If there's one thing to be learned from this week's headlines about Marconi's bonds having fallen to crisis levels, it is that there is no such thing as certified high-quality investment.
With creditors exposed to Marconi's junk-status credit rating and bondholders stepping up pressure to renegotiate existing loans, the group is coming to terms with the fact that it must act, and act soon.
The two syndicated loan facilities worth £4.6bn were arranged by HSBC and Barclays in March 1998. David Morley led the team at Allen & Overy (A&O) advising Marconi, while Malcolm Sweeting led the Clifford Chance team advising the banks.
Since then, Clifford Chance's newest banking and restructuring addition, Nicholas Frome, has moved in to renegotiate the deal, which hit the rocks while Sweeting was on holiday.
Whereas investors normally ensure that loan agreements include some sort of financial covenants, in the case of Marconi, the investment was seen as so safe that the precaution was overlooked. Instead, a Material Adverse Change (MAC) clause was put in, allowing the investors to withdraw the facility if the value of the company was to decrease.
Because Marconi is not in breach of covenant, it does not have to enter discussions with bondholders. However, if a wrong MAC prediction is made and the loan is accelerated causing loss then the investors can face liability action.
This outcome makes it rare for a bank to accelerate a loan on the basis of a MAC and, in the case of Marconi, the banks will probably be left with two solutions – to leave the loans as they are or to deny the company further access to the loan. The latter is considered to be the most likely, although Marconi is still insistent that it has no immediate plans to renegotiate the loan facility.
But Marconi is likely to be just one of many companies forced to restructure syndicated loans and high-yield debt. The telecoms sector has been hit particularly hard. But following the tragic events of 11 September, the airline, hotel and insurance industries can all anticipate that there will be troubles ahead.
Clifford Chance's recent high-profile recruitment of Frome shows that it is gearing up for more work, as should some of the other big players – A&O, Ashurst Morris Crisp, Cadwalader Wickersham & Taft, Latham & Watkins, Bingham Dana, Lovells and Shearman & Sterling.
US firms in London are beginning to talk about using US bankruptcy techniques in Europe. Providing that a company has property in the US, or has US bondholders, it can be advised under Chapter 11 of the US Bankruptcy Code. (Although this would of course be rendered useless without the recognition of the courts in the company's own jurisdiction).
Chapter 11 has been used to restructure high-yield debt where investors are often US-based. Not unlike the Insolvency Act, Chapter 11 gives troubled companies breathing space. However, it also has the power to raise finance.
Two years ago, ICO Global Communications was filed under Chapter 11 using a small subsidiary in Delaware. Rather then using one law firm, it instructed Freshfields (now Freshfields Bruckhaus Deringer) on UK law and Shearman & Sterling on US law.
The trick is to be able to provide UK and US law. The London offices of US firms Bingham Dana, Cadwalader and Lathams all have their fingers on the pulse. In fact, they are practically bursting with the excitement of it all. Clifford Chance and A&O are a bit slower off the mark – both have US restructuring capability in New York, but neither have started visibly rising to the challenge in London yet.
Some say that Chapter 11 is unlikely to take off in Europe. However, we might wonder whether there is possibly more to this furore than immediately meets the eye.