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Thursday, 23 November 2017

US Debt House: Deutsche Bank

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It can be difficult for a non-US bank to secure a spot near the top of the US league tables; to do so across multiple asset classes at the same time is a real achievement. For carefully identifying its goals – and then going out and reaching them – Deutsche Bank is IFR’s US Debt House of the Year.

The strategy sounds easy enough: identify the key themes in the market, focus your resources in those areas to try to gain market share, and then trust your bank has the tools to get the job done. But if it were that simple, as the saying goes, everyone would do it.

Indeed, while the whole of the banking sector was trying to get to grips with new market realities, Deutsche Bank proved it had an almost unique ability to craft a game plan and then execute it flawlessly. Deutsche was in a lead position on key trades throughout 2014 – and managed to secure a top-five position in the Thomson Reuters league tables in both investment-grade and high-yield bonds, as well as in structured finance and leveraged finance.

“In an environment where bank resources – capital and headcount – have become more constrained, Deutsche has deliberately adjusted by becoming more targeted in the clients and sectors it covers, and these sectors have been the beneficiaries of multi-year investment plans,” said Marc Fratepietro, the bank’s head of investment grade debt coverage.*

“Across growth sectors like FIG, industrials, technology and healthcare – where most of the supply has come from – we have made strategic hires, elevated the seniority of relationships and improved coverage connectivity across the firm with tangible results.”

FIG was the clear stand-out in the bank’s US performance this year, as it picked up market share while backing five out of six trades sized over US$1bn from the likes of AIG, MetLife and Prudential. It underwrote deals from Canadian banks including RBC and Toronto-Dominion. And it was mandated to lead a number of bank capital preferred and subordinated debt transactions for names such as Comerica, as well as senior issuance for regional institutions.

Top quality execution

The gains in the FIG space provided extra oomph to Deutsche’s performance in the high-grade market, where it repeatedly managed to get around issuers’ practice of rotating syndicate spots and win consecutive mandates for companies including Apple, AB InBev and American Airlines.

And of the year’s 10 biggest high-grade trades, Deutsche won a lead role on seven of them. Working in tandem with Goldman Sachs, for example, the bank was able to stir up vast demand for a seven-tranche US$12bn deal from Apple – so much demand, in fact, that the tech giant’s outstandings rallied by an extraordinary 7bp–10bp during marketing.

The trade amassed US$41bn in books at the peak, which helped pull in pricing from initial thoughts by 10bp–20bp – enough so that the paper could be priced on top of secondaries. This was top-quality deal execution and is IFR’s US Investment-Grade Bond of the Year.

The hard part

In the high-yield space, Deutsche was the only European institution to make the top three of the league table. And it leveraged its position in both the US and Europe to lead a number of jumbo multi-currency trades for Yankee issuers.

The most spectacular was the landmark €15.8bn-equivalent financing package for French cable firm Numericable, which backed the company’s acquisition of SFR. Split between loans and bonds in both euros and US dollars, it included the largest high-yield bond issue ever printed.

Deutsche was one of three global co-ordinators on the transaction and lead-left on the loans – the bank’s eighth consecutive appearance on a capital markets deal for Numericable or its owner Altice.

“The dollar loan was the hardest part of the deal, as we were dealing with the onset of retail outflows at a time when high-yield investors were flush with cash,” said Mark Fedorcik, Deutsche’s co-head of Americas corporate finance.

Deutsche was also lead-left on two transactions for Italian telecoms firm Wind, structuring and originating both the €3.75bn-equivalent senior notes in April and the €4.1bn-equivalent senior secured notes in June.

The April issue refinanced Wind’s €2.7bn-equivalent 11.75% 2017 senior notes and €1.3bn-equivalent 12.25% payment-in-kind notes in euros and US dollars, in conjunction with a €500m equity injection from owner VimpelCom.

The refinancing of the PIKs settled one of the great unknowns in the high-yield market, as it was unclear if the debt would be repaid. The timing of the deal was crucial.

“We first started seriously looking at this around Christmas, and even then it looked very ambitious,” said a banker working on the transaction. “I don’t think the trade would have worked at any previous time. You not only needed strong markets, but you also needed the re-emergence of an M&A dynamic in European telecoms.”

The TMT sector has long been one of Deutsche’s key strengths, and it is no surprise that the bank was in on many major telecoms deals. Among them was T-Mobile, for which Deutsche led a US$3bn trade in September – the third time the bank has been left-lead for the issuer since the beginning of 2013.

Not only was the deal upsized by US$1bn, but both the US$1.3bn 6% 8.5-year non-call four and US$1.7bn 6.375% 10.5-year non-call five tranches were priced at the tight end of talk and with minimal new issue concession – despite being the first jumbo deal to come to market after the high-yield sell-off in July and August.

Boundaries pushed

When it came to structured finance, Deutsche Bank clearly differentiated itself in a jam-packed year of issuance by bringing large mainstream deals while at the same time pushing the boundaries with new products for new issuers.

Consistency was the name of the game, as the bank demonstrated an unmatched ability to pick the right spots in what was a highly competitive market.

“It was a year when we were present in both segments of the market, namely flow and innovation, by leading deals from a wide array of product classes and for a number of first-time issuers,” said Tom Cheung, co-head of structured credit at Deutsche.

“We also differentiated ourselves from others by being at the forefront of creating customised solutions that met the needs of investors and issuers.”

During the review period, the bank also continued to lead the commercial real estate securitisation market. It dominated CMBS issuance in a year when primary volumes for the asset class were sprinting towards fresh highs since the financial crisis.

And it showed its ability to innovate in the mortgage space with trades that collateralised everything from trophy hotels to nursing facilities.

There were similar examples of innovation and structuring expertise in the ABS space, where Deutsche led trades ranging from large traditional securitisations to new types of products.

While maintaining a focus on core aspects of the ABS market – automobile loans, credit card receivables, housing related products, student loans and CLOs – it also led five single-family rental securitisations, five container deals and three time-share trades, for a strong market share in these product classes.

Deutsche also made a name for itself by launching the first-ever property-assessed clean energy bonds, which securitised loans for energy efficiency, showing yet again its ability to innovate.

“We’re not an assembly line, and we have a degree of focus on clients that some big banks don’t,” said Jeanmarie Genirs, head of syndicate in the Americas.

“We also have very valuable intelligence on what institutional investors want. It’s not just about knowing accounts, but having the ability to engage with them.” 

* Marc Fratepietro’s title corrected to head of investment grade debt coverage.

To see the digital version 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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