IFLR 1000
The Guide to the World's Leading Financial Law Firms

"Canada is not one market. It depends on where you are," one partner states....

"Canada is not one market. It depends on where you are," one partner states. This assessment of the jurisdiction from one practitioner is especially true for project finance and restructuring and insolvency practices. As a vast country with several provinces and multiple provincial regulatory authorities, Canada often sees lawyers practicing in different areas reporting quite different pictures of the legal market.

While most national firms have experience working across a number of regions it is always worth researching a firm's local knowledge and office locations to try to determine its particular areas of strength. It may well be that a more locally attuned operator will be able to execute deals more quickly, utilising its knowledge of the provincial environment and if necessary local court systems.

During the past year, two notable entrants to the market have turned the spotlight on Calgary in Alberta. With Tory's opening of a new office in the city and the expansion of Norton Rose as an international firm in the country through a merger with one of Calgary's oldest operations, Macleod Dixon, law firms have shown a renewed interest in the region. "That's a bold move in our marketplace," one partner says, commenting on Norton Rose's merger, while another remarks: "Major US and UK firms have not penetrated Canada to a real major state yet, but the entry of Norton Rose has kept our eyes open about the potential for significant foreign competition."

On the restructuring and insolvency front, there have been two key lateral moves last year, including the sabbatical leave of partner Sean Dunphy, who has been co-heading the restructuring and insolvency practice at Stikeman Elliott in Toronto for years and the departure of partner Derrick Tay and Jennifer Stam from Norton Rose's Canadian arm to Gowlings. "Both of those are kind of 'market-changers," one partner notes.

CONTEXT AND TRENDS Canadian lawyers paint a mixed picture of the market this year. "The bank lending market has been quite strong and vibrant in the last 12 months, not just M&A financing and project finance, but corporate financing for ongoing operations," one partner says, but another shares a less positive view: "Bank lending work has been slow for the first half of this year....

CONTEXT AND TRENDS

Canadian lawyers paint a mixed picture of the market this year. "The bank lending market has been quite strong and vibrant in the last 12 months, not just M&A financing and project finance, but corporate financing for ongoing operations," one partner says, but another shares a less positive view: "Bank lending work has been slow for the first half of this year. Deals are happening, but mostly smaller ones. There have not been many sizable M&A deals to trigger banking deals. Things have been quieter than we would have liked them to be."

Nonetheless, there is consensus in the market that competition for loans among banks is increasing with US banks on a comeback. "US banks that disappeared in our market during the downturn are back, although not in a flood, competing with Canadian banks. That has put pressure on pricing," one lawyer notes, with another confirming the observation: "Foreign lenders like Bank of America, JPMorgan and Wells Fargo have found the ability to make loans that cover many transactions." As a result, borrowers with good credit have become hot commodities. "Banks are all open for business and trying to put some loans on the books. Almost every deal that surfaces has Canadian banks competing on the basis of price, although not as aggressive as US banks. They are competing head-to-head against each other," one partner says, with another adding: "The big Canadian banks are actively seeking more lending assets and therefore the competition for high-quality deals is quite fierce. Pricing is coming down."

Natural resource is one sector that has generated a considerable amount of work for banks. "Mining trade is the most active sector," one partner points out. "Equity is soft for them now, so there are fewer alternative sources for them to refinance. Consequently they have increasing demand on the bank lending side." Oil and gas space is highlighted specifically by lawyers, with one remarking: "Oil and gas activity in Calgary drives a lot of financing work – Calgary has been a hot bed for Canadian banks."

Meanwhile, the lack of major deals on the banking side has also affected lawyers who advise financial institutions on the regulatory side. "We weren't in a lot of blockbuster deals last year. Instead our bread and butter has been getting involved in regularly working with financial institutions on their day-to-day operational matters," one partner states. Another agrees with the view: "We've been working more on the defense side – dealing with inquiries from regulators rather than coming up with new products."

Lawyers also note that regulators have increased the intensity of their day-to-day supervision of financial institutions. "There is more demand placed on financial institutions by regulators," one lawyer says, added by another: "Because Canada weathered the financial crisis fairly well, there is more pressure on regulators to show that Canadian financial institutions are well-regulated." However, some worry this may leave the small players overwhelmed. "In the anti-money laundering sector, small clients who previously would not have been regulated, are now regulated. This is a big leap for those small entities like small Canadian banks and trust loan companies," one partner says. Another confirms the view: "Some of the smaller clients find it difficult to maintain compliance with the new rules and guidelines designed for bigger organisations. They don't have the same risk, but still face the same regulatory requirements."

