What does this practice area consist of?
A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Examples of capital markets include the London Stock Exchange or the New York Stock Exchange. There are many different types of capital markets, with some key terms listed below.
Equity capital markets are a broad network of financial institutions and markets that assist companies in raising capital, perhaps to fund the expansion of a company. Typically, this is done by an IPO (initial public offering). Once listed, a company’s shares are bought and sold by investors, leaving the price of shares to market forces.
Debt capital markets (DCM) exist when companies and governments raise funds through the trade of debt securities, including corporate bonds, government bonds, or credit swaps.
Derivatives are financial instruments used by companies and banks to hedge risks. The value of a derivative is derived from the value of an underlying asset.
What are the tasks of lawyers on these transactions?
- To carry out due diligence on companies, usually focusing on a company’s financial history. Following the obtainment of this information, lawyers are expected to draft prospectuses containing this information. Before the UK’s official exit from the EU, prospectuses had to comply with EU transparency directives.
- Counsel on behalf of both the bank in the transaction and the company in the transaction must work with a team of bankers, accountants, insurers, and business managers to issue securities.
- Lawyers must determine the personality of the company they’re working with. This may require a fierce intellect and the ability to resolve issues as they quickly arise.
- Lawyers must work with the company and bank to structure security and negotiate the terms of this structure. Counsel on behalf of a company typically deals with bond issues, while the bank’s counsel will comment on and negotiate these issues.
- Finally, the approval of a listing on the stock exchange must be reached. To obtain this, lawyers must negotiate the terms of this listing, and submit documents to prove that the company has fulfilled the requirements for an IPO.
What are the realities of the job?
- Hours in a capital markets department can often make the British weather seem predictable. Long hours and weekend work may be common, especially on larger transactions. However, frequent client contact can be expected from a junior level and may help craft exit options.
- As a further to the last point, clients may be incredibly demanding, resulting in tight deadlines imposed on lawyers. This can facilitate a high-stress environment, though the payoff will be great.
- Capital markets lawyers are overwhelmingly based in London. At larger firms, such as Clifford Chance or A&O, there are specialist capital markets departments, while at a smaller operation, such as Travers Smith, capital markets work is paired with M&A.
- The market conditions will typically have a stronger impact on a transaction than the willingness of the parties involved to complete it. For example, just eight companies were listed in London in the first half of 2020, due to the damage in confidence caused by Covid-19. However, capital markets have bounced back rather quickly, leading to a swathe of work.
Ten firms with a noted presence in this area:
- Allen & Overy
- Cleary Gottlieb Steen & Hamilton
- Clifford Chance
- Davis Polk
- Freshfields Bruckhaus Deringer
- Latham & Watkins
- Linklaters
- Shearman & Sterling
- Skadden
- White & Case
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