How companies borrow money, from bilateral loans to billion-pound leveraged buyouts.
Banking and finance (often shortened to B&F) is the practice area that deals with lending transactions — the legal architecture through which companies borrow money from banks and institutional lenders. While capital markets focuses on raising funds by issuing securities to investors, banking and finance covers the private, negotiated lending that sits alongside (and often funds) those deals. The work ranges from straightforward bilateral loans (a single bank lending to a single borrower) to immensely complex syndicated facilities involving dozens of lenders, multiple tranches of debt, and intercreditor arrangements. At Magic Circle and US firms, banking and finance is one of the largest practice groups by headcount and revenue, and it touches almost every major transaction the firm handles.
The core document in any lending transaction is the facility agreement — the contract between the borrower and its lenders. Most large facilities in the UK and European markets are documented on LMA (Loan Market Association) standard forms, which provide a widely recognised baseline that lawyers then negotiate and tailor. A facility agreement typically includes term loans (a lump sum drawn down at the outset and repaid by maturity), revolving credit facilities (an RCF — a flexible pot the borrower can draw down and repay repeatedly, like an overdraft on a larger scale), and sometimes capex facilities or acquisition facilities for specific purposes. Key negotiation points include the margin (the interest rate above the benchmark — typically SONIA in sterling or SOFR in dollars), the commitment fee on undrawn amounts, the maturity date, and the circumstances in which lenders can demand early repayment.
Leveraged finance is the engine room of private equity. When a PE sponsor acquires a company via a leveraged buyout (LBO), the purchase price is funded with a mix of the sponsor's own equity and significant amounts of borrowed money — often 50–70% debt. The debt package typically includes senior secured term loans (ranking first in the repayment waterfall), a revolving credit facility for working capital, and sometimes mezzanine debt or high-yield bonds sitting behind the senior debt. The security package — charges over the target's shares, assets, and bank accounts — is what gives senior lenders their priority. Lawyers drafting these structures must navigate the financial assistance rules (under s.678–680 Companies Act 2006), which stop a public company from helping fund the purchase of its own shares. The prohibition was lifted for private companies in 2008, and the old whitewash clearance procedure went with it, so the rules now bite mainly where a public company sits in the structure. That is one practical reason a bidder will often take a listed target private before the acquisition debt is pushed down into it.
Lenders protect themselves through covenants — contractual restrictions on the borrower's behaviour. Financial covenants require the borrower to maintain specified financial ratios — for example, a leverage ratio (net debt to EBITDA) or an interest cover ratio (EBITDA to interest expense). If a ratio is breached, the borrower is in default. Information covenants require regular delivery of financial statements and compliance certificates. General undertakings restrict the borrower from doing things like disposing of major assets, incurring additional debt, or changing its business without lender consent. When there are multiple layers of debt, an intercreditor agreement (ICA) governs the relationship between different classes of lender — who gets paid first if things go wrong, who can enforce security, and what happens in a restructuring. The ICA is often the most heavily negotiated document in a leveraged deal.
Banking and finance lawyers act for either the lender side or the borrower side, and the perspective shapes the work fundamentally. Lender-side counsel drafts the facility agreement and related security documents, negotiates covenant packages, manages the condition precedent (CP) process before drawdown, and advises on enforcement options if things go wrong. Borrower-side counsel pushes for flexibility — wider baskets and exceptions to covenants, fewer restrictions on the borrower's operational freedom, and borrower-friendly default cure rights. In practice, a junior associate on a B&F deal spends significant time on the CP checklist — coordinating the delivery of board resolutions, legal opinions, officer certificates, auditor comfort letters, and corporate structure charts before the facility can be drawn. This work is detail-intensive and time-pressured: the client wants the money, and every missing document holds up drawdown.
Private credit — lending by non-bank institutions such as direct lending funds — has exploded in the past five years, now rivalling the syndicated loan market for mid-cap leveraged buyouts. Direct lenders like Ares, HPS, and Owl Rock offer speed and certainty of execution, though typically at a higher margin than bank debt. The benchmark rate transition from LIBOR to risk-free rates (SONIA in the UK, SOFR in the US) is now largely complete, but legacy contracts and fallback mechanics still generate work. ESG-linked loans — where the margin adjusts if the borrower hits sustainability targets — have become common, though scrutiny of the rigour of those targets is intensifying. On the restructuring side, the UK's Restructuring Plan (introduced by the Corporate Insolvency and Governance Act 2020) has given distressed borrowers a powerful new tool, allowing courts to impose a restructuring on dissenting creditor classes — a mechanism already tested in major cases like Virgin Active and Adler Group.
