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February 7, 2012 1:50 PM

Skadden Launches German Capital Markets Practice As Corporate Bond Boom Gathers Pace

Posted by Chris Johnson

Skadden, Arps, Slate, Meagher & Flom is poised to launch a dedicated German capital markets offering in Frankfurt with the hiring of a two-partner team from Shearman & Sterling.

Shearman's regional practice head Stephan Hutter, who previously managed the firm's Frankfurt office, will officially join Skadden alongside fellow securities partner Katja Kaulamo later this month. The additions bring to nine the number of partners Skadden has in Germany across its Frankfurt and Munich offices.

Scott Simpson, cohead of Skadden's global transactions group, says the hires represent "a very important" step in broadening the firm’s coverage in Germany.

"To be a leading global transactional firm, you have to be able to offer your corporate, private equity, and financial institutions clients capital markets advice in key markets like the U.S., London, and Germany," Simpson says. "Our practice in Germany has historically been focused on M&A, private equity and banking, so these hires fulfill that strategic need to deepen our corporate practice."

Hutter and Kaulamo—who have experience in a range of debt and equity capital markets matters, including high yield—were part of the Shearman team that last month represented the underwriters on the €7.5 billion ($9.8 billion) rights offering of Italian financial institution UniCredit S.p.A., the largest-ever such deal in Italy.

The pair have also been active in Switzerland and Austria—Skadden has operated a base in Vienna since 1993—while Simpson says that Finnish-national Kaulamo will assist with the firm's activities in the Nordic region. (Earlier this month, Skadden acted for Finnish stainless steel manufacturer Outokumpu Oyj on its $3.5 billion acquisition of German steelmaker and engineering company ThyssenKrupp AG's stainless steel unit.)

Skadden's European corporate finance cohead Rick Ely says the move is part of a "broader strategy" to take advantage of growing activity levels in the corporate bond market. (Skadden is not the only firm to have strengthened its European capital markets team in 2012. Earlier this month, Latham & Watkins raided Hogan Lovells for equity capital markets head Richard Brown, while Canadian firm Gowlings captured a four-partner team from national U.K. practice Cobbetts.)

With traditional bank lending still tight—thanks in part to controversial new regulations that have forced banks to reduce their loan books in an attempt to boost tier-1 capital ratios—companies are increasingly tapping the bond markets to meet their financing needs.

Issuance of high-yield bonds, also known as "junk bonds" due to their below-investment-grade rating, has hit record levels in 2012, according to data tracker Dealogic Limited. And despite continued economic uncertainties within the region, the Financial Times notes that a near-€500 billion ($655 billion) "wall of money" released by the European Central Bank before Christmas has helped revive appetite for riskier investments.

Demand for corporate bonds is so high, in fact, that when German engineering company Schaeffler issued €2 billion ($2.6 billion) in junk bonds in early February—the largest such offering in Europe for almost six months—the volume was doubled after being five times oversubscribed. (Shearman, led by Hutter and Kaulamo, advised the underwriters on the deal. Schaeffler was represented by Allen & Overy.)

The Schaeffler bond also included two U.S. dollar-denominated tranches, with U.K. newspaper Financial News reporting that European companies are increasingly turning to the American private placement market in the search for liquidity. Research conducted by Barclays Capital reveals that $4.6 billion of U.S. debt was issued by European corporates in January alone—more than twice the previous monthly record.

"Unlike in the U.S., where corporates tend to rely much more on the capital markets for financing, European corporates have traditionally depended on bank debt for the majority of their funding needs," Ely says. "With increased capital requirements and other regulatory changes causing banks to limit their activities, we believe European capital markets activity will continue to increase."

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