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Tuesday, 21 November 2017

Bond House, Europe Investment-Grade Corporate Bond House and SSAR Bond House: Barclays

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  • Bond House, European Investment-Grade Corporate Bond House and SSAR Bond House: Barclays cartoon

Forging ahead

It takes confidence and a wealth of experience to successfully navigate around markets that throw up fresh challenges at seemingly every turn. Barclays displayed just the steady hand required and is IFR’s Bond House, Europe Investment-Grade Corporate Bond House and SSAR Bond House of the Year.

Barclays provided just the leadership required in a year that saw the bond markets suffer repeated bouts of volatility – some predictable, others completely unexpected.

According to John Langley, head of global finance and risk solutions at the bank, Barclays not only gained market share against its rivals, but its debt capital markets franchise has come out “stronger than ever and enjoyed one of its best years”.

For a business that in mid-2014 was fighting for resources amid an internal strategic overhaul, that is no mean feat. Langley believes that the bank has come out of the process with a better DCM franchise than ever before.

“The commitment from senior management is undeniable,” he said. “We made some important and big strategic decisions – and it’s paying off. We never lost focus or belief in the business. There was no radical reincarnation; we remained committed. It is testament to a sustainable business.”

While banks are no longer wedded to the universal models of old, seeking to be all things to all men, it is still an advantage to have a view across the various asset classes and jurisdictions. “There are issue specifics, but you have to look at the overview,” said Langley.

Yankees

This meant Barclays was able to pick up on the year’s themes, no more so than in the European corporate market, where the reverse Yankee trend was a dominant force as record low rates and compressed credit spreads meant that US investment-grade companies could fund at cost-efficient levels in euros.

Barclays, with key relationships on both sides of the Atlantic, was at the forefront of this market-changing dynamic, helping it become IFR’s European Investment-Grade Corporate Bond House of the Year.

US companies poured into the euro market thick and fast from February, and by March over €27bn had been raised by IG US borrowers.

Barclays claimed its market share by playing key roles in the sector’s stand-out reverse Yankee deals of the year, namely for Coca-Cola, Cap Gemini and AT&T, which all received blowout demand.

It was Coca-Cola that made the biggest splash when it tapped European investors in February for an €8.5bn five-tranche trade, with orders reaching around €20bn.

But it was not just the tighter technical factors that had US issuers eyeing Europe’s market; investor diversification and natural hedges for euro revenues played an important part in the reverse Yankee story as well.

“We have very good relationships with US corporates and our ability to advise them on when to take advantage of strong rates won us some very important mandates,” said Jonathan Brown, head of fixed income syndicate in Europe. “There have been issuers that have been considering the European market for some time, and we helped bring that to reality.”

Leading position

Barclays also took a leading position in what was a record year for Europe’s hybrid market.

“We structured and coordinated more corporate hybrids than any other bank, including being the sole global coordinator on the largest-ever corporate hybrid, from BHP Billiton,” said Karan Shah, from the bank’s European syndicate.

Barclays also acted as global coordinator on the notable €5bn hybrid trade from French oil major Total.

While maintaining its strength in the sterling sector, it was in euros that its progress was most stark, the bank seemingly ever-present in companies’ funding exercises. It added a noteworthy 2.5 percentage points to its league table credit, jumping four places in the pecking order in the process.

And things were no less impressive on the other side of the Atlantic.

In the US IG market, which saw record issuance volumes driven by M&A and share buybacks, Barclays played a lead role in some of the biggest bond deals of the year. Of the 14 bonds of US$10bn or more sold in the awards period, Barclays had an active role on six – more than any other non-US bank.

It was an active bookrunner on the US$16.7bn acquisition bond financing for AbbVie’s purchase of Pharmacyclics, for example, and also on the US$10.5bn deal backing UnitedHealth’s acquisition of pharmacy benefit manager Catamaran in July.

“It was critical to be on the big deals. They drove the market in 2015,” said Mark Bamford, head of fixed income syndicate.

The fees tied to these jumbo issues were huge, and Barclays reaped the benefits. On the US$15bn bond deal backing CVS Health’s acquisition of Omnicare and Target Pharmacies in July, for instance, Barclays got just over a third of the economics.

Having stepped up as sole underwriter on the US$13bn bridge facility for the Omnicare deal, Barclays was marketing coordinator across the entire transaction, as well as billing and delivery agent for the deal.

Barclays also had leadership roles in other prominent transactions, acting as one of two global coordinators on the US$10bn, seven-part bond issue financing HJ Heinz’s US$46bn merger with Kraft. The deal, rated at the very low end of IG at Baa3/BBB–, hit the market just as fatigue was beginning to settle in following a deluge of supply.

Still, the bond was priced flat to Kraft’s existing bonds, and even through them on some of the tranches, including the 20 and 30-year bonds.

Among the other IG highlights for Barclays was its role as an active bookrunner right at the other end of the IG rating scale for Microsoft.

The computer giant’s US$10.75bn issue in February – its first of two jumbo issues of the year – partly financed buybacks. At the time, the issue was the biggest of the year in the market, and was upsized from an initially targeted US$7bn on the back of a US$37bn order book.

The bank was also lead-left on some marquee high-yield transactions in 2015, including the US$1.9bn notes issue backing the US$8.7bn leveraged buyout of PetSmart. (See North America High-Yield Bond of the Year and North America Leveraged Loan of the Year.)

Several banks had backed away from providing the debt financing for the deal on concerns that it would not pass muster with US regulators’ leveraged lending guidelines, but Barclays was not one.

