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Saturday, 21 October 2017

US Debt House: Bank of America Merrill Lynch

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Class act

It’s a rare bank that can manage to come at or near the top of the league tables across multiple asset classes in one year. But Bank of America Merrill Lynch managed that feat in 2013, with a solid but creative performance that means it richly deserves to be named IFR’s US Debt House of the Year.

Bank of America Merrill Lynch impressed across asset classes in 2013, with a steady performance that managed to steal away market share as the bank made its presence felt on some of the biggest trades of the year.

The bank – which was IFR’s US Loan House and US High-Yield Bond House of the Year, as well as US Debt House – was mandated as an active bookrunner on six of the 10 largest investment-grade bond deals of the 2013 review period.

It finished number two in the league table, leading 375 high-grade deals for US$96.7bn and a market share of 11.4% – higher than its 10.9% share the previous year.

In the high-yield space, the bank left-led 106 transactions in the review period and had a market share of 10.2% – also good for second in the league table.

And BofA Merrill’s consistently smooth execution – even when rates turned volatile due to Fed tapering concerns – meant issuers kept turning to the bank to deliver the goods.

“We maintained our commitment to the full-service model of origination, execution, distribution, trading and research, which ensured we consistently ranked in the top two across every segment of the investment-grade credit spectrum regardless of product, sector or geography,” said Jim Probert, head of Americas investment-grade capital markets.

Centre of the action

Throughout the year, the bank played a central role in headline high-grade trades, including the record-shattering US$49bn eight-part bond from Verizon as well as chunky issues from Petrobras, Freeport, Merck, Vodafone and Glencore. BofA Merrill was a house of choice for GE Capital Corp and AT&T, and it led debut transactions for EMC and Nike.

In high-yield it led all kinds of deals, from a jumbo corporate M&A financing for Tenet Healthcare to a debt-IPO for Hollywood heavy-hitter DreamWorks Animation, a dividend PIK toggle for retailer Party City, and a sponsor-driven leveraged buyout for insurance broker HUB International.

The US$4.6bn Tenet trade was the third-largest high-yield deal of the year, and included the largest Triple C tranche ever priced – a US$2.8bn senior note. At that riskier end of the credit spectrum, it was not the easiest deal to sell – and thus was riskier to underwrite.

But BofA Merrill took those risks head-on, quickly stepping up to provide a 100% commitment on the debt when the deal was announced in June, successfully syndicating that risk – and then coming up with the optimal structure for the company. That meant swapping the initial plan of a Term Loan B for a US$1.8bn senior secured bond instead.

And the US$4.4bn HUB International buyout – by Hellman & Friedman from Apax and Morgan Stanley – was, at 7.5 times leverage, the most highly leveraged buyout since the financial crisis.

BofA Merrill also led the US$355m senior secured bonds that backed the US$600m buyout of teen clothing retailer Hot Topic by Sycamore Partners. It was the first bond ever issued by the sponsor, and was executed in tough market conditions in June. Despite printing wide of price talk, the deal was still well inside the cap rates.

It also took on challenging deals for issuers like Noranda Aluminum and outdoor apparel maker Quiksilver, for which it successfully printed a US$505m two-part deal in July through the tight end of talk on both tranches – despite a drop in the company’s margins and a challenging market backdrop following a back-up in Treasury yields.

The bank also didn’t shy away from risky PIK toggle deals, which have had a renaissance over the past year.

The US$285m PIK toggle issued by packaging company Bway in May was the only super holdco structure of the year, and also enabled private equity firm Platinum Equity to take out its entire US$270m equity contribution within six months of purchasing the business.

“What we care about is having the left-lead position,” said Stephan Jaeger, head of high-yield capital markets at the bank. “And what ensures that is good ideas and good execution.”

Not every underwriting decision was perfect, of course. The bank ended up with a significant loss on teen retailer rue21. But even rivals said BofA Merrill was unlucky on the trade.

“We take pride that we can do any type of transaction,” said John Cokinos, speaking as the bank’s head of leveraged finance capital markets before his recent departure. “We don’t just do flow Double Bs or committed capital LBOs. We also do debt IPOs, positioning those stories well, and rescue financings.”

Loan strength

BofA Merrill’s success extended to the loans side as well, with the bank coming in second for investment-grade loans this year, with 311 deals, US$124.5bn in volume and 19% market share. It also leads the leveraged bookrunner table with 701 deals, US$137.2bn in volume and a 13% market share.

The bank’s loans performance was especially strong in acquisition financing, as it led or served as joint lead arranger on 13 North American acquisition financing transactions in the 2013 IFR awards review period.

It was one of the four underwriters of the historic US$61bn 364-day bridge loan for Verizon, and underwrote US$5.5bn in term loans for Amgen. That latter transaction raised over US$8bn despite the pricing being considered on the tight end – and with the Verizon loan launching the following week.

It also led highly anticipated deals including Dell, Activision Blizzard, Scientific Games and Saks.

The bank showed its creative nous on the US$9.1bn loan financing for Dell’s buyout by Michael Dell and Silver Lake Partners. Among other nuances in the complicated trade, BofA Merrill proposed the inclusion of a US$1.5bn three-year tranche to meet expected demand from CLO investors.

“It has definitely become a hallmark product of ours, the CLO tranche,” said AJ Murphy, co-head of global leveraged finance. “It’s a very technical hole we are filling because of its particularly low cost,” she said. “And it’s interesting because it’s not that different from an A loan, but it does tap into a very specific pocket of demand.”

Meanwhile, the bank brought out some of the year’s most interesting transactions in the US structure finance market.  It was the structuring lead manager on a US$2.2bn ABS acquisition financing that provided funding to SpringCastle’s purchase of HSBC’s entire consumer finance business – the largest consumer loan ABS transaction ever.

“We believe we are the strongest investment bank, as far as acquisition finance goes in the investment grade market,” said Peter Hall, BofA Merrill’s global head of investment-grade loans.

More broadly, the bank’s distribution and trading platform has been ranked number one by Orion Consultants over the past three years – a testament to BofA Merrill’s commitment to quality in every facet of the business.

As one high-yield investor told IFR: “There is no question. They are far and above everyone else on the Street.”

To see the full digital edition of the IFR Americas 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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