Banking and finance is one of the largest and most active practice areas at every major City firm, yet many applicants neglect it in favour of M&A or disputes. Being able to explain how a facility agreement works, what financial covenants do, and why an intercreditor agreement matters in a leveraged buyout immediately sets you apart. Firms see hundreds of candidates who can discuss a recent M&A deal — far fewer who can articulate the debt side of the same transaction. If you can connect a headline PE deal to its financing structure, you demonstrate the kind of joined-up commercial thinking that partners look for.
“What is the difference between secured and unsecured lending, and why does it matter to a lender?”
What they're assessing
A grasp of fundamental lending concepts and the commercial logic behind how risk is priced and protected.
Answer skeleton
Secured lending means the lender has a legal claim over specific assets of the borrower — if the borrower defaults, the lender can enforce against those assets to recover the debt. Unsecured lending has no such claim, so the lender ranks alongside other general creditors in an insolvency. The practical consequence is risk and pricing: secured lenders accept a lower interest rate because they have downside protection; unsecured lenders charge more to compensate for their weaker position. In a leveraged buyout, the capital structure typically layers secured debt (senior facilities) over unsecured high-yield bonds, with equity at the bottom absorbing first losses.
“What are financial covenants in a loan agreement and what purpose do they serve?”
What they're assessing
Understanding of how lenders protect themselves throughout the life of a loan — not just at the point of drawdown.
Answer skeleton
Financial covenants are contractual undertakings by a borrower to maintain certain financial metrics throughout the life of a loan — typically leverage ratios, interest coverage ratios, or minimum liquidity levels. They serve as early warning mechanisms: if a borrower's financial performance deteriorates to the point where a covenant is breached, the lender gets a right to accelerate the loan or renegotiate terms before the borrower is actually insolvent. There are two main types: maintenance covenants, tested regularly regardless of events; and incurrence covenants, only tested when the borrower takes a specified action. The shift toward cov-lite loan structures — fewer or no maintenance covenants — has been a major feature of recent leveraged finance markets.
“Explain leveraged finance and how it connects to private equity deals.”
What they're assessing
Commercial understanding of PE deal structures and the role of debt — showing you can link finance to M&A in a joined-up way.
Answer skeleton
Leveraged finance refers to lending to companies with significant existing debt — typically in the context of private equity acquisitions. When a PE firm buys a company in a leveraged buyout, it finances the majority of the purchase price with debt rather than equity, secured against the target's assets and repaid from its cash flows. This amplifies returns if the business performs, but increases risk if it does not. The debt is structured in layers: typically senior secured facilities, sometimes mezzanine debt, and high-yield bonds. Banking lawyers on a PE deal are responsible for negotiating and documenting these facilities, drafting intercreditor agreements that govern the relationship between different classes of lender, and coordinating with M&A lawyers on the acquisition structure.
“What is a syndicated loan and why would a borrower prefer one over a bilateral loan from a single bank?”
What they're assessing
Commercial understanding of how large debt facilities are structured and the lawyer's role in coordinating a multi-party transaction.
Answer skeleton
Context: a syndicated loan is a facility provided by a group of lenders — typically led by an arranger bank — under a single loan agreement, allowing large amounts to be raised that exceed any single bank's appetite or lending limits. Commercial implication: borrowers access a larger quantum of debt and spread their banking relationships; lenders share credit risk and can trade their participations in the secondary market. Legal angle: lawyers must draft the intercreditor mechanics (how lenders vote, what the agent's role is, how conflicts are resolved), the transfer and assignment provisions, and ensure the facility agreement — usually LMA-form — is tailored to the borrower's covenants and representations. Current hook/your view: the LMA's standardised documentation has made syndicated lending more efficient, but I think the agent's role in managing lender disagreements — particularly in restructurings — is underappreciated and is where legal skill is most tested.
“A company in your client's loan agreement is in financial difficulty and has breached a financial covenant — walk me through the options available to the parties.”
What they're assessing
The ability to reason through a stressed credit situation — understanding both the legal mechanics and the commercial dynamics between borrower and lender.
Answer skeleton
Context: a financial covenant breach (e.g., leverage exceeding an agreed multiple) triggers an event of default, giving lenders the right to accelerate the loan and enforce security — though in practice enforcement is rarely the first response. Commercial implication: lenders must weigh the cost and uncertainty of enforcement against the potential recovery from a consensual restructuring; borrowers need lender support to survive and so have incentive to negotiate. Legal angle: the first step is usually a waiver or amendment (lenders agree not to enforce in exchange for improved economics or tighter terms), potentially followed by a full restructuring under the Part 26A restructuring plan or a scheme of arrangement if the capital structure needs to change. Current hook/your view: I think the UK's restructuring plan — introduced in 2020 and used in cases like Virgin Active — is a powerful tool because cross-class cramdown allows a majority of creditors to bind out-of-the-money dissenting classes, which shifts negotiating leverage significantly.
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