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In banking, rather unusually for Italy, foreign firms have traditionally enjoyed an edge. According to one partner this is because international players like Linklaters and Clifford Chance have the structures, models and resources to handle cross-border transactions expediently for lenders....

In banking, rather unusually for Italy, foreign firms have traditionally enjoyed an edge. According to one partner this is because international players like Linklaters and Clifford Chance have the structures, models and resources to handle cross-border transactions expediently for lenders.

But the Italian banking market is now far from traditional. And though Italian banks mostly avoided the poisonous assets at the core of the downturn, the disappearance of international lenders and the knock-on consequences of the credit crunch have made everybody reluctant to lend.

"From a lending point of view things have slowed down considerably," says one partner. Banks are not willing to lend unless it is to certain products. There is no syndication. The only possibility was to create club deals, initially at least."

Of course there have been exceptions. Corporate lending is ongoing, even big-ticket deals, as Fiat's €1 billion loan demonstrated. Otherwise it's mostly been small transactions for around €50 million.

Restructuring is now at the core of most firms' activities.

"Certain big players like Royal Bank of Scotland or other major European players are not originating any new transactions and just managing their portfolios, which means banking work has changed," says a partner. "Basically banks and banking lawyers have to deal with distressed transactions and restructuring of existing transactions and that's why most firms have created debt restructuring groups, which include not only banking lawyers but also bankruptcy lawyers and M&A experts. What keeps banks busy most is restructuring of existing transactions."

In November 2008, after seven years in the country, White & Case departed Italy. According to the firm, the level of investment needed to succeed in the market was beyond the best interests of the firm as a whole....

In November 2008, after seven years in the country, White & Case departed Italy. According to the firm, the level of investment needed to succeed in the market was beyond the best interests of the firm as a whole. It was just one of a number of reshuffles that look set to reshape the landscape of the Italian legal market.

Newcomers Riolo Calderaro Crisostomo e Associati also caused a stir. The firm is a capital markets boutique, established by a trio of former Clifford Chance partners in May 2009 and tipped for great things – as all three partners are skilled and experienced practitioners.

And there were plenty of lateral moves between firms too, as Latham & Watkins and Orrick both shored up their capital markets practices with partner hires in 2008 and 2009. Orrick was especially voracious, raiding local firms Tonucci & Partners and Vita Samory Fabbrini e Associati for a total of seven partners, including Vita Samory named partner Luca Fabbrini.

Inevitably the capital markets themselves have been less exciting. Although, the atmosphere of uncertainty among clients has created enough regulatory and liability management work to keep practices busy.

In equity, mid-sized and small transactions have seen a huge drop-off as, according to one partner, "issuers are very reluctant to go to the market and face defeat trying to go public". There have been some large deals however, and UniCredit and Banco Santander led the way with multi-billion euro issuances.

M&A in Italy has always been the garden of domestic firms. The corporate culture instinctively favours local players and their totemic rainmakers over well-structured foreign firms....

M&A in Italy has always been the garden of domestic firms. The corporate culture instinctively favours local players and their totemic rainmakers over well-structured foreign firms. But since the disappearance of large cross-border transactions – which those US and UK firms that entered Italy were geared towards – the market has become even more punishing for the non-natives.

"Fee pressure is significant," says one partner at a leading firm. "Many larger firms have financial institutions as their main clients and they were great during the good times. But these firms didn't form ties with local providers and it is these firms, the ones relying on their relationships with banks, who are going to suffer. I think we will see a lot of down-sizing from foreign firms in Italy – those that didn't form a strong local client base."

Even firms with all the right contacts, like Bonelli Erede Pappalardo and Chiomenti, are unable to escape the squeeze of this particularly pervasive downturn and are struggling to find enough large deals to feed their enormous machines.

One partner explains: "In normal recessions there are some sectors that can weather the storms. But when you have a recession that starts as lack of liquidity and then translates as general economic recession, it affects all areas of M&A. We thought that the hole created by the lack of LBOs would be filled with activity from corporates, but it won't because when things extended into the economy it pushed them onto the defensive also – so we never saw opportunistic deals that we thought we would."

Renewable energy and utilities have proved the only consistent exceptions to this trend, as stable industrial players seek to increase their market share. Otherwise, firms have had to content themselves with mid-market transactions, and the weak signs of recovery that appeared in the second quarter of 2009 and are leading clients to at least discuss deals again.

Project finance in Italy has been largely resilient to the downturn, mostly thanks to the burgeoning demand in Europe for green energy."Infrastructure and energy, especially renewable energy, are very active this year," says one partner from a leading firm....

Project finance in Italy has been largely resilient to the downturn, mostly thanks to the burgeoning demand in Europe for green energy.

"Infrastructure and energy, especially renewable energy, are very active this year," says one partner from a leading firm. "There hasn't been much of a downturn because in energy there's a state subsidy, which means projects are still funded regularly, even in a downturn."

In addition to subsidies, the government took further steps to make project finance in Italy more attractive when, in October 2008, the rules governing the award of public infrastructure concessions were amended to reduce the time taken on public tendering. And while it's too early for empirical results, commentators expect the change greatly to benefit private companies.

Yet even though the outlook as a whole for project finance in Italy has been encouraging, the impact of the financial crisis has still been felt.

"It's been a harder year than others," says a partner. "The credit crunch has had an effect and a lot of smaller players, which may have been active in previous years, have been forced out of the market because don't have cash – so it's the bigger players that are running the market at the moment. Also, there are the usual problems with financing and the need for a lot of club deals."

As the rest of the legal profession rides out the trough in activity, restructuring and insolvency lawyers across the world are busying themselves with a glut of distressed mandates. But for Italian lawyers, this experience is a first....

As the rest of the legal profession rides out the trough in activity, restructuring and insolvency lawyers across the world are busying themselves with a glut of distressed mandates. But for Italian lawyers, this experience is a first.

"The difference between Italy and other markets is that this is the first real restructuring cycle that the country has gone through," says a partner. "Italy has had big insolvencies before but not really restructurings and we are using instruments that were introduced only recently."

The country's reformed bankruptcy legislation was enacted in 2005 and allows for the real turnaround of a company. The reforms have provided professionals with all the tools they need to handle complex restructurings and, in turn, opened up the market for international firms, like Linklaters, who are well equipped to handle large cross-border cases.

But the attitude among some Italian businesses has been slow to embrace the new laws.

"Unfortunately the business community has not yet adapted to the new legislation and is arriving at the restructuring side when it's too late to do anything. We have procedures that are almost as good as Chapter 11 but people don't use them because they are scared of involving the courts."

The consensus is that this has to change, especially since activity has yet to peak.

"Right now we are waiting for the next few months," says one lawyer. "The worst has not yet arrived."