US Debt House
Smart positioning: The US debt markets were on fire in 2012, led by refinancing activity that played into the hands of the big US commercial banks. Against that backdrop, Barclays used a more limited balance sheet cleverly to bag roles on almost all top financings and garner solid league table positions across debt products. Barclays is IFR’s US Debt House of the Year.
To see the full digital edition of the IFR Americas Review of the Year, please click here.
It was a year that regularly drew references to the pre-crisis years. For the first time since 2008, issuers found investors all too willing to take on risk in an unrelenting hunt for yield, prompting a surge of issuance that started in the US high-grade markets and quickly flowed into high-yield bonds, leveraged loans and ABS.
Central banks contributed with low interest-rate policies and quantitative easing programmes, pumping liquidity into markets through the year as European economies struggled and the US economic recovery faltered.
Companies naturally sought to take advantage of the cheap cost of borrowing and Barclays stepped in to assist with a platform offering solutions across the spectrum of debt products. That was key in helping it win mandates in a market where capital is still a major factor for issuers in selecting bond underwriters.
“We got more business out of every loan we underwrote compared to other banks during the year because we are a highly diversified business and there are very few firms as good as we are across the product spectrum,” said Jim Glascott, head of global debt capital markets at Barclays.
The bank won business on the largest, most innovative and complex transactions of the year. The list included inaugural transactions and key leveraged acquisition-related trades that had Barclays taking on all roles from adviser through to execution.
“We would like to think that the bigger and more complex the transaction, it is more likely our services will be required and our track record this year clearly shows that,” said Mark Bamford, head of global fixed income syndicate at Barclays.
One impressive deal was the US$37.8bn acquisition of El Paso Corp by Kinder Morgan. Barclays acted as financial adviser to Kinder Morgan and provided US$13.3bn of committed financing to the company on a sole underwritten basis even as market volatility remained high during the process.
The bank withstood the pressure and ensured the deal was syndicated down, displaying its ability to take a calculated risk and deliver for its client. The deal was the largest non-investment grade sole underwrite ever and is also IFR’s Loan of the Year.
Barclays worked seamlessly across advisory and loan/bond origination roles to structure and execute large-scale strategic financings, including Kellogg’s acquisition of Pringles, Eastman Chemical Company’s purchase of Solutia and Gilead’s acquisition of Pharmasset.
Barclays was financial adviser for Kellogg’s US$2.7bn acquisition in February. The bank later acted as joint lead arranger and bookrunner on a US$1bn bridge facility and joint bookrunner on the subsequent US$1.45bn three-part bond issuance takeout. Eastman’s US$4.7bn acquisition similarly saw Barclays act as financial adviser, then joint provider of US$3.5bn of acquisition facilities and joint bookrunner on a US$2.4bn three-part bond takeout.
Slow on flow
Even though it figured in the top trades, Barclays did not head the league table across debt products because it did not feature in all the flow business.
In league tables for all US dollar debt including ABS/MBS/CLOs, the bank placed in the top five for the awards period. That put it right behind the top US commercial banks such as JP Morgan, Citigroup and Bank of America Merrill Lynch, which have bigger lending books and more relationships.
“We are not trying to be all things to all people,” said Joe McGrath, co-head of global finance & risk solutions at Barclays. “We were inclined to do many large transformational and acquisition financing deals and fewer relationship loans.”
“We believe in an integrated approach to solve clients’ problems, which means bringing together abilities in origination, syndication, sales & trading and research. Whether it is corporate debt, leveraged loans, securitisation, we were a leading house across the variety of league tables that matter the most to our large clients,” said Bamford.
Residential Capital’s US$1.45bn debtor-in-possession facilities were a standout. On May 14, ResCap filed for bankruptcy protection under Chapter 11 and Barclays as sole lead arranger designed a unique DIP solution to provide it with liquidity through the process.
To complete the loan, Barclays drew on the resources of its leveraged finance team, its syndicate desk, its asset-based or securitised product group and its FIG team. It was the largest DIP financing in the last three years and the one that achieved the tightest pricing for a syndicated, high-yield mortgage-servicing capital markets offering over the same period. The ResCap deal is IFR’s Americas Restructuring of the Year.
Barclays was also involved in all parts of Abbott Laboratories separation into two publicly-traded companies which culminated with the largest investment-grade bond deal in the US market – AbbVie’s US$14.7bn six-part bond, which is IFR’s Investment-Grade Bond of the Year.
Barclays was a joint bookrunner on Kraft Foods’ US$6bn trade that helped with its spin-off (IFR’s Americas Financing Package of the Year); General Electric‘s US$7bn transaction in October that was its first since 2007; and Anheuser-Busch InBev’s US$7.5bn trade that achieved record low coupons across all four tranches (IFR’s Yankee Bond of the Year). It was also part of SABMiller’s US$7bn four-parter in January that attracted the largest Yankee order book (US$25bn) since Roche’s transaction in March 2009.
The bank featured in almost every important bond transaction in the US this year with its global presence providing a strong platform for foreign issuers to access the US bond markets for investor diversification and low funding costs.
High on yield
In the US high-yield space, Barclays did not capture a huge amount of league table credit but the team still prided itself on its strong reputation and experience across industries.
“Some of the things we have are our prowess in structuring and executing transactions and our strength in research, sales and trading, which has always given us a tremendous edge,” said Jean-Francois Astier, head of global leveraged finance at Barclays.
Among the more notable transactions, Barclays exploited an open window to price a PIK toggle dividend offering for Alphabet Holdings. The company tapped Barclays to left lead a US$550m five-year non-call one senior unsecured PIK toggle issue that was used to fund a dividend. The Caa1/B– rated issue priced at 7.75% at a discount of 98 to yield 8.242%.
Other notable deals the bank helped lead included those for Intelsat, Samson, Ford, CIT and IFLC, the last three of which demonstrated its product agnostic approach across asset classes, and were distributed easily to both investment-grade and high-yield accounts.
In the US securitisation markets, Barclays was again clever. It did not try to do every deal but did the ones that mattered. It placed fourth on the league tables.
Barclays structured and led an unprecedented 55% of all Ford transactions by year to-date volume. It also structured and led five of the last eight deals and was a bookrunner on seven of the last nine deals for Sallie Mae. It is the franchise’s strength in the esoteric or “non-traditional” ABS sector that truly distinguished it from its rivals.
This year also marked Barclay’s re-entrance to the CMBS new issue market. The bank led four of Redwood Trust’s six RMBS this year. These four deals were underpinned by new loans – not by legacy or resecuritised collateral.