Am I missing something here? Restructuring lawyers keep telling me that the economy is showing sure signs of an upturn, thereby resulting in a marked slowdown in fee-rich bread and butter workouts. Remember, these are restructuring experts that are saying this. Yet here we have two US firms, Orrick Herr-ington & Sutcliffe and Akin Gump Strauss Hauer & Feld, making a serious play for the European bankruptcy and debt restructuring market.
In one way you can’t blame them. Everyone has watched the success of London’s powerful duopoly, Cadwalader Wickersham & Taft and Bingham McCutchen, absol-utely cleaning up, particularly for bondholders, in the past two years.
Of course, there is nothing wrong with a bit of competition. Just recently, Weil Gotshal & Manges won out against Cadwalader and Bingham to act on French computer group Bull’s restructure. The fact that Weil Gotshal’s Parisian lawyers had already spent time acting for some bondholders, gaining in-depth knowledge of the company, and had lawyers on the ground courtesy of its relatively new Paris office, bolstered the firm’s position.
While at Latham & Watkins, through the likes of partners Bernard Nelson, John Houghton and James Chesterman, there is a credible alternative steadily building here.
When The Lawyer 100 revealed that at Cadwala-der’s London office, equity partners took home an average of £1.8m in 2002, it probably helped stoke the fires of ambition.
But on the face of it, Orrick’s and Akin Gump’s plans do seem quite baffling. Why attempt to grab a slice of market share now, at this stage of the game? It’s not as though the firms are making a half-hearted stab at prising open Cadwalader’s and Bingham’s clam-like dominance in London.
Just last week, it was revealed that Daniel Golden, head of Akin Gump’s New York financial restructuring group, is now planning to spend at least one week out of every month working from the firm’s London branch. And Golden is no small fry: the well-regarded New York partner is currently working for the official creditors’ committee for WorldCom.
Over at Orrick, you could almost hear a trumpeter’s fanfare bouncing off the City walls as Tony Princi, co-chair of the firm’s bankruptcy and debt restructuring practice, rode into town last month.
In terms of staffing up, both Akin Gump and Orrick have more or less moved at the same pace. Last October, Rey Stroube, restructuring expert and head of Akin Gump’s London and Houston offices, landed in the UK and recruited former Herbert Smith insolvency lawyer Janet Bellwood as a partner. While at Orrick last year, partner Adrian Harris switched over from O’Melveny & Myers as head of the firm’s European insolvency and restructuring practice. In London, Orrick has five lawyers dedicated to this practice, making it the largest bankruptcy and debt restructuring practice outside the US, second only to New York, which has 11 lawyers. That’s some pretty speedy acceleration.
Akin Gump’s London practice is still a tiddler within its 52-lawyer financial restructuring group. The three-lawyer operation, not including Golden, is the smallest out of the entire firm where, like Orrick, New York dominates with 18 lawyers.
Since the two began their respective surges into Cad-walader and Bingham’s territory, Orrick seems to have had more of an impact in terms of deals – though possibly not for the best reasons.
Acting for holders of bonds in Avon Energy Partners Holdings, a subsidiary of Aquila Sterling which owns Midlands Electricity, Orrick was ultimately replaced by Cadwalader. And after winning the mandate for the noteholders in First Hydro, owned by Edison Mission Energy, Orrick was again replaced by Cadwalader. Amazingly, the firm says that both these deals are “inconsequential”. One might, however, argue that the £1.1bn sale of Midlands Electricity, in which the Avon bondholders have been instrumental after deciding not to accept a deal on their notes from Scottish and Southern Energy, which subsequently pulled out (Powergen is now rumoured to be in the frame), is definitely not ‘inconsequential’.
For a firm looking to make its mark in a small incestuous market such as London, this is most definitely a setback. However, the firm is winning roles on other interesting transactions, including troubled tour operator MyTravel, and has fought off rival firms for the Luxembourg Millicom International Cellular deal.
Akin Gump has been slightly less high-profile, although it has notched up a mandate on the Luxembourg-based conglomerate Stolt-Nielsen. Apparently there are lots more deals in the pipeline.
In terms of clients, Akin Gump does seem to have a credible knowledge of the movers and shakers over here and has indeed serviced them from the US, including Houlihan Lokey Howard & Zukin, Rothschild and Lazards. It also hopes to capitalise on its relationship with M&A and restructuring firm Chanin Capital Partners, which last year entered a strategic alliance with key UK player Close Brothers Corporate Finance.
For Orrick, Holihan figures highly, as well as smaller players such as hedge fund SISU Capital.
But this brings us back to the original question: just how much work is there? And is it enough for both firms to launch credible practices? Of course, there are companies who raised high-yield debt in 1999 and 2000, and their balance sheets may need re-shaping – apparently between 6 to 8 per cent of all public debt issued goes bad.
Meanwhile, distressed debt investors are currently living high on the hog in Germany, where it is estimated there is E325bn (£228.5bn) of distressed debt currently mouldering away. The fact that Orrick or Akin Gump do not have a presence there is not of concern to them: Cadwalader and Bingham have managed well enough with no Continental European reach – although the Weil Gotshal/Bull deal does show the advantage of local coverage.
On the other hand, Orrick argues that its presence in Italy and France will give it an edge in attracting mandates.
The point is, even investment bank restructuring desks do not see the current surge lasting for more than the third quarter of 2004 at the very most – not the “two or three years” that one US partner, rather over-enthusiastically, projects. Of course, a slowing restructuring market can be the very best time to get to know the key deal-givers in the UK and Akin Gump and Orrick say that they are here for the long term.
Both firms really have got their work cut out for them.