Debt Issues and Structured Finance
Mittelstand bonds abate, hybrid and high-yield in ascendancy
The storm that was gathering the previous year came to a head in 2015: the market for Mittelstand bonds collapsed. Numerous cancellations and insolvencies accompanied the demise of this once much-touted stock market segment, leaving only restructuring cases in its wake. Given the segment's euphoric beginnings and the high number of cancellations, there is now a great deal of debt restructuring work to be had.
Furthermore, the market for high-yield bonds is booming. Schaeffler, for example, issued high-yield bonds to the tune of €2bn. The issues were part of a comprehensive refinancing of debts on the holding level. Numerous other companies such as TUI, Sunrise and Hapag Lloyd also issued high-yield bonds. These so-called junk bonds were popular among investors.
Another development that emerged from the current environment of low interest rates was the trend toward hybrid bonds. The advantage for companies here is that half the bond is attributed to the company's equity and can thus improve their rating. Contingent convertibles, or “CoCo” bonds are a special form of hybrid which, due to the risk of default, seem enticing with their high interest rates.
The regulatory landscape is changing
The changes to regulations continued to play a key role in structured finance. The Solvency II Directive caused a stir among insurance companies in late 2014, while the European Market Infrastructure Regulation (EMIR) gave rise to prolonged demand for advice in OTC derivatives. Auto-loan securitizations continue to generate masses of work and tempt with big names, but they are still subject to huge pressure in terms of margins.
High-yield specialists benefit from market development
The collapse of the market for Mittelstand bonds primarily affected those firms that had specialized in this segment, such as Mayrhofer & Partner and Heuking Kühn Lüer Wojtek. Now they have been forced to adapt and shore up with convertible and exchangeable bonds, which are still being issued. Restructuring Mittelstand bonds also provides opportunities.
Meanwhile, the winners in current market developments include firms which have concentrated on high-yield bonds: besides Latham & Watkins, which has long dominated this market, White & Case is also a successful outfit in this field, with the arrival of a successful partner from Allen & Overy providing a boost here. The latter in turn won a partner from Ashurst, with whom the firm is finally set to implement its plan of developing debt program work.
Latham & Watkins was also in high demand for hybrid bonds, which were otherwise the province of market leaders Freshfields Bruckhaus Deringer, Hengeler Mueller and Linklaters.
Reinforcement at Hogan Lovells and Mayer Brown
Staff moves caused a stir at some outfits: Hogan Lovells bolstered its securitization practice with a partner from Baker & McKenzie, thus underlining its position in auto-loan securitizations. Baker & McKenzie lost an important partner but the firm was already undergoing a reshuffle. King & Wood Mallesons, however, lost its figurehead in certificates and derivatives advice and must now develop the business from the Munich office.
Freshfields Bruckhaus Deringer assumed a top position in regulatory matters, while King & Wood Mallesons is also sought after here and Mayer Brown established a pillar in advice on derivatives regulation with a lateral from Allen & Overy.
This subchapter deals with practice areas within debt capital and structured finance (securitizations, derivatives, distressed loans). The two segments occasionally overlap, as the boundaries between some debt products and structured finance are blurred. Clients are often advised on both practice fields by one firm. However, only a few firms operate in both fields with the same intensity, and they usually have separate teams in each. There are therefore separate tables for debt issues and structured finance.