SSAR supremo

A sovereigns, supranationals, agencies and regions market that transcends boundaries also played to Barclays’ strengths, the bank being named SSAR House of the Year.

Arguably the biggest financial event in Europe was the European Central Bank’s introduction of its €1trn QE programme.

In fixed income, the first in the line of fire was the public sector. The market surged in the months preceding its launch and then fluctuated alarmingly when the ECB finally unleashed its €60bn-a-month bazooka.

Barclays stood out for riding the crest of the wave highly successfully – taking advantage of the bull market that preceded QE and then navigating the choppy waters once the distortions kicked in.

“The year 2015 started for us in November the year before. The market was changing, and it had really dawned on us that we had a huge opportunity here. We had a strong idea that the ECB was going to embark on quantitative easing,” said Lee Cumbes, head of SSAR origination at Barclays.

The numbers in themselves are hefty. In the first week of the year, Barclays helped Belgium and Ireland raise €9bn between them. Later the same month, the bank was on hand when Spain printed a €9bn 10-year bond, one of the largest deals of the year.

Sustainability

But this particular story goes beyond the numbers. Many eurozone countries saw their borrowing levels spike over a succession of debt crises in 2010–2012. This was their opportunity to manage the situation.

“Particularly for the eurozone sovereigns, there was a chance in a generation to improve the sustainability of their debt profile. And we were positioned to help them do this,” said Cumbes.

While the sovereign side of this sector is undoubtedly the most high profile, supranationals and agencies provide its lifeblood.

Barclays was involved in some of the most important deals in this regard as well. It worked on one of the European Stability Mechanism’s first deals after a €86bn Greek bailout agreement put pressure on the issuer to raise several extra billions during the year. The €6bn December 2018 that succeeded the bailout agreement was the largest supranational deal of 2015, and relieved a great deal of pressure by wiping out a third of ESM’s funding needs.

The bank also won a lot of repeat business from KfW, in what was a strong year for the Germany-guaranteed agency. Most notably, it was a lead manager on the development bank’s landmark €5bn 0% December 2018 priced in September, the first negative-yielding benchmark bond since the height of the QE hysteria in March.

More than ever, it was particularly important to have a strong business in both US dollars and euros. QE distortions all but shut euro markets for the period between May and August, and then anticipation of a rate hike in the US made the dollar market hard to access after the summer. A bank needed to offer solutions in both to be successful under these circumstances.

Barclays held its own in both markets, increasing market share on both sides of the Atlantic.

The ability to execute in both was best typified by its role in Dutch agency NWB’s €1bn 1% 10-year Green bond – a deal originally meant for the US dollar market but switched to euros when the tide turned in favour of the single currency.

In the US dollar market, one of the most notable deals of the year was the World Bank’s US$3.5bn 2.5% July 2025 – a 10-year priced at a time when rates uncertainty played havoc with the long end of the curve. It was to be one of the last deals of that size at the tenor for the whole year.

Cross-fertilisation

One notable transaction that demonstrated Barclays’ cross-asset class credentials was Municipality Finance’s €350m 4.5% AT1 offering.

This marked the first AT1 from an SSAR issuer, a structure that may well be deployed more in the future as development banks come under the purview of Basel leverage ratio rules. The rules require lenders to have a certain proportion of equity against the debt on their books, one solution to which is the issuance of AT1 bonds.

“We don’t run the business as silos,” said Jim Glascott, global head of DCM. And this was a perfect example of employing experiences from another asset class – in this case financials – in a feat of cross-fertilisation.

Barclays’ FIG franchise was indeed again key in its overall success, given its ability to execute business across a multitude of currencies and jurisdictions.

“We run a global business and this means we can act for repeat borrowers across the various funding platforms and bring new issuers to new markets,” said Mark Geller, head of financial institutions syndicate. “We need – and are able – to maintain a relevant presence in all the subsets.”

From covered bonds, through senior financing and its additional TLAC/MREL considerations, to capital-raising for both bank and insurance clients, there was no area in which Barclays was not active.

As Geller pointed out, Barclays’ experience with its own parent meant it was able to offer bespoke advice in response to the changing regulatory environment.

It helped clients such as Standard Chartered negotiate increasing capital requirements, another notable trade being ING’s SEC-registered dual-tranche debut CRD IV-compliant AT1 following the group’s restructuring.

Issuers with global footprints are particularly impacted by TLAC/MREL, Santander UK being one such that Barclays guided through the resolution maze, with a cross-border liability management exercise and new issue to migrate legacy Tier 1 instruments to the new UK holdco resolution entity.

Spain offered a snapshot of Barclays’ abilities, the bank repeating its bookrunning duties on BBVA’s second CRD IV-compliant AT1, as well as acting as structuring adviser on Ibercaja’s debut T2, a trade that helped position the bank ahead of its proposed IPO.

In the insurance sector, it worked across US dollars, euros and sterling, with market stalwarts like Zurich, L&G and Aviva, as well as introducing rarities such as Rothesay Life and SACE.

In the senior market, Barclays was appointed by borrowers looking to take advantage of its broad investor reach across currencies, while covered bonds saw it push maturity boundaries and extend the issuer base.

Add to this a healthy chunk of emerging markets business and activity in all corners of the world and Barclays presents a compelling bond proposition. But the organisational structure is such that, in spite of this scale, decisions can be made quickly.

“We are a very large bank with a very large footprint, but we can be very small if we need to get our heads around something quickly,” said Bamford.

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@tr.com .

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