Having recently joined law firm Dentons, partner Toby Gray and counsel Ruhi Patil are looking to put the SRT market at the forefront of their practice

Q: Tell us about your recent move to Dentons and your targets within this new practice?
TG: I joined Dentons in October 2023 (SCI 6 October 2023). After nearly 28 years at Linklaters, I was ready for a new challenge. Dentons was an attractive option for me, as it is what I like to refer to as a ‘challenger’ law firm – that is, one of the small band of law firms that might previously have been referred to as ‘silver Circle’ back in the day, but which have in the past few years been expanding aggressively into areas that were previously considered the exclusive bailiwick of the traditional ‘magic circle’ firms.

One of the areas in which Dentons is increasingly challenging the magic circle firms is its capital markets, structured finance and derivatives practice. The fact that the firm was massively investing in its SRT focus within this practice represented an exciting challenge and prospect for me, particularly at this advanced stage of my career, to go somewhere new and build out a practice from scratch.

RP: I joined Dentons in January 2024, having worked at Linklaters for just under seven years (SCI 12 January). I have expertise across securitised and OTC products, but my specialist focus is on SRT transactions.

One of the biggest draws for me to join Dentons was the fact that, as Toby said, I liked the idea of building a new practice offering from the ground up. It was an exciting prospect to embark on a new challenge with someone that I have previously worked with and enjoy working with.

What further bolstered my confidence was that Dentons is the largest global law firm in the world and its international network is unparalleled. The SRT market has grown over the years and continues to expand into new jurisdictions. There are an increasing number of new asset classes and new market entrants every year. Our client offering also needs to be at a global level and we can achieve this at Dentons.

TG: As Ruhi said, that sort of ‘one-stop shop’ approach that we're able to offer to clients was certainly a draw to me. We've certainly hit the ground running, having closed two large SRT transactions during December, and we are in active discussions now with a number of clients for the 2024 pipeline.

Q: What do you feel sets you apart from your competitors in this market?
TG: I think there are clear pricing advantages. Although I find the whole ‘magic circle/silver circle’ distinction an increasingly archaic concept from a quality perspective, it is certainly the case that the traditional magic circle firms continue to have the highest charge-out rates. These high charge-out rates create parameters within which the partners in those firms have to operate, in order to maintain recovery levels and margins.

Simply put, we do not face the same pricing pressures here at Dentons as the magic circle firms. Accordingly, we are able to price extremely competitively, which is obviously highly attractive to clients.

But fundamentally, it comes down to product expertise. One of the issues that Ruhi and I faced at our previous firm was that we did find ourselves occasionally pulled in different directions, which limits and constrains your ability to focus wholly on a particular area.

But having come to Dentons, SRT is very much the forefront of our focus. And we arrived with an existing client following and market profile.

We're recognised as having a high level of expertise and the clients who instruct us are market leaders. So, we're coming to the party with deep product knowledge and with the ability to focus 100% on this sector.

RP: One aspect that works in our favour is that the SRT market is still a relatively small market. Even with new entrants each year, it continues to be a small, friendly, collaborative market.

It also helps that we regularly speak at industry conferences. We have very strong brand recognition and a strong public profile when it comes to these transactions. Furthermore, our strategy is clear – we want to focus on the investor role and we believe that there is enough work for everyone!

TG: Also, I think that the banks that we tend to face on these transactions when we're advising investors appreciate the sophistication of the advice that we're giving and the commercial position that we're able to take, based on that deep product knowledge. As a result, we often find those same banks subsequently referring new investor entrants in the market to us.

Q: Regarding the regulatory environment and agenda for this year, what are the most pressing issues?
RP: On the regulatory side, implementation of the output floor/p-factor, sustainability and approach to disclosure and transparency requirements continue to be hot topics. In particular, following the HM Treasury’s review last year, it will be interesting to see how the securitisation regime gets implemented within the UK’s prudential regulatory framework and the level of discretion that the UK regulators will enjoy. Holistically speaking, we cannot ignore the fact that divergence between the EU and UK synthetic securitisation regimes is growing and it remains to be seen if this will impact the competitiveness of these markets.

It would also be interesting to see what happens on the insurance side. As you know, the (EU) STS regime does not apply to unfunded deals involving insurers and reinsurers. It’s highly possible that insurers get more creative with products that they can offer to banks as an alternative (more appealing) method of transferring credit risk.

TG: Outside of regulatory developments, in terms of market trends, with the US opening up, I think that 2024 is going to be pretty hot from a US origination perspective. We are already seeing an influx of deals from US banks.

Q: Do you expect the SRT market to grow into new jurisdictions this year? 
TG: I think that in terms of expansion, we've already seen Canadian banks, but I think there’s the possibility of seeing more Asian banks. However, I do feel that 2024 is going to be largely dominated by the US banks making up for lost time.

RP: I think another one to monitor is South Africa. Banks are actively looking into this space, but I understand that the requirements around regulatory capital and credit risk are yet to be clarified. Once the banks get more clarity around the regulatory regime, we would hopefully see more SRT activity in that jurisdiction.

Q: In the context of the climate transition and ESG goals, how significant a role can SRTs play for banks?
RP: SRT is certainly one of the ways in which banks can get closer to achieving their ESG goals (although we cannot really comment on how significant this is for banks internally). We have seen certain banks structuring transactions to proactively include an ESG element.

For example, in such transactions, either the underlying portfolio is green or the intention is for any regulatory capital savings to be invested by the bank into green loans. The coupon payable to the investor may also be linked to sustainable goals of the bank. So, for example, if the bank originates ‘x’ amount of green assets in its portfolio, the investor will agree to be paid ‘y’ coupon less.

Sustainability remains a priority in this changing world and we believe it will continue to be an important tool in the SRT market.

Vincent Nadeau