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Finance lawyers faced no shortage of challenges last year. Roaring capital markets and the busiest mergers and acquisitions period since the onset of the financial crisis kept advisers in demand and in search of solutions to an onslaught of requests from corporate clients.
At the other end of the spectrum, political instability in Ukraine and the Middle East added complexity to already difficult conditions for companies and governments.
In corporate activity, blockbuster deals dominated the headlines. Transactions were large, often cross-border and almost always high-profile. These elements contributed to the highest level of global M&A activity by volume since 2007. In total, $3.34tn worth of deals were reached in 2014, according to data provider Dealogic.
But the prevalence of mega-deals, in particular the desire for companies to use dealmaking to consolidate an industry or sector, meant completion times for agreed transactions ran into months as regulators scrutinised competition issues. For instance, it took 14 months for Dutch coffee group DE Master Blenders to complete its May 2014 takeover of the coffee assets of Mondelez, the US snacks company. Mondelez received $5bn and a large minority stake in the merged entity. The transaction to create the second-largest global coffee company required antitrust approvals in multiple jurisdictions.
To execute the deal, DE Master Blenders’ controlling shareholder needed to secure an enormous $11bn leveraged loan. That task was complicated by uncertainty on how long it would take for the deal to win regulatory clearances.
“The parties could not confidently estimate when the transaction would close, but neither party was prepared to enter into a transaction without certainty on the financing,” according to Skadden, Arps, Slate, Meagher & Flom, which advised JAB Holding, a private investment group and the controlling shareholder of DE Master Blenders.
The law firm believed the deal could have taken up to 30 months to complete, meaning the bank financing had to be committed for much longer than lenders were accustomed to for private or public transactions.
A typical commitment for this sort of lending is usually for less than a year. Ultimately, three banks agreed to commit lending for 30 months in what was one of Europe’s largest post-credit crisis leveraged loan transaction. Skadden also played an important role in securing the funding from lenders with limited conditions.
In Lebanon, the country’s largest banking group, Bank Audi, sought to raise $300m to strengthen the capital base of its Turkish subsidiary, Odeabank. Working with law firm Dechert, the Lebanese bank decided to pursue a rights issue for new Bank Audi shares and global depository receipts to secure the funding.
But an interesting part of the transaction was the inclusion of English-law warrants, which would be exercisable in the future for common shares in Odeabank, according to Dechert. Warrants are not typically a feature of rights issues and the use of rights over equity in a separate company, in a different jurisdiction, was novel.
The move helped Bank Audi complete an intricate capital markets transaction without the aid of an investment bank, and investor participation helped demonstrate confidence in financial institutions operating in a difficult region.
However, not all markets were rife with corporate dealmaking. In Ukraine, a revolution and ensuing conflict between pro-Russian separatists and the Ukrainian military plunged its economy into a full-on crisis.
The situation was complicated by the departure of President Viktor Yanukovich, which in turn left a constitutional crisis.
The unrest prompted the European Commission to seek to intervene by providing financial aid to help stabilise Ukraine. Lawyers were asked to find a way to satisfy the conditions of the EC’s offer, which called for the application of English law, rather than international law, which is stipulated in such circumstances under Ukrainian legislation.
In finding a solution, Ukrainian firm Aequo employed what it called an “innovative approach . . . to confirm the scope of powers and due procedure of the appointment of the new temporary government of Ukraine, which was the mandatory condition for granting of the aid by the donor”.
The political turmoil also raised the prospect of defaults on corporate debt and generated work for international firms. DTEK, Ukraine’s largest privately owned energy business, worked with US law firm Latham & Watkins to restructure $200m in debt to avoid default.
The transaction also resorted to English law by using a UK scheme of arrangement. The move, Latham believes, will have global ramifications for bankruptcy law as it shows a potentially cheaper alternative to the US Chapter 11 process.