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

Portuguese banks were largely shielded from the initial effects of the credit crunch. Only two banks required state intervention and, according to commentators, both institutions were already struggling internally....

Portuguese banks were largely shielded from the initial effects of the credit crunch. Only two banks required state intervention and, according to commentators, both institutions were already struggling internally.

Nonetheless, the banking market has suffered. The number of new deals - especially bigger deals - has been severely reduced, clients are more cost conscious and restructuring is abundant.

"In Portugal the consequences of the sub-prime and financial crisis were felt less when compared with traditional financial markets," explains one partner. "But Portuguese banks still need to finance themselves internationally, so the crisis has had an indirect impact on credit lines which, in turn, [leads to] a more selective approach from banks who start to impose tighter conditions."

As a result syndication is a lot harder to come by and banks are creating club deals to minimise their risk. Ostensibly this would suggest less work for lawyers, but some have found that the frigid environment has made their advice a valuable commodity, even in simple procedures.

"Normally the banking market only goes to law firms when there is a syndicated transaction because where there is just one or two banks, they tend to just use internal counsel," explains one lawyer. "What you see now is that every time you have to change something in the terms sheet it's very complicated because you have to go back to the creditors or managers, and it's very difficult to change. Until a few months ago the only thing banks feared was the borrower, but now they fear each other."

With the exception of Banco Espírito Santo's €1.2 billion rights issue in March 2009, the equity capital markets in Portugal have been deathly quiet....

With the exception of Banco Espírito Santo's €1.2 billion rights issue in March 2009, the equity capital markets in Portugal have been deathly quiet.

And the structured finance and securitisation market has been little better. The appetite for complex structures has disappeared almost completely and though clients now need to securitise assets in order to meet the European Central Bank's revised triple A rating requirement, the work for Portugal's lawyers is far from lucrative.

The market has been much more receptive to debt products but, again, these have mostly been plain vanilla rather than complicated or innovative bond issues.

The main challenge capital markets lawyers must face now is the sporadic yet intense nature of the work.

"It is difficult to see a pipeline of work," says one client. "Transactions are much more unexpected and must be carried out in much shorter periods of time: we get a call saying we need to sell shares or increase capital, and it's got to be done in two months."

With the corporate sector hardest hit by the financial downturn, M&A lawyers in Portugal have not had it easy."Those with strong banking and corporate departments will suffer the most because those transactions are almost non existent," says a partner at a leading firm....

With the corporate sector hardest hit by the financial downturn, M&A lawyers in Portugal have not had it easy.

"Those with strong banking and corporate departments will suffer the most because those transactions are almost non existent," says a partner at a leading firm. "Adaptation is the key word," says another partner. "Clients' attitudes have changed too: they want to renegotiate not only billing hours but payment deadlines as well. They want greater partner involvement too and there are a lot more beauty parades, which is unusual for Portuguese clients."

The lawyers' ordeal does not stop there: even greater flexibility is needed from those who win the mandates, as clients request drastic changes halfway through deals and market volatility makes pricing hard and financing even harder.

Most activity takes place in the mid market, between industrials. For them, the squeeze on financing has been a boon, according to commentators. "The feeling is that the hard times for some represent opportunities for others - people who before could not get deals done in 2006 because of competition from the private equity houses can now get involved," says one partner.

Project finance in Portugal is in good shape, thanks to a stream of state-funded projects that include a high-speed rail link, hospitals, airports and highways.Energy projects have also been abundant, particularly renewable energy schemes like solar, wind and photovoltaic plants....

Project finance in Portugal is in good shape, thanks to a stream of state-funded projects that include a high-speed rail link, hospitals, airports and highways.

Energy projects have also been abundant, particularly renewable energy schemes like solar, wind and photovoltaic plants.

But it has not just been business as usual for lawyers: banks are treating projects with the same level of caution as any other kind of financing, making deals complicated.

"Banks are looking much more closely at the drafting of agreements they were pretty laid-back about before now, going through market disruption clauses with a fine tooth comb," says one partner at a leading firm.

This reticence has led to an increase in the role of the European investment bank and state-owned bank la Caixa in providing the financing to get deals through. But it has also meant that the smaller deals, ones that don't warrant government aid, are struggling to find financing.

Similarly it is the smaller law firms in the Portuguese market that have suffered most from the downturn - those that entered the market when extra hands were needed to deal with the surfeit of work. "Two or three years ago there were firms that were trying to go into the mid-size market but now it's more difficult for them. Now the biggest firms are doing the work and we are seeing the same faces."

A comedian in Portugal tells his audiences they should be grateful to their governors for keeping the country permanently depressed because, thanks to them, the downturn won't feel like a shock.While there is, according to one partner at a leading firm, an element of truth to this perspective, Portugal is feeling the effects of the credit crunch - just ask the country's restructuring and insolvency lawyers....

A comedian in Portugal tells his audiences they should be grateful to their governors for keeping the country permanently depressed because, thanks to them, the downturn won't feel like a shock.

While there is, according to one partner at a leading firm, an element of truth to this perspective, Portugal is feeling the effects of the credit crunch - just ask the country's restructuring and insolvency lawyers. One comments: "Due to the crisis we have a sector of activity that has been a lot more work. Normally it's the big companies that provide all the work but, fortunately for Portugal, the big companies have managed to stay afloat, though there are a few large entities that have gone bankrupt and into restructuring."

Banco Privado Portugues (BPP) and Qimonda are the two most prominent examples. BPP was the first financial institution in Portugal to need bailing out and Qimonda was the country's second-largest exporter before going bankrupt. Yet, according to one partner, these cases represent only the tip of the trend: "Restructuring is happening. We are trying to find alternatives to selling assets and we have more work but I think this will extend in to next year," he says. "This is the year of insolvency and restructuring comes later."