This article first appeared in Canadian Lawyer InHouse.
In this Q&A, Christopher Alam, leader of the firm's national Lending Group, shares industry insights and advice on how to mitigate risks
Q: As a lending lawyer, what are the major trends you're seeing in the industry?
A: There are a number of influences on debt markets right now. Those include the increasing use of technology — whether in the crypto and de-fi space, or as a tool for lenders that will likely change how they analyze and handle borrower clients — and also the continuing availability of cash from governments as they seek to sustain the economy. But from an in-house counsel view, I think the speed and volume of transactions that are out there is an important factor. We didn't expect the markets to have sustained this level of high activity almost two years into a pandemic.
Q: Why is that activity level important to in-house counsel?
A: It brings with it the potential of deal execution risk. In-house counsel may be looking at one transaction that is going through for their company and not realize the lender and the external counsel are handling an unusual number of other deals simultaneously. So, you get the potential of financing deals not closing on time to fund other transactions, like an acquisition, or that some issue is not being properly addressed in the transaction paper and will surface down the road.
Q: How can those risks be mitigated?
A: You want to make sure that your external counsel is a deep, experienced team that can bring expertise across a lot of sectors. That way, they can surface issues that may not be apparent to executives and lenders who are just trying to manage timelines. As well, it's important to understand what the key points are for lenders so that the items they need to see are provided to them well in advance. We're holding a national conference for lenders — and attending those sorts of industry sessions will get in-house counsel prepared for what is coming on short notice when a deal pops up quickly.
Q: What else can market knowledge do for in-house counsel?
A: If you're getting substantive knowledge on the state of the debt markets from your external counsel, you can pass that on to the executive team of the company. A strong, experienced external counsel team can point out matters to consider in negotiating the terms of a lending transaction — covenants that may become pressure points for the company down the road. And you can't assume that the executive team necessarily has a sense of what it is that lenders are worried about in getting transactions across the finish line.
Q: Finally, what is coming down the road?
A: I think that as the frothiness of the market subsides as a result of a retraction of the availability of loans, some of the things we will see will be a rise in cross-border lending; the need to manage risk after loans close; the convergence of lending and technology; and as deal terms in mergers and acquisitions change, the impact that [it] has on lending transactions. We'll be exploring those types of issues at our conference.
Stay tuned for more information on our national conference for lenders.