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December 1999

What they never taught you in law school


If you ever forget - or never knew - what being a banking lawyer is all about, there's a book that will make it all horribly clear, says Christopher Stoakes




This is the end of a millennium, the season of giving. It coincides with my final column. I would like to mark it by heaping praise on another writer on financial law, one whose book would make a handy present for clients (especially in-house lawyers) and that casts a light on the development of the Euromarkets.

Philip R Wood of Allen & Overy is rightly hailed as the doyen of capital markets lawyers for his seminal six-volume work Law and practice of international finance(Sweet & Maxwell, 1995). Alongside it on the bookshelf, though, I would slip a volume of no more than 180 pages, How to negotiate Eurocurrency loan agreements (Euromoney, 1995), a second edition of which is due out early next year. The author is well known to these pages, being Lee C Buchheit, doyen of lawyers dealing with sovereign debt restructuring and a partner in Cleary, Gottlieb, Steen & Hamilton.

The book stands out because of the way Buchheit captures the madness of the Euromarkets. In parts it is funnier than a Marx Brothers script. In essence it is a simple clause-by-clause manual to a syndicated loan agreement. In each chapter, Buchheit sets out a specimen clause, explains its purpose, then puts the negotiating stance of borrower and lender. But in setting out why the clauses are there, why they are drafted as they are, and what each side's position is and why, Buchheit not only dissects the anatomy of a typical transaction, he also explains much of the workings of the Euromarkets themselves. A Martian could pick this book up and have a good sense of the history and mechanics of international lending.

It's the sort of book that should be standard issue to all apprentice banking lawyers - not least because Buchheit captures that heart-stopping loss of legal virginity in all its wince-inducing detail. We've all been there and it's worth quoting in full.

"As a young lawyer beginning a career in international financial law, this experience lies in your near future. You will be sitting with your client, a borrower, at a long conference table. There may be up to 20 other people sitting at that table, all of them looking at a copy of the same draft loan agreement (which these days is never less than one inch thick). Everyone else in the room can hear a faint knocking sound. The origin of the noise is your knees. You cannot hear it because the sound of your own heart palpitating at a hummingbird rate has drowned out everything else in your inner ear canal. Your counterpart, a grizzled old Euromarket lawyer, whose office sideboard probably groans under the weight of 327 lucite cubes, calls your attention to Clause 9.02(b)(iii). Do you have a comment?

"'Yes,' you bleat, 'we do.' Glancing down at the text of Clause 9.02(b)(iii) you wonder what in the devil you intended by the meaningful symbols '?*' that you scrawled next to it the night before. Anyway, too late now, everyone is waiting. Got to think of something. Got to say something... say anything.

"'My client,' you croak, 'insists that the pari passu covenant contain an exclusion for cross-defaults triggered by Acts of God (unless otherwise indemnified under Regulation D).'

"For the next 35 seconds, not a sound will be heard in the room apart from that persistent knocking noise. Every eyeball, severally and not jointly, stares at you in mute, unblinking horror. Even your own client starts to sink down in his seat. Finally, your counterpart leans over the table and whispers, voice dripping with avuncular compassion, 'Son, this isn't your first rodeo, is it?'"

The book is littered with quips. For instance, in the context of pari passu: "This is a charming clause. It is short, obscure and sports a bit of Latin; all characteristics that lawyers find endearing." Then, explaining the tax gross-up clause: "A government that has run out of creative ideas for taxing its own citizenry should seriously consider taxing somebody else's ... foreigners are not entitled to vote in the next election and you will not have to listen to that pathetic bleating that follows each domestic tax increase." And "The Eurodollar disaster clause has nothing to do with floods or earthquakes ... it refers instead to a situation in which lending banks are not able to fund themselves in the Euromarkets in the normal way. This, if you are a banker, is a disaster." Or, in the context of submission to jurisdiction: "Asking a borrower to submit his fate to a judge sitting in New York or London ... is sometimes viewed as equivalent to a suggestion that a mother drop her child off at King Herod's day-care centre". And so it goes on. The section on preferred negotiating styles, ranging from Vlad the Impaler via Sid Vicious to Jude the Obscure, is a must.

In between the wise cracks is a lot of erudition and experience. In particular, Buchheit charts the impact of various crises in the Euromarkets' juvenile years - Herstatt (1974), Coloctronis (1976), Iran (1979), Falklands/Malvinas (1982) and, of course, the never-ending sovereign-debt crisis. Each is summarized succinctly and journalistically - "At 8.10 am, EST, on the morning of November 14, President Carter issued an order effectively freezing..." - and is a history lesson in itself, which evidently provides Buchheit with much of his professional enjoyment.

Referring to these crises and the way clauses now current in agreements arose in response, he writes: "A Eurocurrency loan agreement carries its scars like an ageing prizefighter. These abrasions are perfectly visible to a discerning reader, each bearing silent witness to some major or minor skirmish that has disturbed the Euromarket during its relatively short history." And he then goes on to show you how.

Buchheit's image is resonant of a famous comparison likening the English common law to a mighty tree's roots, each twist and turn showing where obstacles to the law's development once stood, long after the individual stones in its way have disappeared.

Much of a lawyer's career and efforts can be traced - like the tree root - through the agreements he or she negotiates: "Men and bits of paper, whirled by the cold wind that blows before and after time," as TS Eliot remarked in Burnt Norton, attested to by the increasing stream of bankers' obituaries through these pages; Buchheit's work is dedicated to the memory of two colleagues, Jaime V Ongpin and Jose B Fernandez, Jr.
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