A&O and Clifford Chance advise on first loan in euros

GEC has used Allen & Overy, rather than its usual adviser Freshfields, to draw up the documents for the world's first euro-denominated syndicated loan.

The loan has been cited by the Bank of England as an example of how London will continue to hold its own after monetary union, said Allen & Overy banking partner David Morley who worked on the deal, assisted by Angela Salisbury.

An active bond market in euros has already developed over the past year, but this is the first time a company has sought a syndicated loan in euros.

With the imminent arrival of the single currency, there is a fear that Frankfurt will take over from London as the European financial centre. But Morley said this deal had helped to allay these fears.

“The introduction of the euro will have a dramatic impact on capital markets,” he said. “In the most optimistic scenario, the euro capital markets will come to rival the US in size and liquidity and London will be the centre.”

Raising a Eu6bn revolving loan for such a huge and respected client, which is widely known to be building up a war-chest for acquisitions, means A&O is well placed to do further work both for GEC and for others seeking euro-denominated syndicated loans.

“We are very excited to have led this unique transaction and look forward to continuing our leading role in this innovative area,” said Morley.

Because GEC was a respected borrower, it insisted that its own counsel, Allen & Overy, drafted the documents.

For the syndicate of 28 banks, Clifford Chance partner Malcolm Sweeting, assisted by Dominic Ross, checked and commented on the documents.

Although the full financial basis of the euro had yet to be worked out, the documentation was not too problematic, said Morley, because it was already “pretty clear” how the euro would operate.

For example, he said, banks would open for business to trade euros every weekday except Christmas and New Year, as allowance for the national holidays of every country would mean that the euro would be unable to trade on 50 days each year. Interest rates would be calculated assuming a 360-day year rather than the 365-day year used for sterling.

Ross, from Clifford Chance, said: “Clifford Chance and Allen & Overy are the two City firms with the most expertise in the area.” He said his firm may have been appointed because some Clifford Chance partners had already been advising some of the arranging banks on the impact of the euro. His office was currently advising banks on two other euro-denominated loans, he said.

The eight underwriters and arrangers were Barclays Capital, Banca Commerciale Italiana, Banque Nationale de Paris, Chase Investment Bank, JP Morgan, Midland Bank, SBC Warburg and WestLB.