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Instead of handling clients' large, lucrative transactions, Spain's banking lawyers are now dealing with their large problems.The effects of the downturn have spread through almost every sector of Spain's economy, and banking lawyers have witnessed a dramatic shift in the type of work they're dealing with....

Instead of handling clients' large, lucrative transactions, Spain's banking lawyers are now dealing with their large problems.

The effects of the downturn have spread through almost every sector of Spain's economy, and banking lawyers have witnessed a dramatic shift in the type of work they're dealing with.

"There is no leveraged finance," says one banking partner. "The largest banks are either closing or reducing dramatically the areas devoted to leveraged finance. What are we left with? A lot of loans with problems, and it's not just in real estate, but also construction, media, aviation and distribution."

There are still deals, mostly mid-cap, but the mechanics of the financing have served only to further disenchant some lawyers, as one partner points out: "When there are big Spanish banks getting together to do a €7 million loan, you know there's problems."

Telefonica, advised by Clifford Chance, has proved to be the exception, locking in a €4 billion loan facility in February 2009, though, at a substantially raised rate of interest.

Few companies however can access this kind of liquidity, and while some partners claim the narrow margin for error means clients spare no expense to ensure their survival, most say the penny pinching has filtered down to what companies will pay for legal advice.

"There is a lot of pressure on fees," says one partner. "Refinancing is priced a lot lower by banks, but if they do look for firms, as opposed to giving the work to their in-house counsel, then clients will ask for quotations from three or four firms first."

It's a tough market, but those firms that prove themselves invaluable to a company can now look forward to being first in line when the market and the large lucrative transactions return.

The Spanish capital markets are suffering from a lack of trust. There is a lack of trust in how companies are going to perform this year and a lack of trust surrounding financing....

The Spanish capital markets are suffering from a lack of trust. There is a lack of trust in how companies are going to perform this year and a lack of trust surrounding financing. This air of doubt has permeated every aspect of the market, but nowhere is it more evident than in structured finance and securitisation – where the trust was first lost.

"The market has not been quiet, as there have been a number of deals, but it has become a very boring market," says one partner. "You can hardly say the S word [securitisation] anymore, and new asset classes and backing have disappeared. Now there are more vanilla deals where the originator holds onto the vapour and goes to the European central bank to get liquidity – there is very little sophistication."

Equity capital markets specialists would probably be grateful for unsophisticated transactions right now but, instead, must make do with a comatose market as IPOs are on hold for less volatile times and capital raising is extremely difficult. Though this did not stop Santander, who issued €7.2 billion in shares in December 2008, lawyers are quick to point out that this was a lonely exception.

Debt has been better, though not much. MTN programmes have kept firms busy, and the government has done its bit by guaranteeing banks' issuances. Convertible bonds have also found favour among clients.

For most practitioners, however, it's a question of patience. And although some lawyers have reported seeing companies, once again, knocking on the door of opportunity, the present market conditions are not thought to be a short-term hitch.

But lawyers can seek solace in the fact that, when the markets do start up again, there is going to be a lot of catching up to do.

"When the trust comes back the market will be very active because a lot of companies will be merging to become more efficient," says one partner. "But until then things will be very quiet."

It's been a case of "water, water everywhere but not a drop to drink" in Spain this year: while there are plenty of assets for sale, the volatile markets that make financing virtually impossible have put them out of the reach of most potential buyers.And the country's corporate lawyers have felt the squeeze....

It's been a case of "water, water everywhere but not a drop to drink" in Spain this year: while there are plenty of assets for sale, the volatile markets that make financing virtually impossible have put them out of the reach of most potential buyers.

And the country's corporate lawyers have felt the squeeze. "It is difficult to talk about M&A right now because the market is quiet and it's very difficult to get deals done," says one partner. "It is very difficult to get fixed prices on assets so it's difficult to close any deals because parties still think there could be some movements that could impact the price. The second problem is finding ways to finance deals because there's no liquidity in the market."

Acciona's €11.1 billion sale to Enel of its 25% stake in Endesa in March 2009 has been the only remnant of the huge deals that fuelled the country's pre-crash boom.

The situation has been compounded by the simultaneous decline of the private-equity market, as even those houses with cash withdrew when it became obvious that there was no way of getting the returns they had become accustomed to.

Consequently the mid-market has become very crowded – and very competitive. The one saving grace has been that the downturn has brought out clients' fastidious side, keeping lawyers active.

As one partner explains: "Transactions take much longer now, as banks needs to go to risk managers. A year ago a deal could take one or two months, now the same deal will take eight months."

Spain's project finance market is seeing lower fees, fewer transactions than in 2008, and the deals that are being done are harder to close. Yet it is still one of least affected practice areas, indicating what an extraordinary year it has been for the country's legal profession....

Spain's project finance market is seeing lower fees, fewer transactions than in 2008, and the deals that are being done are harder to close. Yet it is still one of least affected practice areas, indicating what an extraordinary year it has been for the country's legal profession.

The government's commitment to private-public partnerships (PPP) and corporates' continued appetite for renewable energy projects has been at the heart of the sector's survival, though, this has been mitigated by the reticence of the banks, who are shunning the smaller actors for larger, safer sponsors.

"Banks are less inclined to take on risk," says one partner. "They are looking at the quality of sponsors more closely than they have ever done."

Club deals between banks have also been the norm in this cautious environment which, according to commentators, has made a pipeline of deals difficult to see. Partners expect the fog to clear by the end of the year and though they expect things to be better, no one can say exactly what they expect to see.

"At the end of 2009 we will see more activity because the situation will be clearer then," says one partner. "At the moment no one knows how the banks are doing and what the effect of the billions being put into the system will be, but it will be clarified in the next few months. It won't be back to how it was, but then the market last year was not normal."

Spain's restructuring and insolvency lawyers – a hastily increasing group – have seen a flurry of activity this year as clients struggle to stay afloat amidst the financial tsunami."Banks and companies just were not ready," says one partner....

Spain's restructuring and insolvency lawyers – a hastily increasing group – have seen a flurry of activity this year as clients struggle to stay afloat amidst the financial tsunami.

"Banks and companies just were not ready," says one partner. "After 16 years of continuous improvement they didn't know how to cope."

They were not the only ones. The government's Royal Decree Law 3/2009 on urgent measures concerning tax, finance and insolvency matters was implemented on March 27 2009 after an outcry from interest groups over the previous legislation. The amendment aims to encourage restructuring by enforcing the refinancing and additional security agreements that could successfully be challenged under the 2003 act, potentially leaving banks out of pocket and with little incentive to lend.

But while there has been a sharp increase in work, particularly in advice on director's liabilities, partners are still waiting for the deluge of insolvency cases. It has become apparent that most clients in financial difficulties can survive for another year or two by stripping down to the bare operating minimum, but if the adverse conditions do not relent, a flood of bankruptcies is certain. And most believe this will involve more than one savings bank.

Consequently, most of the big cases this year were the big cases last year too – such is the protracted nature of insolvency proceedings and of the under-resourced courts. But this is to be expected, as one partner states: "I don't know of any jurisdiction where enough cases are dealt with quickly and efficiently through to the end in court."