The first time was a bust but UK firms are set for a more considered push in high yield

Here we go again. Nearly a decade since making abortive first attempts to break into the high-yield market, a handful of UK law firms are making a renewed effort with a product line that many are predicting – once again – will go mainstream in Europe.

Most notably, Allen & Overy (A&O) has recruited Kevin Muzilla, a former Milbank Tweed Hadley & McCloy partner as a rare appointment to its London partnership. The attraction for UK lawyers is obvious, with high-yield debt more complex, bespoke and document-intensive than general capital markets work. But breaking into the area has proved harder than imagined.

Unlike much capital markets work, documentation is driven by US law and dominated by a select club of firms. Early attempts in 2001 saw A&O hire Sullivan & Cromwell counsel Adam Kupitz. Linklaters relocated partner Cecil Quillen in 2000 to London and in 2005 hired former Cravath Swaine & Moore partner Alexander Naidenov in the US. Clifford Chance last year recruited high-yield specialist Gary Brooks from Cahill Gordon & Reindell. The firm is also about to relocate Hong Kong partner Alex Lloyd back to its City base to support the practice. There can be no doubt that early attempts from UK firms have had little impact at cracking the market, not only because regular high-yield underwriters largely refuse to instruct them, but also the goal of one-stop shopping – acting as counsel on senior and high-yield debt – hasn't caught on.

Given these hurdles and the state of the banking markets, a push into a risky, volatile area of finance looks odd at first glance. And it is certainly true that advisers are not currently focused on high-yield in its traditional use of backing leveraged buyouts. What has fired the market is high-yield as an alternative to scarce bank lending, a trend supported by investors' hunt for decent returns.

As such, finance lawyers are focusing on high-yield being used as another tool for companies wanting to borrow or finance corporate takeovers. There is also the attraction of advising on distressed financing, with the inevitable inter-creditor issues. After last year's market shutdown there has been a recent pickup in work. Research by the European High-Yield Association shows that €3.1bn (£2.84bn) of high-yield bond issuance was recorded over 10 deals during the second quarter of 2009, compared to no high-yield bond deals for the same period in 2008.

Nevertheless, most remain highly sceptical of City firms' chances. But there are several reasons to believe City firms could at last make some ground. One is simple: rising profitability. The first time UK law firms took a pass at the area, there was a substantial gap between New York and London profitability, which priced them out of the market for business-winning partners. That gap has now largely closed. The second comes down to the oft-touted prediction that high-yield will go mainstream in Europe. Part of the reason US firms have maintained their grip is that this has remained a niche product. Were it to gain wider use, the ability of US firms to keep it in the club would come under strain. There will be City firms primed to move at the first sign that, this time, high-yield really is coming.

For more, see A&O moves on high-yield market with senior Milbank hire.