The big picture
Capital markets lawyers help companies, governments and other entities raise money through the financial markets. One side of the work is debt capital markets - advising entities borrowing money through the markets. This is mainly done by issuing bonds, tradeable pieces of debt sold by a company or other organisation (known as an issuer) to multiple purchasers (known as investors). Investors receive interest payments and, eventually, get the money back that they've lent, if they haven't sold the bond on. Bonds can be issued in many different forms - for different lengths of time, with different interest rates and in different currencies.
In some firms, the capital markets department includes equity capital markets lawyers, who help companies raising money by publicly listing their shares for sale. Alternatively, lawyers doing this kind of work may be part of a firm's corporate department (see above).
A capital markets group at a large commercial law firm is also likely to include lawyers working with derivatives.
How are lawyers involved?
On a bond issue, separate teams of lawyers advise the issuer and the investment banks involved in the deal. These investment banks act as underwriters, meaning they assist the issuer with the creation of the bond and take some responsibility for finding initial investors.
Lawyers draft the terms and conditions of the bond, making sure the documents comply with the requirements of the exchange where the bonds are to be listed. They also draft the agreements between the parties involved - with each team of lawyers protecting their client's interests as far as possible. Finally, they make sure that the issuer has disclosed all the information about themselves required for the bonds to be issued.
On a deal
Lawyers working on a bond issue will first advise on what type of bond should be issued. Next, the underwriters' lawyers will check the issuer's constitutional documents, accounts, major commercial contracts, details of its assets, and other information requested by the underwriters, raising any issues that investors should be aware of. This process also helps them to gather the information they need to produce the bond issue documents with the issuer's lawyers. The documents will include agreements between the issuer and the underwriters and an information document for potential investors in the bond. The lawyers also draft the terms of the bond itself, for example, how much interest will be paid and when, and whether investors will have any rights over the issuer's assets.
Finally, the bond issue is formally announced, the underwriters finalise who the initial investors will be, and the lawyers finish negotiating the documents. The exchange listing the bonds for sale will review the documents and, once they're happy with them, they're signed. Lawyers confirm that all the conditions to the bonds being issued have been satisfied. Then, the bonds are issued to investors and the money raised is transferred to the issuer, which is known as closing. Lawyers might then pass on any documents that couldn't be filed before closing to the exchange and will send original signed versions of the transaction documents to their clients.
Typical trainee tasks include:
- preparing the documents produced for potential investors in a bond
- dealing with practical aspects of a transaction, particularly when documents are being signed
- analysis of stock exchange listing rules and bond-related regulation.
The areas of law capital markets lawyers use include:
- contract law
- financial services regulation
- insolvency law
Emma Matebalavu: capital markets partner at Clifford Chance
What kind of deals do you work on?
I mainly work on securitisation deals, which are a particular type of debt capital markets transaction. They allow companies to raise a lump sum of money using income-providing assets they own. The assets could be credit card loans, mortgage loans, student loans, personal loans or car loans.
The company raising money sells the assets (and the rights to receive the repayments) to a company, known as a special purpose vehicle or SPV, set up for this purpose. The SPV issues bonds to pay for the assets. The investors that buy these bonds will be paid out of the income from the assets.
What kind of clients do you act for?
In the capital markets department as a whole, we act for all kinds of clients. We act for corporates. We work on sovereign debt issues, that is, where governments raise money by issuing bonds - we've recently worked with the Republic of Seychelles and Croatia. We've also recently helped establish the European Financial Stability Facility which has issued bonds to fund the bail-outs of Greece and Ireland. We have some quasi-sovereign entities as clients, such as big nationalised rail companies. We're doing a lot of work for banks at the moment because of the new regulation coming in as a response to the financial crisis which requires them to hold more capital in reserve.
The clients on my type of deal tend to be banks, but I've also worked on securitisations for Sainsbury's and for BAA Airports in relation to the landing fees they charge airlines and the retail operations at their airports.
Can you tell us about a deal that you've worked on recently?
I've recently worked on securitisations for RBS and Lloyds TSB. As on many of my deals, we spent more time working on the structure of the transaction at the beginning than lawyers working on an ordinary bond issue might do. Early on in our deals we also have to investigate and understand the assets involved, which in the case of the RBS and Lloyds TSB deals were mortgage loan repayments. Then we work on setting up the new company to purchase the assets and on the sale of the assets to it. Finally, we work on the bond issue itself.
What do you enjoy about your practice area?
I like the fact that capital markets work is all about doing a deal - people are coming together to achieve the same thing. Obviously there'll be some negotiation of the documents as they're drafted, but generally speaking no-one is adversarial.
I like my work in securitisation in particular because there are plenty of intellectual challenges. The financial structures we use are complicated. There's also a lot of in-depth legal analysis because the rating agencies who assess our bonds for the markets ask for complex legal certification of them from us.
Capital markets work is very international. Many of the companies using the London markets to raise money aren't headquartered in the UK, but are foreign companies who recognise that listing their bonds in London will make them attractive to investors. This means that capital markets lawyers can work pretty much anywhere in the world because wherever they are, there'll be investors seeking an English-law bond issue.
What kind of person is suited to your practice area?
Capital markets lawyers do a lot of technical legal analysis, but don't look at this area if you're only interested in giving legal advice. Our work is a mixture of applying legal knowledge and running transactions.
What are the current big issues in your practice area?
Regulation - lots of new rules are being introduced in response to the financial crisis. We have to be aware of changes, work out what impact they will have on our clients and make sure that we're giving the correct advice.