Capital what now? Buying and selling debt or equity-backed securities is big business, which of course means work for lawyers. Over to the good folk of Davis Polk...
In simple terms, what are capital markets and what do capital markets lawyers do?
Aya Aboulatta, NQ: Capital markets are essentially a platform for public companies to raise finance through issuing shares (equity finance) or bonds (debt finance) to public investors. This has the benefit of reducing a company’s dependence on the financial resources of its founding shareholders, lending banks and/or venture capital investors. A capital markets lawyer’s work ranges from assisting a private company to carry-out the necessary corporate restructuring before going public; drafting the prospectus/listing particulars for the shares/bond; and guiding the company/its advisors through the initial public offering (IPO) process, to advising the company on its day-to-day disclosure and reporting obligations after listing shares/bonds on a stock exchange.
Jack Kelly, associate: On a capital markets transaction there will usually be at least two sets of lawyers, with one set representing the company issuing the securities and the other representing the investment banks underwriting the transaction. As issuer’s counsel, you will typically conduct a due diligence review on the issuer; draft (and verify) the prospectus and other disclosure documents; negotiate agreements between the issuer and its advisers; and coordinate and implement any required corporate restructuring and governance arrangements, all while advising the issuer on the process. Underwriters’ counsel will take the lead on drafting the agreement governing the relationship between the underwriters and the issuer, coordinating any interactions with analysts who may wish to publish research on the issuer and engage with other advisers in respect of the delivery of a “comfort package”, all while advising the underwriters on the process.
How would you describe the nature of the work? Academic? Procedural?
Jamie Corner, European Counsel: The good thing about capital markets work is that it is a rich blend of regulation, procedure and commercial judgement. You also interact with companies across a broad range of sectors, which means you are always learning about how different businesses work. Whilst you need to have a deep understanding of the rules and regulations (and their implications on the transaction at hand), and there are tried and tested processes for executing capital markets deals, the real value add that a lawyer can bring is to be able to apply the rules and develop the processes to meet client needs. You can only do that if you understand the commercial rationale for the transaction and have a feel for investor sentiment and market conditions.
JK: Capital markets work is usually both academic and procedural. To be an effective capital markets lawyer you need to be on top of any developments in company, financial services and contract law. No two transactions are ever the same and they almost always throw up specific technical questions, the answers to which may require detailed research and discussions with the relevant regulator. At the same time, having detailed knowledge of the offering process is key for any capital markets lawyer and in the past couple of years there have been some significant changes to the UK IPO process with which issuers and their lawyers have had to grapple. As a junior lawyer, quickly coming to terms with changes in legislation can offer you the opportunity to take a leading role on a transaction.
“There is a cast of thousands on a capital markets deal.”
Who are some of the main players/clients/parties you interact with?
JC: There is a cast of thousands on a capital markets deal, though the London community is fairly tight-knit and a good thing about this area is that you develop good working relationships (and even friendships!) with many of the key players over time. A capital markets lawyer will benefit from building contacts with investment bankers, financial advisers, accountants, registrars, financial PR advisers, financial printers and, last but not least, other lawyers to help hone skills and be able to give the best possible advice to your clients.
Dan Hirschovits, partner: There are a whole host of market participants, including companies seeking to raise capital (whether for the first time, such as by way of an IPO, or an already listed company raising further capital); controlling shareholders and other major investors in companies seeking to sell or buy securities; investment banks who help structure, facilitate and underwrite capital raising transactions; other advisers such as accountants, PR and registrars; regulators, such as the FCA, who oversee the rules and standards applicable to companies and transactions on stock exchanges; and industry bodies who consult with, and lobby on behalf of, certain interest groups active in the capital markets.
How is the work different from that done in other transactional spaces such as M&A or banking?
AA: Transaction management can be quite demanding given the significant number of parties involved and the heavy email traffic. Also, parties tend to be more aligned rather than the often “adversarial” nature of M&A transactions. As a result, parties tend to spend less time on negotiations and more time on getting the deal done.
JC: Generally speaking, all parties to a capital markets transaction want the same thing – to successfully execute the trade. There is only one deal team and no sense of “them and us”, which creates a spirit of collaboration where you are all working together against the clock to launch the deal into the best possible market conditions.
What impact is the current political and economic climate having on the capital markets space?
DH: It is certainly making market conditions for raising capital and selling securities more challenging whilst so much economic and political uncertainty remains. It places additional focus on a company’s “equity story” and rationale for raising capital; parties being ready to launch a transaction in tighter windows when market conditions provide the optimal opportunity; and perhaps issuers and sellers being prepared to be more flexible as to deal terms.
