Banking lawyers work on loan transactions for general purposes (general bank finance), for the purchase of another business (acquisition finance), to fund infrastructure projects (project finance), or for the purchase of a large asset, typically a ship or an aeroplane (asset finance).
Some banking lawyers restructure transactions where the borrower is struggling with repayments or work on insolvency processes (restructuring/insolvency).
Why are lawyers needed?
Banking lawyers ensure that their clients are legally protected against the risks involved in a financing deal - lenders risk losing their money and borrowers risk problems arising from the obligations they'll have taken on.
They draft or review the legal documents needed and make sure all legal steps required for funding have taken place, particularly that the borrower has fulfilled the conditions to the funds being granted. Banking lawyers also advise their clients on legal issues that come up in relation to financing arrangements already in place.
On the job
Lawyers acting for a bank on a loan deal might advise on the structure of the transaction - on which legal entities in a corporate group will borrow the money, and how and when it will be made available.
They'll then prepare the legal documents required with the borrower's lawyers - a loan agreement and usually documents granting the lender rights over the borrower's assets.
They'll also start collecting and checking all the documents required from the borrower, known as conditions precedent. These will include detailed information about the borrower's business and its assets, and proof that it's gone through the internal procedures required to authorise taking on the loan.
In the final stages, the documents will be signed and the lender's lawyers will certify to their client that they have received the conditions precedent. The transfer of funds usually happens within the next 48 hours. After funding, lawyers will deal with post-completion matters, usually including registering rights taken over the borrower's assets.
Areas of law used include:
In practice: we spoke to Sam Hutchinson, banking partner at Dentons
What kind of deals do you work on?
I work in fund finance, which is the provision of loans by banks to investment funds. For example, we work on bridging loans to cover the time before funds get money from their investors, loans to private equity funds, and loans made to finance funds' purchases of portfolios of investments - many high street banks are selling these portfolios at the moment because they're under pressure to strengthen their balance sheets.
I've seen fund finance grow hugely during the time I've been at Dentons. It withstood the financial crisis very well and there hasn't been a single reported default for these types of loan, which makes them a very attractive investment for banks. But fund finance is not a practice area that many City firms have - there are probably only four or five that do this type of work.
What kind of clients do you act for?
At Dentons we historically act for lenders and my strongest relationships are with banks.
I've done a couple of deals where I've acted for funds, but if I'd built up too much of a practice on the funds side I'd end up being conflicted out of acting for many of my lender clients.
Can you describe one of your deals?
I worked on a memorable £800 million loan for a leading private equity fund. We were instructed by the bank two Fridays before Christmas and told that the funds needed to be transferred by the following Thursday. So we had the weekend, Monday, Tuesday and Wednesday to get all the necessary documents agreed and signed.
The deal was complicated by the fact that there were multiple jurisdictions involved and because it used a structure that was completely different to ones we'd worked with before.
We had lots of sleepless nights and ended up funding with literally a minute to spare on the Friday morning. But we were all drinking champagne at 1pm, which was a fantastic start to the Christmas period!
What do you enjoy about your practice area?
I find fund finance interesting because it not only involves banking and banking law but - because our clients might be lending to real estate funds, private equity funds and increasingly infrastructure funds - many other legal and commercial disciplines as well.
I also like the fact that, because most of the funds that we deal with are based abroad, we work closely with our overseas offices, particularly the American ones, and lawyers in the Cayman Islands, Jersey and Guernsey.
What kind of person is suited to your practice area?
Someone who's quick-thinking, sound on legal technicalities, organised, and calm under pressure. They also have to be prepared to work hard, though this job provides plenty of perks in return!
But what's more important than anything else to banking clients is being commercial and practical. They want us to get their deals done as quickly as possible and to not raise pedantic points.
What are the current big issues in your practice area?
Banks operating in UK fund finance are happy at the moment because the market is performing strongly and there are lots of business opportunities.
Perhaps the only area of concern is that the market is becoming very competitive - US banks are coming in and driving down fees. UK banks who now can't compete are looking at offering bespoke financing packages with complex structures for which they can continue to charge high fees.
Funds are thinking about upcoming regulatory changes and how they'll satisfy these requirements.