the similarities end. The two practices couldn't be more different – Bingham advising the bondholders in high-yield debt, CCRW the banks on senior debt. And while both are following a tried and tested method to crack a new market, Bingham is mimicking rival Cadwalader while CCRW is sticking to its own strategic path into pastures new.

Bingham, like Cadwalader, has its eye on the fallout from Europe's rapidly developing high-yield bond market. The firm's strength in the US comes from a very broad practice, with an old pedigree in traditional banking work.

In London the firm has been acting for the par investors, the original bondholders who buy debt at face value and then try to sell out if the debt becomes distressed.

Bingham's aim is to build on that to crack the secondary distressed debt bondholder market, currently served so well on both sides of the Atlantic by Cadwalader.

Roome will market to the par bondholders in the hope of winning secondary debt work when the pars sell out.

Roome says: "Bingham Dana's core strength is acting for the par investors, and increasingly for the secondary investors. If we are acting for the bondholder and then it sells out to one of the big New York hedge funds, for example, they often keep the same lawyers.

"For Bingham Dana the business case for coming here is very strong. With this core market, and increasingly as the bond markets grow over in Europe in the same way as over in the States, there is just so much opportunity. There are so many players in the market that have never been there before, and the funds want US-style lawyers – something similar to what they're used to."

In the US, Bingham has beefed up dramatically in the last couple of years, merging with one of the world's top bankruptcy firms, Hebb & Gitlin, to encompass the highly-rated Richard Gitlin, who was appointed examiner on the Maxwell insolvency.

Added to that, at the start of this year, the firm recruited Tina Brozman, the former chief judge of the US bankruptcy court for the southern district of New York, to establish an internationally-recognised foothold.

Certainly, if the example of Cadwalader is anything to go by, the bondholders in London are now ready and waiting to feed work to a US firm that they trust, provided it has the necessary high-yield experience. Andrew Wilkinson spotted the opportunity when he left Clifford Chance to open Cadwalader's London office in 1997, and the work has come streaming in.

The big jobs have lined up one after the other: advising the 1986 issue bondholders on the collapse of Barings Bank; the bondholder steering committee on the £150m restructuring of One Finsbury Circus; the bondholders in the £110m restructuring of Alpha Shipping… the list goes on.

Wilkinson says: "The business plan was to build on the insurance insolvency practice and take it in other directions using a big team in both jurisdictions. We have branched out and done a considerable amount of distressed debt work – we are attractive to distressed debt investors, which are generally either US hedge funds or New York or London-based investment banks. Over the last couple of years we have been involved in most distressed debt situations in Europe."

Bingham aims to set itself apart by moving into work for secondary bondholders from its background of working for the pars. While Cadwalader does some work for the pars, the practice is primarily focused towards distressed debt secondary bondholders, and Bingham hopes to end up with a broader base.

It will also hope to capitalise on the wave of insecurity sweeping through the London office of Cadwalader at the moment. Five partners have left in the last year, and though the departures have not come from the restructuring team (apart for Roome himself), clients may be wary about the unstable environment.

Problems aside, Cadwalader has in its three years in London shown that the US practices really have something to offer the domestic insolvency market in the form of high-yield debt experience and bondholder know-how.

It is less obvious, though, what CCRW will be able bring to the table in New York.

The firm has for a long time been planning a move into the US insolvency market, but it took the Rogers & Wells merger to attract the right people. Post merger, the first lateral hires were in the US, with the arrival of Margot Schonholtz and Mark Liscio from Morgan Lewis.

The pair brought work with them – the firm is now advising Credit Suisse First Boston (CSFB) as agent for a 13-member lending group in a $100m (£60m) cross-border restructuring and Chapter 11 for Morris Materials Holdings. It is also representing Bank of America, JP Morgan and Bank of Tokyo as agents in other out-of-court restructurings.

In London, head of insolvency and restructuring Mark Hyde says: "Margot is now head of the practice in New York, and in the first place her role is very much to service a domestic client base – a very important one in the States. It is a highly profitable area of business – they've brought quite a lot of work with them and have been incredibly busy.

"In the context of cross-border work, there haven't been huge steps forward because they've only been in place for a couple of months. At the moment it's more a case of positioning ourselves and slowly building up client awareness of our capability. It's very important for us here to be able to demonstrate that we now have US capability – it's a vital selling point for us."

The firm is advising the financial institutions – mainly banks and private equity houses – on the traditional lender work, as well as coming on side for the occasional corporate debtor.

But the cream work the US capability is ultimately aiming for major multinational restructurings, such as Barings, Maxwell and Peregrine. Here the firm is trading on its unrivalled international network.

Peregrine is a case in point. A major company, it is the largest local investment bank in Hong Kong, operating in 15 different jurisdictions and employing 17,000 people.

