Legal Business caught up with Allen & Overy’s (A&O) new global co-head of leveraged finance, Scott Zemser.
How has the leveraged finance market evolved?
I started off doing leveraged finance in the 90s. It was a very different environment back then. Dinosaurs roamed it was so long ago. At that time it was mostly club deals, you didn’t really see funds that you see today: CLOs, mutual funds, debt funds of private equity shops. It didn’t exist until the late nineties when you started seeing advances in the Morgan Stanley debt funds coming in and buying up this debt. But most of the time you saw three, four, five banks do a club deal, they held it to their own account and you rarely saw as much selling as you see now. Then it started evolving in the late nineties, early 2000s when you started seeing more lead arrangers acting more as facilitators for these syndicated loans – some were holding, some weren’t holding piece of these loans, you saw revolvers and term loans. Then you started seeing the market evolving into revolvers and terms with two pieces of term loans. At the same time you started seeing this funds certain type of world in the middle of the 2000s with bridge facilities coming into play. It’s really evolved into an enormous global asset class which has been resilient and performed extremely well.
Other top firms are making significant investments in leveraged finance, is it crucial to have a strong offering?
You have to have a strong leveraged finance offering globally. It’s London, it’s New York, it’s Paris, it’s Frankfurt, you could go on and on. You need it because it’s a dynamic type of asset class. You have deals that start in the UK and end up in the US, you have a deal in the US and it ends up with tranches in Europe, Asia and Australia. But it’s not just having a strong leveraged finance practice, knowing the market helps when you have a strong sponsor practice. What’s most important is being commercial and understanding how those deals work. The only way to do that is to do a lot of deals.
Is leveraged finance a tough area to build a business in?
It’s very difficult to build a business in. There are so many parts to it. There have been some that have taken the view that New York is their epicentre and have used local counsel in the various jurisdictions – top firms, incredible groups and don’t necessarily have that depth and breadth of an A&O. It really comes down to who you want to be. It’s very expensive to build a network and if you look at the real players in global leveraged finance they’ve done it for over 50 years. You can’t build this tomorrow.
Why Allen & Overy?
There really aren’t many choices at this quality and global level. It made it a bit easier because I had worked opposite A&O and had come across these guys for years. I viewed them as my competition in Europe for so many years. I’m going to be honest, there was this fear [from competitors] that A&O would somehow fix this [US] problem and build a New York practice. I spent enough time in Europe that I worried about it. Well, we’re there now. It was a good cultural fit.
It’s widely reported that A&O broke lockstep to bring in your new team. How important is it for firms trying to crack US to ensure competitive pay?
There’s no question this has been pushed around for years. You see it in London and we see it in New York. There’s no question you need to pay what’s market. A&O has shown it’s willing to do that and will continue to do that. It’s no simple process. My view as a US lawyer competing against the UK firms is that it’s not easy to compete against an A&O. They’ve been there forever and their relationships are deep, but they didn’t have this US part. It’s just that there’s a different remuneration system in the US and it’s changed in London the last few years as well. A&O have proven that they’re willing to do what they need to do to continue to build in the US and there’s a price for that.