SIV restructurings alone do not a structured finance industry make

Despite a stay of execution, structured finance lawyers are still at risk, says Julia Berris in New York

SIV restructurings alone do not a structured finance industry makeLayoffs have begun to plague law firms on both sides of the Atlantic, with transactional teams in particular starting to dwindle in size.

Despite being the darling of the boom ­period, structured finance has been one of the most ­dramatically affected practice areas, leaving the magic circle and its US counterparts struggling to maintain a steady flow of work.

Clifford Chance was the first firm to make layoffs, losing six associates from its New York structured finance team in November last year. Cadwalader Wickersham & Taft followed suit soon after, making 35 associates redundant in January.

Thanks to a recent wave of structured investment vehicle (SIV) restructurings, however, the immediate future of structured finance teams could be secure.
But saying that, are these deals enough to see these teams through the dark credit crunch days – or should firms beef up in more ­reliable practice areas and ­abandon this niche altogether?

Last month (18 June) The Lawyer reported on a host of UK and US firms advising on a series of long-awaited SIV restructurings. Clifford Chance’s David Steinberg led the firm on its advice to Goldman Sachs on its $7bn (£3.52bn) restructuring of Cheyne Capital SIV. Lovells partners Robin Spencer and James Doyle advised the receivers Deloitte on the deal.

The restructuring is the first in a series and is thought to involve the restructuring of $18bn (£9.04bn) of assets in two other SIVs – Rhinebridge and Whistlejacket.

As well as Clifford Chance and Lovells, a number of firms were involved in advising creditors, including Milbank Tweed Hadley & McCloy and Orrick Herrington & Sutcliffe, which advised Cheyne senior creditors Bank of America.

“The City breathed a sigh of relief when the process was finally completed,” says one magic circle partner. “It took a long time for Goldman Sachs to be selected and there was definitely concern it would just fizzle out.”

Structured finance and restructuring lawyers teamed up to take on these heavy-duty restructurings, giving many in the US and the UK hope that structured finance lawyers still have a significant role to play despite the ­liquidity crisis.

“Structured finance is not going away,” says Orrick London managing partner Martin Bartlam. “It remains an innovative area of financing and deals will happen again. The problem at the moment is the lack of liquidity in the ­market. This will change and we as a firm will maintain our commitment to this area.”

Orrick’s commitment to structured finance has seen it hire while others have fired from their ­structured finance teams. In May the firm signed up Hunton & Williams partner Mark Fennessy and his team to bulk up its ­London ­capabilities. At Hunton, Fennessy played a crucial role in the structuring and restructuring of Cheyne.

Last week (30 June) The Lawyer reported on Orrick’s New York office snaring former ­structured finance star Howard Altarescu from Goldman Sachs.
“For SIV restructuring you need to have the right mix of capabilities,” says Fennessy. “As well as strong restructuring capabilities you have to have the structured finance element, US securities and tax elements to make all of this work.”

While Clifford Chance and Freshfields Bruckhaus Deringer have secured the lead financial institution roles on the restructurings so far, a number of US firms have taken on some aspects that UK firms cannot do. For example Sullivan & Cromwell – always ­particularly close to Goldman Sachs – took on the US securities aspect of the Cheyne restructuring.

But, if UK firms are not always going to be capable of completing the whole restructuring, are these deals lucrative enough for structured finance teams in the long run?

“It has long been a criticism of UK firms that they don’t have the local US capabilities in a number of different remits,” says one US partner. “For restructurings such as these you need the US securities element because of their exposure in the US. This is an expertise that is held mainly by US firms such as Sullivan & Cromwell.”

While the Goldman Sachs SIV project has been successful, failed SIV restructurings have ­disappointed City firms as well.

Last year (24 October) The Lawyer reported on Allen & Overy partner Geoff Fuller leading the firm on Citigroup, Bank of ­America and JP Morgan’s $75bn (£37.68bn) super fund designed to alleviate the impact of the ­credit crisis on SIVs.

Chicago-based Mayer Brown partner Jason Kravitt advised the three structuring banks on the US aspects, while Cleary Gottlieb Steen & Hamilton partner David Sugarman advised the banks ­providing liquidity.

“There was a lot of hype in the press about this as there was with Goldman Sachs’ restructurings,” says one partner close to the deal. “It fizzled out late last year because there were so many banks and individuals involved it was ­impossible to get the important decisions made. ­Typically with these types of restructurings there are a lot of people involved and they are hard to fully complete.”

SIV restructurings have provided a potential lifeline to structured finance teams that have been under threat since last summer. While UK and US firms have scooped roles on these deals, there is not enough work to sustain an entire industry.

SIV work may have given ­structured finance lawyers a stay of execution but, for the meantime at least, their specialisation is far from secure.

Recent restructurings

• Allen & Overy (A&O) and Mayer Brown advised ­Citigroup, Bank of America and JPMorgan as the structuring banks of a $75bn (£37.68bn) super fund that aimed to acquire assets from volatile investment vehicles for more than their true value. The so-called super fund aimed to alleviate the impact of the ­credit crunch by rescuing a number of SIVs. Cleary ­Gottlieb Steen & Hamilton partner David Sugarman advised the liquidity banks.

• Last year A&O won the ­mandate to advise RBS on its series of SIV restructurings. When RBS backed out, Clifford Chance was selected from a beauty parade said to include Deutsche Bank and Morgan Stanley to take on the ­restructuring of three SIVs – Cheyne, Rhinebridge and Whistlejacket – thought to incorporate $18bn (£9.04bn) worth of assets.

• David Steinberg led Clifford Chance in advising Goldman Sachs on the Cheyne and ­Rhinebridge restructurings, while Lovells partners Robin Spencer and James Doyle advised receivers Deloitte. Freshfields ­Bruckhaus Deringer won the mandate to advise Goldman Sachs on the Whistlejacket restructuring, while Clifford Chance advised receiver Deloitte.