Friday, 14 December 2018

Americas Structured Finance House

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  • No white space

No white space: It was a year that saw a comeback for key sectors of US structured finance but only one bank remained consistently strong across all sectors, while also producing creative, thought-leading transactions that straddled asset classes and pushed boundaries. Citigroup is IFR’s Americas Structured Finance House of the Year.

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

There was finally a sense of normality and “back to business” in the renewal of strong vanilla deal flow in 2012 that had not been seen since the onset of the financial crisis. There was also a critical resurgence of interest in securitised products – particularly CLOs and CMBS – because of the strong yields they offered investors in the midst of an historically low interest rate environment.

Citigroup never wavered in its commitment to any of these products, and has been the most well-rounded bank, even through the most challenging of times. Unlike some of its peers, it has been keenly attuned to markets that might make a comeback, and was ready to pounce when they did. Beyond this, it has consistently demonstrated the ability to innovate and to harness the global reach of its investor contacts in a creative manner.”

Citigroup was the top arranger of CLOs in 2012 – the first significant year of issuance in the product’s post-crisis rebirth – all the while staying a frontrunner and innovator in CMBS, and maintaining a top-four presence in flow ABS. It was also the most forward-thinking in the residential mortgage space, being the first investment bank lender to set up a revolving-credit loan facility for a REO-to-rental firm, Waypoint Real Estate Group, with an eventual new asset, first-time securitisation on the horizon.

That it stayed so dedicated to every one of these reinvigorated or evolving segments while also structuring thought-provoking hybrid offerings that applied securitisation technology to areas as diverse as project finance, renewable energy, and transportation finance clearly distinguishes it from its peers.

“Our structuring lead mandates went up 50% year-over-year in 2012,” said Gerald Keefe, head of ABS origination, lending, and capital markets at Citigroup. “The resurgence has been incredible.”

“Citigroup is a great partner for us,” said Jay Banerjee, manager of treasury at Hyundai Capital America. “They are very creative, with thoughtful ideas, and are always willing to engage in analytical discussions with all parties, especially credit rating agencies.”

Citigroup has all of its bases covered – as bankers like to say, there is no “white space” in its structured finance franchise.

One umbrella

The group’s 2012 reorganisation speaks to its re-evaluation of the changing global regulatory landscape and its broader view of what constitutes a “structured” financing.

Citigroup saw changes in capital and liquidity rules unfolding – steering financing away from banks and driving it to the capital markets – and placed all of its structured finance businesses under one umbrella to make the most of synergies in distribution.

“The ability to develop new distribution channels for assets will be critical going forward, and therefore, that is our focus,” said Ted Yarbrough, co-head of Citigroup’s global structured finance group.  “Banks won’t be able to do anywhere near the types of volumes they’ve done in the past.”

Expansive view

Citigroup takes an expansive view of structured finance. That’s why the bank was keen on applying structured technology to the project finance realm and developing new asset classes for different investor segments globally.

An important example is the development of a capital markets investor base for renewable energy projects via the US$850m Topaz Solar Farms project, which was the first clean greenfield solar project financing to be brought to the market in 144a format.

Citigroup views the offering as a structured bond because investors must rely on the composite of contracts governing everything from the farm’s construction to a utility’s payment stream once the project is finished. The deal was a monetisation of contracts, with an SPV and a segregated pool of assets.

It was also the world’s largest solar project finance bond offering executed to date.

The Topaz solar farm, acquired by MidAmerican Energy, a Berkshire Hathaway company, is yet to be built in California. Topaz will sell 100% of its energy output under a 25-year agreement with a utility, Pacific Gas & Electric.

“After completion, you’re securitising the payment stream that comes from the utility. But it’s a contingent payment stream on the basis that this asset operates – that power will be made available under the plan,” said Nasser Malik, managing director in the structured finance group.

The transaction was well oversubscribed, with more than US$1bn in investor interest from institutional accounts.

In early May, Citigroup also completed the first post-crisis trade receivables term issuance via a novel floating-rate US$430m deal for Trafigura, with collateral consisting of US dollar-denominated oil, non-ferrous concentrates and bulk commodities.

The success of the transaction proved that these off-the-run assets, which are typically seen only in the conduit arena, are viable in the term markets.

The offering priced on the tighter end of whispers with a significantly over-subscribed book.

Citigroup was also a leader in cross-border deals, joint leading the first ever 144a US dollar-denominated European auto transaction, Motor 2012-1, for Santander Consumer UK. The order book was three times oversubscribed, allowing prices to tighten up to 20bp across some of the dollar tranches. Similarly, Citigroup joint led Saecure 11 in July for Aegon, which was the first ever 144a dollar-denominated Dutch RMBS. Aegon was able to increase the size of the tranche from US$500m to US$600m.

Distinguished distribution

Citigroup’s incredible investor relationships have given it the reputation for running one of the best and most nimble syndicate desks.

“Our toughest deal of the year, NSLT 2012-2, came during a challenging time, with a good deal of competing supply in the market, increasingly alarming headlines out of Europe, and difficulty selling ’rehabilitated’ student loans to investors,” said Greer McCurley, executive director of capital markets at Nelnet. “We managed to get the deal 75% subscribed fairly quickly but we had a lot of trouble getting in the last order to clear the book.

“The Citigroup syndicate thankfully had a very strong relationship with one of the key investors and was able to get them to clear the trade, just when it looked like the book might fall apart,” McCurley said.

“Citigroup was a lead manager on every deal we did in 2012 and based on the results we achieved, we are confident they will be a lead manager on every deal we do in the future.”

The bank also won lead structuring mandates for an array of flow ABS issuers in 2012, including USAA, GE Capital, Nissan, Volkswagen, Hyundai, and Mercedes Benz.

Citigroup’s offbeat advice early in the year for GE Capital to sell a rare seven-year bond was risky, but paid off with overwhelming investor demand for the longer maturity.

Citigroup acted as the structuring lead bookrunner on Nissan’s US$1.4bn prime retail auto securitisation. When the deal priced on July 13, it represented the year to-date record low yield of 0.481%, and was upsized due to strong investor interest. This record low yield was broken by two subsequent Citigroup-led transactions, USAA and Daimler.

The US$500m USAA transaction, which Citigroup structured, priced in September at a record low all-in yield of 0.441%. The deal was the issuer’s first securitisation since 2010 and priced in one day with no pre-marketing.

Citigroup was also at the forefront of CMBS this year, paving the way for the reopening of the CRE CDO market with two “transitional property” deals that used CLO technology, and developing the first non-performing loan financing “liquidating” structure for Lonestar, which had a fully financed bid for the acquisition of an NPL portfolio from Lloyds Bank.

The transitional-property deals for A10 Capital and Northstar, meanwhile, were underpinned by static transitional, bridge, and “mini-perm” loans, and relied on cashflows that were still ramping up – one step back to the future for the world of CRE securitisation.

“We are finding liquidity where there is no liquidity today,” said Marcus Giancaterino, global head of commercial real estate at Citigroup. “The next step toward reopening the CRE CDO market is adding a reinvestment bucket. We’re working on that.”

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