JK: Uncertainty is generally bad for capital markets activity and Brexit has created significant political and economic uncertainty in the UK over the past couple of years. That said, London is an international listing venue and for many companies seeking to list in London, Brexit-related uncertainty will not materially impact their transactions. While companies which are more exposed to Brexit-related uncertainty may face higher execution risk and may feel that it will be more challenging to seek a fair valuation for the securities offered, they will by no means be prevented from coming to the market.
“Market practice on IPOs in the UK is still developing.”
How do you see the market evolving in the next few years?
DH: Continued strong competition between the major international stock exchanges in London, New York and Hong Kong, each vying for pole position in terms of value and volume of capital raising by international companies. However, it will be interesting to see if China is successful over coming years in making its capital markets more accessible to international companies and investors, as recent initiatives such as the Shanghai-London Stock Connect have sought to do. It is very early days and too soon to make predictions about the impact of block-chain technology and crypto-assets on the international capital markets, not least given the continued uncertainty regarding their regulatory treatment, but this will be an area to continue to watch with interest.
JK: With the recent introduction of the EU’s new Prospectus Regulation, it’s difficult to see the regulatory infrastructure changing too much on an EU-level. At the UK-level, it is less easy to give a firm view on the direction of the market: although it is anticipated that the Prospectus Regulation will be carried over and implemented in the UK following Brexit, that will be subject to the final outcome of the Brexit negotiations and, in addition, market practice on UK IPOs is still developing following the FCA’s reform of the UK IPO process last year.
What was your role on the latest deal you worked on?
AA: I worked on a debt tap issue transaction where I was responsible for drafting the issuer’s board approvals of the transaction; liaising with the issuer on various corporate matters; and drafting and negotiating the English law opinion on the transaction documents with the banks’ legal counsel.
JK: The latest deal I worked on was an (ultimately aborted) issuer-side IPO and premium listing on the London Stock Exchange’s Main Market. On this transaction I took the lead on drafting the prospectus and ancillary documents, ensuring that the company’s post-IPO corporate governance structures were prepared and generally advising the company as it prepared to transition from a privately held company to a publicly-listed one. A key part of my role was liaising with the company’s sponsor to manage the transaction process and ensure that all advisers were working efficiently towards the company’s end-goal.
What was the most interesting deal you worked on?
JC: I don’t think I have ever found a deal uninteresting. Each one of them has presented its own challenges and complexities which is why I enjoy my job. I have been fortunate enough during my career to work on some of the largest and most complex equity capital markets transactions, including the first rights issue of a dual-listed company, the proposed largest ever UK rights issue; the largest UK IPO by a private equity sponsor; and the government sell-downs of Royal Mail; Lloyds and RBS. However, the most interesting deals are not always the most high-profile ones – it is technical complexities that I really enjoy dealing with.
DH: It is rare that a deal doesn’t throw up interesting legal and commercial issues that are novel to that transaction specifically, regardless of its size in financial terms or market recognition. As a junior lawyer, I was fortunate enough to have been involved in a number of the UK bank recapitalisations that were a feature of the credit crisis in 2007/08, where there was a real sense of urgency and testing of market boundaries.
“The most interesting deals are not always the most high-profile ones.”
Is the stereotype that capital markets lawyers work some of the longest hours a fair one?
JK: Probably not. Although the period leading up to the culmination of a deal can be intense, this is no different to other transactional practice areas. The hours of a capital markets lawyer tend to be fairly unpredictable, so you learn quickly to take the highs with the lows.
AA: From my experience as a trainee, I found the working hours in debt capital markets to be comparable to other transactional practice areas.
What opportunities are unique to working at Davis Polk?
JC: Davis Polk has a premier global capital markets practice and whilst I work on predominantly UK deals, the know-how and experience you can draw upon across the firm would be hard to match elsewhere. Whilst you benefit from the prestige and brand of Davis Polk, the English law practice is still relatively young and therefore you also get to work in an entrepreneurial environment as the London office looks to grow further.
AA: Trainees at Davis Polk get a high-level of exposure and responsibility both in terms of working directly with partners and interacting with clients.
DH: Working in the London office of Davis Polk provides junior lawyers with the opportunity to work on cutting edge, high-profile, cross-border capital markets transactions in the US, Europe and Asia. They get to do so in a collegiate and supportive environment, at one of the leading capital markets firms in the world.