The high-yield bond market has had plenty of ups and downs in recent years, but one thing has remained constant: V&E’s stature in the field.
In the past decade, the firm has advised on more than 350 high-yield debt offerings. Regularly ranked among the country’s top high-yield practices, V&E took the No. 1 spot among U.S. high-yield issuers’ counsel based on deal volume and was No. 5 among U.S. high-yield underwriters’ counsel in 2018, according to Prospect News.
V&E’s dominance is no small feat considering that its rivals in the high-yield space are generally large, money-center law firms based in New York. “People are often surprised at our market share in high-yield given that we are based outside of New York,” said David Stone, a Houston-based V&E partner in the firm’s Capital Markets and Mergers & Acquisitions practice, whose practice has focused on high-yield and other debt capital markets matters for over 20 years.
V&E has significant experience handling high-yield bond offerings for a wide range of energy industry participants, including upstream oil and gas companies, midstream and downstream companies, oilfield service companies and alternative energy companies. In addition to energy, the firm’s high-yield lawyers work on high-yield offerings in a variety of other industries.
“High-yield for energy companies requires specialized industry knowledge. I think it becomes pretty obvious to market participants when they’re dealing with a firm that has done hundreds of energy high-yield deals and related financings.”
Three leaders of V&E’s high-yield team — Stone, David Wicklund, a Finance partner based in New York, and Noel Hughes, a Capital Markets and Mergers & Acquisitions partner who works out of the firm’s London and New York offices — recently sat down to talk about trends in the high-yield market, the highly specialized nature of energy high-yield bond deals, and what V&E is doing to remain competitive. Here’s what they had to say.
V&E is consistently ranked among the leading legal advisors to high-yield issuers and underwriters.1 What’s been key to the firm’s success?
V&E has long been a market leader in energy capital markets and energy finance, and high-yield has been an important part of that. The energy industry is very capital intensive, and energy companies, particularly smaller and mid-sized companies, are continually seeking capital to fund and grow their operations.
“Although capital flows into the industry have had their ups and downs in recent years, high-yield bonds have been a significant part of financing the growth of the energy industry in the past 20 or 30 years,” Stone said.
Currently there are nearly $250 billion of outstanding high-yield bonds in the energy sector, which is over 15% of the overall U.S. high-yield bond market, a larger percentage than any other sector.
Over the years, V&E’s clients have turned to the firm’s high-yield team to advise on high-yield offerings. As a result, the firm has developed a deep knowledge base that is attractive to issuers and underwriters. “The years of experience that we have and the high volume of deals that we’ve done is hard to replicate,” Hughes said.
Why is it important for high-yield issuers and underwriters in the energy space to choose a law firm with experience in the energy sector?
High-yield bond terms typically include complex covenants that need to be carefully crafted to protect bondholders while still allowing the bond issuer to operate and grow its business. “Because of their nature, high-yield bonds can be expensive to refinance or amend, so it is critical that they be structured properly at the outset,” noted Wicklund.
High-yield offerings in the energy space require extensive knowledge of the energy industry and familiarity with financing and other transaction structures that are specific to the energy industry, as well as disclosure requirements that are unique to the sector.
“High-yield for energy companies requires specialized industry knowledge,” Hughes said. “I think it becomes pretty obvious to market participants when they’re dealing with a firm that has done hundreds of energy high-yield deals and related financings.”
2018 was a slow year for high-yield bond sales. What happened and are you seeing evidence of a revival?
High-yield bond activity in the U.S. markets slowed in 2018 as the Federal Reserve increased rates throughout the year. Such moves tend to hurt bond market returns. Oil prices also declined late in the year, which impacted energy finance activity.
“As investors worried about interest rates rising they reallocated capital from high- yield funds to loan funds,” Wicklund said.
Conditions have improved this year. As the Fed has paused its interest rate hikes and oil prices have rebounded, high-yield deals are coming back to the market.
“In the past few weeks we’ve handled quite a flurry of high-yield bond deals,” he added. “Although it is difficult to predict the future, we’ve handled a dozen energy high-yield offerings so far in 2019, with several more in the pipeline.”
What steps has V&E taken to maintain its stature in the high-yield market?
The firm bolstered its high-yield practice last year when it successfully lured Hughes, an internationally recognized capital markets lawyer with extensive experience in cross-border leveraged finance and high-yield debt. Hughes, along with recently added London-based partner Federico Fruhbeck, and London-based counsels Christianne Williams and Cason Moore, has been instrumental in expanding V&E’s high-yield capabilities in the European market.
Likewise, V&E’s high-yield practice benefited from the arrival in 2013 of Wicklund, who represents top-tier private equity sponsors and their portfolio companies on high-yield offerings and credit facilities.
Dan Spelkin, a counsel in V&E’s Houston office, has also been handling a significant volume of high-yield offerings in recent years, and has become an important member of the high-yield practice.
Together, the V&E high-yield team “works really hard every day at maintaining excellence,” Stone said.
“Activity levels will rise and fall with the markets, but we have deep experience in these types of transactions, we execute well, and we are very client-focused,” Hughes said. “With those three things, I suspect that we will maintain and grow our share of this market.”