Think of the brains behind a sophisticated structured product and the first image that springs to mind will probably be of some financial wizard sitting on Wall Street, but an idiosyncrasy of the US structured products market is that a lot of structuring expertise also lies with lawyers.
The lack of a single, integrated regulator, the fact that many derivatives dealers might not have experience structuring products that must be registered with the Securities and Exchange Commission, and the cross-asset-class nature of structured instruments, means that the legal mind is called on as much as the quantitative when it comes to putting products together. With more than 1,200 lawyers, Morrison & Foerster is one of the biggest law firms in the world, and it continues to play a leading role in the growth of the North American structured products market. This is the second year running in which the firm has won this award.
"They have enormous technical expertise, so for me they're a very good firm for new ideas and new structures," comments Gerald Kaufman, a structurer in the structured capital markets business at Deutsche Bank in New York, adding that he also likes Morrison & Foerster because its structured products team contains such a wide range of knowledge and experience. "They're very good at taking us through large transactions that are heavily documented."
"They can bring the whole spectrum of knowledge to address innovation and problem solving," adds Adam Frieman, a principal at alternative investment adviser firm Probitas Partners in New York, who until recently was managing director and co-head of equity capital markets at UBS, where he also used Morrison & Foerster as his sole counsel.
The law firm has worked on a wide range of innovative structures over the past year. For example, in 2006 it closed 15 transactions incorporating credit default swaps (CDS) that referenced notes linked to hedge fund interests. "We created a variable funding note programme, where the payment on the note is linked to the performance of a pool of hedge funds and managed accounts," says Alice Yurke, a partner in Morrison & Foerster's capital markets group in New York.
In some cases, the transactions required the use of a special purpose vehicle, such as when an existing issuer transferred its hedge fund interests into a newly formed, segregated portfolio company so as to get the benefits of a recently adopted British Virgin Islands statute that recognises ring-fencing of company assets. Morrison & Foerster structured and documented these transactions so as to get the desired segregation while protecting priority and perfection of security interests relative to other potential creditors.
Clients also used the firm to customise privately placed note issues that referenced CDSs to determine principal or interest payment amounts. The embedded CDS reference traded CDS indexes, large customised baskets of reference entities, narrower customised baskets or even a single reference entity. The firm has also worked on a number of hybrid products, which Anna Pinedo, another of the firm's New York-based partners, refers to as "a huge area of business in the US in 2006 and early 2007".
Meanwhile, Morrison & Foerster has been busy helping Bank of America expand its presence in the European structured products markets. The bank wanted to set up a special purpose European-based issuing company to both broaden its investor base and raise revenue by selling securitised derivatives, while also deepening its relationship with European institutional investors by developing products to meet their specific needs. The bank set about putting in place a platform that gave maximum flexibility in terms of the types of products, structures and instruments that could be issued while remaining tax efficient. The result is B of A NV, a Dutch entity listed on the Luxembourg Stock Exchange. The programme is the first sponsored by a US issuer that permits the offering of structured products as notes, certificates and warrants.
WHY MORRISON & FOERSTER WON
Whether it is helping established US players break into the already mature European structured products market, or broadening the use of structured products within the US, Morrison & Foerster has earned an enviable position as arguably the America's leading legal firm in this area.