In addition, Basel III keeps drawing the attention of lawyers and market participants. "Because of Basel III, all the Canadian banks are looking at their existing capital very carefully. On the whole, it is anticipated that Canadian banks will be affected much less than their foreign counterparts because of their existing capital structure," one lawyer remarks. Another also shares an optimistic opinion, anticipating growing workflow generated by Basel III: "Banks are looking to restructure themselves, which involves selling, to meet requirements in Basel III. In Canada we've accelerated Basel III. That means pressure, and pressure means deals."

BANK LENDING: MAJOR LATERAL HIRES

James Papadimitriou
From: Blake Cassels & Graydon
To: McCarthy Tétrault

FINANCIAL SERVICES REGULATORY: MAJOR LATERAL HIRES

Sunny Sodhi
From: Torys
To: Fasken Martineau

CONTEXT AND TRENDSIt has been an uneven time for capital markets in Canada this year. Transaction opportunities surface and then sink back quickly, both on the junior and senior end....

CONTEXT AND TRENDS

It has been an uneven time for capital markets in Canada this year. Transaction opportunities surface and then sink back quickly, both on the junior and senior end. "The market is choppy, but you still see good issuers," one partner says. Seasoned blue-chip issuers – particularly the ones who issue securities offering yields – are doing very well, while the market for junior issuers, especially the ones in the resource sector, is not robust. "The gas price is depressed. Calgary is noticing issuers having a terrible time as a result," one partner says.

Meanwhile, given the extremely low-interest-rate environment worldwide, the continued desire for yield keeps driving investors' pursuit of high-yield debt and preferred shares. "There is huge demand for more yield-producing products," one partner observes. "Good-quality issuers who want to raise debt, regardless of how the economy is going, will still be able to do that because there's so much investor demand for yield." Another adds: "Over the last few years there has been a high demand for preferred shares. We have helped four or five major insurance companies with preferred shares offerings. They have more need for regulatory capital." Consequently, utility-style companies with a predictable revenue stream as opposed to high-growth technology companies are now favored by investors. "People prefer companies that can generate more dividends," one lawyer points out.

The IPO market has been fairly quite due to the volatility and uncertainty in the global market. Additionally, problems associated with offerings by companies from emerging markets have further cooled the market. Although the Toronto Stock Exchange (TSX) has long been favored by resource-based firms for IPOs, the accusing of a TSX-listed Chinese forestry company of fraudulently inflating its revenue and exaggerating the extent of its timber holdings has caused Canadian regulators to start looking more closely into the due diligence provided by companies from emerging markets who seek to be listed on TSX. "Canadian regulators have turned up the scrutiny on issuers who don't show a robust history of disclosure," one partner says. "We used to see a fair amount of listings from Chinese issuers, but that dried up." Another confirms the view: "That has had a ripple effect on the IPO market."

Although the IPO market continues to be delicate, a proposal to loosen up the marketing of offerings put forward by the Canadian Securities Administrators (CSA) may help regain some momentum. In the proposed amendments, the Testing the Waters Exemption for IPO Issuers would allow non-reporting issuers to determine interest in a potential IPO by communicating confidentially with permitted institutional investors through an investment dealer. Pre-marketing has always been prohibited in the country. "In a market place where windows are so short and people have no confidence for long opening, the related changes would make it easier for IPOs and smaller players," one partner explains. Others also remain positive about the near future. "People are planning and having documents ready to file if the opportunities become better. Now it's not the time to go to the market – perhaps later this year." Another confirms the speculation: "We have more resource-based IPOs on the go."

Another notable change in the capital markets during the past year is the ruling that the much-debated Canadian Securities Act – which seeks to create a single national body in the country to oversee securities – is unconstitutional. "Most security lawyers would say that it would be a good thing to have a federal commission," one lawyer notes. "But the ruling focused on systemic risks – there have been historical problems." In its ruling, the Court held that the proposed Act would "duplicate and displace the existing provincial and territorial securities regimes" and "does not address a matter of genuine national importance and scope going to trade as a whole in a way that is distinct and different from provincial concerns" and concludes that it "overreaches genuine national concerns". However, the decision did not rule out the possibility of a federal securities regulator. "The Securities Act has been ruled unconstitutional but the Court has left a door open for accommodation – provinces can voluntarily agree to have a national regulatory body," one partner says. "It takes political accommodation and a while to do that."

MAJOR LATERAL HIRES

Kareen Zimmer
From: McCarthy Tétrault
To: Fasken Martineau

Byron Leoppky
From: McLeod Dixon
To: Fasken Martineau

CONTEXT AND TRENDSM&A activity has been sluggish in Canada since the second half of 2011 amid economic turmoil worldwide. "The element of economic uncertainty in Europe and the US has caused senior executive teams and boards of directors to pause a bit when they are considering major acquisitions," one partner notes....

CONTEXT AND TRENDS

M&A activity has been sluggish in Canada since the second half of 2011 amid economic turmoil worldwide. "The element of economic uncertainty in Europe and the US has caused senior executive teams and boards of directors to pause a bit when they are considering major acquisitions," one partner notes. The slow-down in China's economic growth coupled with the upcoming US presidential election further choked deal flow. "This year is slower than the past year," one attorney says, with another adding: "Deals are taking a longer time to get done."