It was trading in complex derivatives and other financial products, and was widely described as a mini-Barings when it suddenly failed. A Clifford Chance team led by Hyde acted for PricewaterhouseCoopers (PwC) as liquidators, but had to call in Shearman & Sterling to advise on the US issues.

Hyde believes that the new team in New York means that the US side could, in future, all be handled by CCRW.

Hyde says: "In those kinds of jobs, where a major failure takes place on both sides of the Atlantic, there is almost inevitably an overspill into Europe. This type of job is the one you'd be looking to do – acting for the insolvent estate and selling off the viable businesses, litigation by or against the company, dealing with creditors' claims and constant cross-border issues."

CCRW is relying on the banks wanting a one-stop shop, choosing one firm on both sides of the Atlantic.

Terry Bond, lending services director at Barclays, says that is exactly what he is after, but there is a long way to go yet.

He says: "I'm very keen on the one-stop shop service. If I use an accountancy firm – say it's PwC – I don't have to worry what part of the world it's in – I know I'm going to get PwC.

"I have for some time thought that it would be a big bonus if you could achieve that for lawyers. If I've got an operation with 20 businesses around the world, I don't want to be involved with 20 different law firms. But if the firm is to do the whole of it for me, I need to be comfortable that I'm going to get the best service everywhere."

In the same way, the bondholders stateside are crying out for US firms to break into the European market.

Lisa Glass, associate counsel at the Metropolitan Life Insurance Company, one of the largest US insurance companies in terms of assets under management, says: "With [CCRW's] knowledge and experience of understanding how American lenders behave, if they're on the ground, then it's a big help for us.

"I think there's a unique set of issues that are common to American lenders in the way we behave and the type of investments we make. CCRW brings that understanding to the table when negotiating with European borrowers.

"The English firms are used to dealing in the lending situation with the banks, but the insurance companies have different types of issues and tend to be longer term."

The bondholder work is increasingly being shunned by firms that have dabbled in it.

But with the bondholders becoming increasingly powerful and taking more aggressive approaches, the firms which are advising them look like they will be well positioned for the cream of transatlantic work.

Wilkinson says: "We haven't really pitched for traditional insolvency work from banks because it's not really a market we want to be in. It's a market where the margins are much lower.

"High yield is very much a growing business, more companies are accessing the capital markets and there are more bond issues. Combine that with the growth in Europe of the secondary debt market and funds, which are often US-based, and you get a lot of insolvency work."

The bondholders in Ionica were instrumental in putting the company into administration, and because they were the major creditors, Cadwalader found itself advising the administrators in both London and New York.

Likewise, the bondholders in Barings – who torpedoed the original scheme – are infamous in the market for having taken a much more proactive approach.

With another bondholder in New York predicting a take-off in the European market, Bingham could be right to follow Cadwalader into a burgeoning area of work.

As the managing director of one of the world's largest pension funds says: "There seems to be an undercurrent of expectation that there are a significant number of companies going through corporate restructuring. I think there's a sense that the next wave will come from Europe.

"If I had a guess as to where things are going, what I'd be saying is that the M&A fever that brought problems to so many US companies is now coming to Europe."

The US market is preparing for a boom, too. Schonholtz at CCRW says: "There are pockets of our economy here which are not as strong as you might think. The movie theatre industry, for example, has problems. One after the other, they're filing for bankruptcy here.

"Retail is another area. There are so many types of retailers chasing the same dollars, that there's been a real shaking out."

With the market predicted to explode on both sides of the pond, the only surprise is that there are not more firms jostling to claim a stake in the market before the work comes flooding in. Both Linklaters and Lovells have US lawyers doing restructuring and insolvency out of their New York offices, though most of it is servicing the US end of work generated by the rest of the firm, rather than tackling the domestic market.

Allen & Overy is conspicuous by its absence from the Anglo-American rush, but according to insolvency and restructuring partner Nick Segal, it is gearing up for a move.

He says: "[The US financial institutions] are going to be significant players in the future for workouts, and so everybody is trying very hard to develop their resources in the US.

"I have a responsibility for developing the New York [insolvency and restructuring] law capability with a commitment to develop and strengthen the resource short term."

Over here, the obvious US candidates include Weil Gotshal and Shearman & Sterling. With strong corporate debtor and banker-led practices in the US, both have yet to export the expertise to their equally well-established London offices.

Bond at Barclays says that the US firms have a different approach to the UK players when it comes to the international stage.

He says: "I sense that the American firms have been prone to take more responsibility for the actions of overseas firms they are subcontracting to, and that they're more prepared to manage.

"UK firms are telling me yes, they can do that, but my experience is that US firms will do it as a matter of course. You know it's not them in Kuala Lumpur, but at least they will be taking responsibility for it."

It's a perception that the UK firms will be in a hurry to quash if they are to win the cream of the multinational insolvency work. And it is may be only a matter of time before the collapses once again start rolling in.