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Europe tends to follow the US in terms of paths and trends. In the distressed market the catch-up has been on aggressive tactics for restructuring deals, with LMEs and co-ops making themselves increasingly felt in Europe.

To discuss the Americanisation of the European market, 9fin sat down with Kai Zeng, restructuring partner at Paul Weiss. In the past two years, the firm (which not so long ago was mostly US-focused) has expanded its London practice. Zeng joined late last year from Blantyre Capital, only two months after Liz Osborne (who has also featured in our 9Questions series) joined from Akin.

1. Given Paul Weiss is predominantly a US practice, tell us what your plans are for the London restructuring team.

Before 2023, Paul Weiss only had a small presence in London, primarily doing US law work. But they then had an opportunity to bring on some of the biggest names in the European PE market, in Neel Sachdev and Roger Johnson. Since then, the office has grown massively, from less than 15 lawyers to over 200, covering all the major practice areas, from public M&A, private equity, debt finance, HY capital markets, tax, funds, antitrust and regulatory and, of course, restructuring.

Paul Weiss has a tier-one restructuring practice in the US covering both company and creditor side mandates. They’ve had huge pent-up client demand to expand into Europe for many years. However, they didn’t want to build out a European restructuring practice without being able to cover the full range of client need that gets generated from restructuring. With the new European platform, the firm felt now was the perfect time to build out in London, and brought Liz and I on toward the end of last year.

Our goal is to build a top tier European restructuring practice, and we think the Paul Weiss platform is unique. We are one of the few firms that has the capability to do both debtor and creditor side work on both sides of the Atlantic, and we have the benefit of top-tier financing and high yield teams who are market leaders in financing documentation. Seeing both sides gives us the broadest view of the market, helps inform what we think the debtor might do when we represent creditors — and vice versa — and ultimately makes us better advisers.

While the team continues to grow, we are already fully operational and have had a huge amount of interest from associates looking to join a practice with the benefit of the Paul Weiss brand, great client relationships and a split debtor and creditor client base.

The client reception has also been very positive and we’re already getting fantastic traction, with our mandates on Northvolt and Vialto, and other confidential matters. Watch this space!

2. Before joining Paul Weiss you worked on the investor side at Blantyre Capital — has your experience there given you a deeper understanding of the buyside?

Absolutely. I spent nearly three years at Blantyre and it was an incredible learning experience. There are some things that it’s difficult to experience without having had that time in-house. Even small things, like what the analysts spend their day doing. Obviously, the financial analysis is the fundamental building block of what the analysts do but, and I didn’t really appreciate this until I was at Blantyre. A big chunk of analyst time is also spent talking to analysts at other firms or at sell-side desks and getting market colour and understanding the narrative behind a name. Particularly in the current environment of non-pari passu treatment and differing economics depending on what group you’re in, having that information about the market and participant dynamics can be crucial.

Plus, there are a lot of parts of the investment process that just have no equivalents in a law firm. For instance, the experience of an investment committee, where all the senior members of the firm are interrogating an idea that you’ve brought is — perhaps thankfully! — not something you have to go through as a lawyer. The mental toll of handling investments — i.e. have I really covered the key risks that are going make or break this investment? — can be pretty demanding, for sure.

3. Can you speak about some of the stand out / notable investments you worked on?

During my time, I was fortunate enough to have the opportunity to work on a number of market leading restructurings on both sides of the Atlantic, including Cineworld, National CineMedia, and Telepizza. But I think my standout investment was the loan we provided to Belysse, formerly known as Balta.

Belysse approached us to refinance their bond that was maturing at the end of 2024. At the time, the business — particularly in Europe — was negatively impacted by inflationary raw material costs. However, we believed in the strength of the underlying business to overcome this cyclical trough, and we were able to provide a piece of capital that was both interesting to Blantyre but also responsive to the needs of the business. It was also really rewarding to get to know the management team. I still follow the company: it was great to see that they provided the carpet for President Trump’s inauguration!

For me, that deal represented what Blantyre did best, which was to use the flexibility of its investment mandate to craft capital solutions that genuinely solved a problem for the company we were engaged with.

4. You started out in private practice at Kirkland & Ellis for over eight years. What made you want to switch to the fund side?