The natural resources sector continues to dominate the Canadian M&A space. "That's where the vast majority of M&A activity has occurred," one partner observes. The continued interest in oil and gas reserves in the west of the country from investors, especially the ones from emerging markets like Asia, has generated a fair amount of asset purchases and joint venture set-ups. However, the divergence between the price of oil and gas has slowed down the deal pace. "The oil price is strong while the gas price is bad – M&A activity has been affected by that. Usually when the price of gas is down, people would buy opportunistically, but people don't have enough confidence now, so they just want to hold on till the price comes back. As a result, there has not been a lot of activity in the oil and gas industry."

The mining sector is also going through a challenging time. The substantial erosion in the mining price worldwide has compressed mining companies' values, making it hard for them to undertake M&A transactions. "Strategic buyers' share prices have been creamed in the past six months, so it is hard for them to use their shares as currency in M&A deals," one partner explains. "Buyers expectations are at a divergence with sellers. There is an enormous pipeline of deals, but it's always like 'stop and start, stop and start'. It is a frustrating period for what we do." However, large mineral firms remain fairly active. "Activities such as smaller mineral companies or the mid-size ones buying and selling each other have dropped off because the mineral price dropped, but major companies with huge capital are still active," one attorney says. "The model for big mining firms is to buy other junior firms that can't afford to develop projects on their own due to the financing difficulties caused by dropping commodity prices."

Another sector of growth noted by attorneys is telecommunication, with a convergence between content carriers and providers over the past year. "Major shifting of assets and consolidation has been going on in telecommunication for a year and more – that has generated more M&A activities unique to Canada," one partner says.

In addition, large Canadian pension funds such as Ontario Teachers' Pension Plan Board, Ontario Municipal Employees Retirement System and Canada Pension Plan Investment Board continue to be active in the M&A market, going after deals that are traditionally sought by private equity funds. One clear example is the takeover offer made by Maple Group Acquisition Corporation, an entity formed by five of the country's largest pension funds and four Canadian bank-owned investment dealers to acquire all of the issued and outstanding common shares of the TMX Group, operator of Canada's major stock exchanges. Valued at approximately $3.6 billion, the transaction is awaiting regulators' approval.

On the regulatory front, lawyers are attuned to the Ontario Securities Commission's rethink regarding the shareholder rights plan. One notable possible proposal of regulatory changes would permit a target board to employ a shareholder rights plan, also known as a poison pill, which has been approved by the target's shareholders, to defend indefinitely against an unsolicited take-over bid, while boards of Canadian public companies have historically been unable to implement permanent structural defenses against such bids. "That would give more power to the target board to say 'no' to hostile takeovers," one partner notes.

MAJOR LATERAL HIRES

Peter Keohane
From: McCarthy Tétrault
To: Blake Cassels & Graydon

David Phillips
From: McCarthy Tétrault
To: Bennett Jones

Chipman Johnston
From: Bennett Jones
To: Stikeman Elliott

CONTEXT AND TRENDSThere is a sense among lawyers in Canada that project finance is "in the low" in 2012. "There is a very robust pipeline of projects looking forward, but right now things are not as busy and pumped as they have been in 2011," one partner remarks....

CONTEXT AND TRENDS

There is a sense among lawyers in Canada that project finance is "in the low" in 2012. "There is a very robust pipeline of projects looking forward, but right now things are not as busy and pumped as they have been in 2011," one partner remarks. Lawyers attribute the slow-down partly to the fact that the market has come to the end of a cycle of projects mandated by various provincial authorities. In addition, the growing pressure on the Ontario government to be fiscally conservative also contributed to the diminishing workflow. "It's difficult to announce projects when the government is troubled with a tight budget," one lawyer says, with another adding: "We can't expect to get deals done at the same pace as in the past two years."

Despite the challenges, the energy sector remains fairly dynamic. "There is large amount of investment going into oil and gas projects," one partner observes, while another adds: "There is an ongoing interest from abroad in these projects. The players are becoming more international in terms of size and scope." One clear example is Japan's interest in Northern Canada's liquefied natural gas (LNG). Lawyers in the north part of the country have been kept busy by projects related to transporting LNG to Japan since Japan shut down multiple nuclear generators due to the earthquake in 2011 and has been pursuing LNG as a preferred energy to replace nuclear thereafter. "Liquefied natural gas is an enormous emerging sector in the project finance world," one lawyer notes. In addition, projects related to renewable energy such as solar and wind have also generated a considerable amount of work for firms.

