CC in financial U-turn as it dumps $150m placement

Magic circle firm rejects borrowing experiment out of hand; balance sheet benefits to tune of millions

Clifford Chance

has dramatically abandoned its financial strategy of the last three years and redeemed its entire $150m (£79.6m) private placement in order to return to a more conventional borrowing policy.

The move, initiated by chief operating officer David Childs and finance director William Barnes, ends a period of financial experimentation. The debt will now be transferred to a loan facility with Barclays, Royal Bank of Scotland and HSBC in March.

In exchange rate terms alone, the firm will have made a saving of over £16m because of the steep decline of the dollar, but it is thought the ‘make whole’ repayment to investors is considerably less.

A Clifford Chance source said the move would improve the balance sheet by several million, but that it would have no effect on the profit and loss account.

Clifford Chance made the private placement in December 2002 to take advantage of cheaper borrowing rates. The bond issue was led by Barclays and was split into two tranch-es, including $105m (£65.5m according to December 2002 exchange rates) of 10-year bonds with a yield of 5.4 per cent and $45m (£28m) of 20-year bonds at a 6.5 per cent yield. They were given the equivalent of an ‘A’ rating.

However, management has since had to fend off internal criticisms about the inflexibility of the borrowing arrangements.

In July 2003, the firm did not pay its quarterly profits distribution due to the private placement covenants after slow cash collection brought down its retained profits to its £160m minimum.

The magic circle firm’s move closes a chapter in law firm financial management. When it issued its private placement, other UK firms considered following suit because of the cheaper money available and the appetite of US life insurance companies to invest their money. Clifford Chance has since moved much of its borrowings away from bank facilities and back to its equity partners.