When you’ve spent a long time being an adviser, you’re naturally curious about what it’s like on the buy-side, and whether you might enjoy it. Plus, the role at Blantyre offered a wider remit, particularly in terms of the opportunity to do some investment-side work, than perhaps the average in-house counsel role, so that also attracted me.

Having now been on the buy-side, I concluded that being on the advisory side probably suited me a bit better. However, I will say the job of working in private practice at a firm like Paul Weiss and being in-house has a lot of similarities. The thrill of chasing down a good investment opportunity or a high-profile mandate is something I really enjoy.

5. We often see Europe described as the US’s little brother in the restructuring world. What do you predict this year in terms of how alike Europe will be to the US market?

As with most things in our industry, generally ideas that start in the US ultimately do come to Europe, to a greater or lesser extent. We’ve seen that most recently with LMEs and co-ops, both of which are making themselves felt in Europe. However, I don’t think the European market will ever be as saturated with those products as the US is, given some of the structural differences between the European and US markets. For instance, the business judgment rule gives US management teams a lot of latitude in engaging in LME and/or incurring additional indebtedness. In contrast, European director duties frameworks are probably more restrictive, capital structures tend to be smaller and European investor appetite different.

One interesting trend I will keep an eye on is whether there will be any more attempts, whether or not successful, of sponsors trying to adopt anti-co-op wording in their credit documents. We saw the beginnings of that at the end of 2024 and that’s definitely something to watch in 2025.

6. One of the tactics Europe is adopting from the US is LMEs. What types of LMEs do you think we see are the most common in Europe?

Ultimately, it depends on the specifics of the relevant situation, but I think we’ll see the full range of drop-downs, up-tiers, and double dips.

Up-tiers are probably a bit more difficult in Europe given the protections in English law loan agreements and the prevalence of English law intercreditors, but they’re certainly not impossible. For instance, last year we saw the Hunkemoller up-tier, which is now being litigated, as an example of a true, Serta-style up-tier in Europe.

Drop-downs will always be looked at, but the issue — which sometimes advisers overlook — is the need to find assets that are suitable, which is not necessarily available in every situation. Optimally, you need to find assets that are valuable on a stand-alone basis, as it’s a more difficult sell to potential investors to finance assets that only have value with reference to the underlying company.

But given the amount of capital available for these situations now, and the greater acceptance of them as a feature in the European financing market, it seems inevitable that LMEs will, slowly, become more common.

7. Another thing creditors are adopting in response to LMEs is co-ops. Do you see this as an effective defence?

Our view is that co-ops should be evaluated on a case by case basis. On the one hand, it’s absolutely the case that co-ops can protect existing creditors in a structure from being disadvantaged by a transaction perpetrated by other similarly situated creditors. In certain situations and for certain creditors, that’s valuable.

Having said that, by entering into or publicising a co-operation agreement too early, that can potentially invite the wrong reaction from the sponsor, who now thinks there’s an opportunity to capture discount or obtain concessions from an organised creditor group.

It’s also important to look at the individual terms of co-ops themselves, particularly if a party may not be large enough to be in the steering committee. We’ve seen co-ops that are more or less beneficial to the steering committee parties that have the power to drive most of the decision-making, so it’s key to look at the individual terms carefully and not just assume the co-op is going to provide full pari treatment if you sign up.

Coops can also limit liquidity, which can be a key consideration in the European market where white lists already impact liquidity. For instance, on some situations with multiple co-ops, there have been reports that there are different trading prices for co-opted and non-co-opted paper — and even between the paper within different co-ops.

8. We’re seeing a lot of crossover between US and European situations — any big deals stand out for you?

There does seem to be increasing cross-over. I’m sure most readers are familiar with the big cross-over transactions in 2024, such as Altice and Ardagh, where Paul Weiss has represented Apollo.

However, this is a broader trend in the asset management community. We now see most of the largest asset managers have operations in both the US and Europe and are looking to operate a ‘one firm’ approach.

This means there’s greater co-ordination within their institutions and greater cross-platform coverage. We now frequently see European situations with minimal US nexus being covered out of New York and US situations being run out of London.

9. Given all this distress in your work life, what do you do to unwind?

Not sure if it helps me unwind, but I got into playing chess during the pandemic after watching The Queen’s Gambit. The embarrassing thing about it is how bad I still am despite the amount I’ve played.

9Questions is our Q&A series featuring key decision-makers in leveraged finance and distressed debt — explore the full collection here.