A promising sign came in the summer of 2011 with Ontario's announcement of a ten year infrastructure plan, following the announcement of Plan Nord in Quebec in May 2011. The plan looks to invest more than $35 billion in construction of infrastructure such as hospitals, public transit, roads and bridges over the next three years and is expected to generate more project finance work for lawyers.

On the financing side, the changes in the lender landscape is also raised by lawyers. Although European banks have traditionally been prime sources of funding for Canadian project finance work, these banks, particularly the French ones, are pulling back due to the ongoing debt crisis in the Eurozone, while banks from Asia, especially Japan, are becoming more involved. Life insurance companies are also playing a more significant role in project financing. "Life insurance companies are prime funders for PPP (public-private partnerships) projects now in Canada," one partner points out.

Another notable change in project financing is the switch from bank lending to bond financing. "Project bonds are very hot these days," one lawyer says. "That compensates the fact that European banks, who have been traditionally involved in long-term financing, are having liquidity troubles and tend to pull out." Another confirms the observation: "Financing is more towards bonds than banks, as banks are moving away from long-term financing." Lawyers also report an emergence of a secondary market for PPP transactions. "Pension funds are buying positions from certain European banks who have financed the projects completed in the last six or seven years. Life insurance companies have also bought bonds issued for projects on secondary market," one notes. "Once the construction risk to the projects is over, they tend to buy the bonds since the reasonable yield of these bonds looks attractive to them."

CONTEXT AND TRENDSSince the fall of 2011, it has been a quiet time for most restructuring and insolvency lawyers in Canada but once into 2012, things have been picking up. "It looks like it is picking up generally....

CONTEXT AND TRENDS

Since the fall of 2011, it has been a quiet time for most restructuring and insolvency lawyers in Canada but once into 2012, things have been picking up. "It looks like it is picking up generally. Turmoil usually creates more restructuring work," one partner observes, while another agrees with the view: "There have been a lot more insolvency-related activities in 2012. We have had incredibly robust four months of this year. We expect the industry to continue to be busy in the immediate future."

Nevertheless, firms report a lack of large files in general. Consequently, mid-market work has become lawyers' bread and butter. "Most of the big firms have been doing a lot of mid-market work. There have not been a lot of large files. The billion-dollar files are not there, but $50 milion files are there. That's what people have been doing." one says, while another partner offers optimism for the future: "There are major transactions pending in the insolvency area."

Clients continue to favor out-of-court solutions in preference to in-court proceedings. "People are trying to find out-of-court solutions," one lawyers points out, while another further explains the reason: "That limits the time required in the process." Additionally, companies having difficulties in refinancing have become important sources of work for lawyers. "There are more liquidating CCAA (Companies Creditors Arrangement Act) files than restructuring CCAA files now," one partner remarks. Meanwhile, businesses being liquidated or sold may often turn into sophisticated distressed M&A transactions. "Our work is converging with corporate M&A," another notes.

The landmark ruling regarding Indalex, a former aluminum manufacturer, continues to generate heated discussions after the Supreme Court of Canada heard an appeal of the Ontario Court of Appeal's original decision in June 2012. Lawyers hold different views about the decision, which gives priority to pension plan members over other secured creditors who had advanced funds to keep Indalex from bankruptcy. "That ruling will continue to provide challenges in financing," one says, while another sees less impact: "Over time, unusual rulings like that won't be followed in other cases." Although there is no current indication of when the Supreme Court will release its decision, lawyers have already noted changes brought by the Ontario Court of Appeal's decision in their work. "As a result of Indalex, the way we practice, especially in large deals, is changed," one partner states. "Now unions and pension authorities are involved in restructuring files at a much earlier stage."

While the pulp and paper industry has generated a considerable amount of work for firms, lawyers expect sectors including aviation and oil and gas to bring in more deal flow in the near future. One example of the former is Catalyst Paper, western North America's largest producer of mechanical printing paper. The firm is going through one of the largest CCAA restructurings in British Columbia. Meanwhile, because of the thin profit margin caused by the fierce competition in the industry and the significant pension liability, firms in the airline industry could be facing cash problems. The depressed gas price also make lawyers suspect whether oil and gas firms could soon become their major clients. "A lot of people have been waiting for oil and gas to get into trouble – a lot of Canadian oil and gas companies are struggling," says one practitioner.

In addition, the real estate industry seems to be another area of interest. "In the last 12 to 18 months, there has been a lot of restructuring and insolvency activity in the real estate sector because everything is overheated," one partner says. Another predicts: "We have had a lot of signals from the Fed that they will increase the interest rate over time. This would put more pressure on firms with borrowed money and cause more dislocation in the real estate industry, because they won't be able to service when the interest rate gets higher. But it's probably not going to be a very quick transition. Instead it'll be gradual over the next few years."

MAJOR LATERAL HIRES

Derrick Tay
From: Norton Rose Canada
To: Gowlings

Jennifer Stam
From: Norton Rose Canada
To: Gowlings