White & Case stakes its claim on the CDO sector

The US firm is challenging CDO topdog Ashursts – with help from Linklaters

White & Case stakes its claim on the CDO sector” />White & Case may not have set the City alight in acquisition finance, but there’s one part of its London business that’s romping away: structured finance, and in particular the collateralised debt obligations (CDO) practice.

Whereas most City firms have huge difficulties in gaining market share against the big guns of Allen & Overy (A&O) and Clifford Chance, this isn’t the case with CDOs. A number of smaller US and UK players have managed to build serious practices with limited partner resources.

At Ashursts, Erica Handling – named Partner of the Year at last year’s Lawyer Awards – has rightly garnered most of the attention. After all, it was Handling, during her days at Weil Gotshal, who advised on Eurocredit, the first ever CDO in Europe, and who subsequently snagged a large proportion of cash-funded CDOs of leveraged loans.

CDOs aren’t just about leveraged loans any more – asset-backed securities make up a growing proportion of the deals – but Handling has been the acknowledged queen of the leveraged loan CDO for the past three years. Her practice, together with fellow finance partner Michael Smith, who has most of the collateral managers sewn up, is a classic case of how well a highly specialised team can do. After all, Ashursts is hardly known for general capital markets.

With CDOs so buoyant – despite the fact that high yield as an asset class has tanked – it’s an attractive sector for a number of firms with finance ambitions but limited capital markets capability. At Milbank Tweed, John Walker has built a solid business advising the likes of Goldman Sachs and JP Morgan. Dechert, with John Gordon, has also been active. New Herbert Smith partner Jake Jackaman, formerly of White & Case, has also made a showing, acting for collateral manager AIB on the Galway Bay deal.

Meanwhile, Mayer Brown Rowe & Maw, which has a massive securitisation business in the US, is also looking to get in on the scene. This has been underlined by its hire of Richard Ambery from Dechert and its courting of John Woodhall, former securitisation head at Clifford Chance. Woodhall eventually wound up at Sidley Austin Brown & Wood – another firm with ambitions in this area.

Amid all this activity, White & Case is emerging as a rival for Ashursts’ CDO crown, mostly thanks to US partner Rich Reilly, who joined the firm from Weil Gotshal in May 2001 and then moved to London.

But he hasn’t built it by acting for collateral managers. Plenty of other firms have taken that route into the market – Ashursts is one, Dechert another and Herbert Smith a third. In fact, Ashursts may be a victim of its own success; it may well have to work out if it wants to move away from its collateral manager client base to focus solely on the more lucrative arranger-led deals.

That’s a problem White & Case doesn’t have. Through his New York contacts, Reilly started acting for the arrangers early on, and the firm is now deal counsel of choice to Morgan Stanley (along with Ashursts) and Merrill Lynch in European CDOs. In recent months Morgan Stanley has used Reilly’s team on the Rembrandt, Pallas, Clare Island, Galway Bay and ESAF Navigator deals.

White & Case really started making its presence felt when it crashed into the market on the e250m (£152.5m) tap issue for Duchess I, a Duke Street Debt Capital CDO in February 2002. When Freshfields turned the job down, citing lack of resources, Reilly – who had been advising monoline insurer FSA on Duchess I – saw his chance and landed the role advising arranger CIBC World Markets and Société Générale.

And Duchess is a splendid deal to have on the CV; not only was it the largest leveraged loan CDO in Europe, but it was interesting on a technical level, using portfolio currency swaps that created a whole new model for the rating agencies to test.

White & Case has had other nice deals on its resumé, most notably one that closed last week. Reilly, along with UK-qualified partner David Barwise and lead associate Dhanesh Sanichara, worked on the e409m (£285.5m) Partholon CDO for JP Morgan. It’s the first deal White & Case has done for that particular arranger, while Ashursts’ Michael Smith, along with A&L Goodbody’s Ciaran Rogers, advised collateral manager Bank of Ireland.

On the face of it, Partholon looks like yet another cash-funded leveraged loan CDO, but in fact it’s the first major structured deal in Ireland since changes to the Irish securitisation laws in March 2003.

But cash-funded CDOs are only part of the story; the number of synthetic deals has mushroomed in the past year or so. It’s difficult to gauge any law firm’s market share of synthetic deals, because so many of them are privately placed. But the growing popularity of synthetic CDOs means that a decent derivatives capability is vital, because synthetic transactions shift risk by using credit derivatives.

And, of course, this is where the larger firms can reassert themselves. At Clifford Chance, Rachel Kelly or Neil Hamilton can bring in either Claude Brown or Habib Motani; at A&O Angus Duncan can call on David Benton or Richard Tredgett. But firms with smaller capital markets practices don’t always have the luxury of a fully-fledged derivatives service on tap. Hence the significance of White & Case’s investment in this area with the appointment of Rachel Pilley, formerly of Linklaters.

In fact, you can’t help wondering if White & Case’s capital markets practice is turning into Linklaters in exile: not only did co-head Rachel Hatfield spend her formative years there, but so did new structured products partner David Barwise and another recent lateral, Tim Jeveons.

And while other structured finance groups in the City have remained relatively small, from a standing start White & Case now has 18 structured finance associates, an astonishing 12 of whom have come from Linklaters. Now that’s what you call momentum.