IFR Top 250 2007: Stanley bounces back
Morgan Stanley is bullish on international non-dollar markets that can provide funding in volumes and pricing at least equal to, if not better than the firm’s US domestic market. In addition, there is the bonus of investor diversification, as Malini Menon reports.
As a major borrower in the global capital markets, Morgan Stanley is always on the lookout for significant funding opportunities in new markets. The firm has become a frequent, if not a significant issuer in many non-dollar markets.
"Diversifying into new markets is a win-win situation for both investors and us as an issuer. Investors are often looking for new credit names to invest in, and Morgan Stanley, given our growing funding needs, seeks diversification opportunities globally," said Jai Sooklal, assistant treasurer and global head of financing at Morgan Stanley.
International non-dollar markets can sometimes provide funding in volumes and pricing at least equal to, and in some cases better than the US market, he added.
While increasing access and capacity by pursuing funding opportunities in global markets, the Stanley balances new debt issuance in a responsible manner to preserve spread performance. To maintain a capital structure that avoids excessive refinancing risk in any given period or year and to manage the duration of its debt portfolio such that it exceeds the duration or holding period of the assets being funded are the other two main principles under which it operates.
Morgan Stanley raised a total of US$46bn in global markets during its fiscal year 2006 (ending November 30), accessing global markets in both the institutional and retail sectors. Among the significant transactions were a A$1.4bn trade – the largest for a US investment bank in the Australian market – and an inaugural 10-year FRN deal in the European market. That last deal raised an initial amount of €1.25bn that was subsequently tapped twice for a final €2bn.
The range of investors tapped is informative. The firm's inaugural non-cumulative, perpetual preferred stock offering raised US$1.1bn in Tier 1 eligible capital and saw participation from over 750 retail investors and 35 institutional investors. The debut Ps1.25bn deal was sold to Mexican pension plans, while the enhanced trust preferred offering, which raised US$1.1bn in eligible Tier 1 capital, tapped into the retail capital securities market.
Giving those investor diversification plans a further shot in the arm was Stanley's regional-targeted €2bn bond issue, primarily targeting the three pillars of the German banking structure: the savings, commercial and co-operative banks. Issued last November, that deal remains the largest three-pillar German regional-targeted bond issued to date. The seven-year paper was nearly twice covered and the pricing at 33bp over Euribor conceded minimal premium for diversification.
Morgan Stanley opportunistically tapped the Swiss market with a SFr650m two-tranche (seven and 12-year) offering, achieving an 8bp-10bp saving over US dollar or euro funding prospects. Its ¥41.5bn, seven-year inaugural Ninja loan remains the largest such transaction to date by a US or European investment bank.
Stanley's cost of capital has tightened in recent months in line with credit spread tightening across markets, said Sooklal. The return of John Mack to lead the firm and the subsequent performance and management stability has allowed Morgan Stanley’s credit spreads to retrace the 10bp-15bp margin by which they had widened out relative to peers during the Spring and Summer of 2005, when the firm experienced management turmoil.
Stanley continues to be an active participant in global markets in fiscal 2007. "We have continued to prudently manage our capital structure by calling less efficient and more costly capital instruments and replacing them with enhanced, more efficient ones," said Sooklal.
The issuer debuted in the Maple market this fiscal year, printing the market's largest Maple bond offering (C$2.5bn) as well as the largest-ever non-government bond issue in Canada.
It also hopped into the Kangaroo market, raising A$1.5bn (US$1.2bn) via a three-tranche issuance that went on to become the issuer's largest such issue in a single maturity bucket (four years) and the largest 10-year Kangaroo tranche by a broker/dealer. It was also the issuer's largest trade in the Kangaroo market since its inaugural trade in 2001.
And following on from its inaugural offering in 2005 in the New Zealand Kauri market, Morgan Stanley has returned to the space this fiscal, raising N$175m (US$128m) in a dual-tranche deal. The transaction was the largest Kauri issue ever from an investment bank and the first such dual-tranche issue from a broker/dealer.
"Our funding needs change dynamically, and so we adjust continually based on business opportunities and market conditions," said Sooklal.