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Sunday, 19 November 2017

Americas Loan House: Morgan Stanley

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In the year that M&A finally returned, it is perhaps not surprising that an M&A specialist stood out, but to do so under intense regulatory scrutiny was even more impressive. For providing bespoke financings, M&A expertise and consistently generating returns for investors, Morgan Stanley is IFR’s Americas Loan House of the Year.

Alpha is the juice, or excess return, on instruments relative to benchmark returns. Event-driven financing is where investors find these returns in loans, particularly when teaming up with financial partners.

“Event financing is the area in this environment where investors make money. They’re barely treading water buying flow refinancing paper or trading on the secondary market on very thin volumes,” said Jim Bonetti, head of Morgan Stanley’s US leveraged finance syndicate team. “Where the buyside makes money is right here. This is the place where they create alpha.”

Working with a firm that can combine M&A expertise with knowledge of the high-yield bond and equity markets is the best way to access these extra returns. The investment bank had a busy year, providing financing for clients across the world and from numerous business sectors.

“When it comes to something that’s complicated, where you want bespoke solutions to problems that people haven’t solved before and need expertise between equity, equity-linked and high-yield debt … who in your top 15 league table brings all that to the table? The list gets very short very quickly. That’s part of our charm,” said Daniel Toscano, head of acquisition and leveraged finance at Morgan Stanley.

Morgan Stanley led an innovative US$5.8bn refinancing for Grifols, a Spanish pharmaceutical and chemicals company, which included a US$3.25bn term loan with no Libor floor (a feature routinely used to guarantee minimum returns for investors). The facility was priced at 300bp over Libor, at a 99 discount to yield 3.49%. The loans also included a US$550m-equivalent tranche denominated in euros, a US$300m revolver, a US$700m Term Loan A and US$1bn in bonds.

Other underwriting banks advised Grifols that it needed to have a Libor floor, but Morgan Stanley disagreed.

“If you think back and you start thinking about the solutions, you really don’t want the floor. Maybe that’s just the way things have been packaged,” Bonetti said, adding that investors were willing to sacrifice Libor floors for higher margins.

Zebra Technologies also secured a US$2.2bn seven-year senior secured term loan, a US$250m five-year revolver, and a US$1.25bn bridge facility from Morgan Stanley, alongside JP Morgan, to back its acquisition of Motorola Solutions’ enterprise business.

Morgan Stanley was also sole lead on the US$7.3bn financing for electricity utility Dynegy, which included a US$950m revolver and US$6.35bn of unsecured bridge loans.

Open all hours

Morgan Stanley stayed open for event-driven business and was even active in October during the most volatile period this year, which produced a sole bookrunner mandate on a US$1.1bn deal for transaction processing firm SourceHOV that backed its merger with BancTec.

The deal priced wide of original talk when it came to the market during the volatility, but it completed while other deals considered to be weaker credits were withdrawn.

Morgan Stanley, working with Deutsche Bank, also led a US$725m deal supporting Grocery Outlet’s buyout by Hellman & Friedman, which was priced during peak volatility in mid-October.

Despite considerable success in the leveraged loan market, Morgan Stanley did not slack in the investment-grade market, consistently providing bridge loans for marquee transactions, often on a sole basis, such as the US$2.5bn bridge loan for Alcoa’s US$2.85bn acquisition of Firth Rixon.

The firm also played a leading role on Verizon’s US$11.3bn 2014 refinancing as one of the four original underwriters of the US$61bn historic bridge loan that financed Verizon Communications’ acquisition of a remaining 45% stake that it did not own in Verizon Wireless from Vodafone in 2013.

Perhaps Morgan Stanley’s highest profile transaction in 2014 was the fully underwritten US$9.2bn financing that backed meat processor Tyson Food’s highly contested pursuit of Hillshire Brands – IFR’s North America Loan of the Year – which was assembled under regulators’ watchful eyes.

“There is a huge universe of very high performing companies that are doing transformational transactions that are well within the scope of what the regulatory bodies want to happen,” Bonetti said. “They want to have high quality, non-investment grade companies merge, and continue to gain scale, drive synergies and drive value in the equity markets. That’s what we’ve done this year.”

To see the digital version of the IFR Review of the Year, please click here.

To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.

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