Clock ticking on WeWork’s US$6bn loan
We Company, better known as WeWork, has to complete its troubled IPO before the end of the year to maintain access to a crucial US$6bn loan, after delaying the float last week amid mounting concerns about the company's valuation.The US$6bn loan is contingent on the equity issuance and WeWork has until December 31 to go public before losing access to the credit, which is key to the company’s expansion.“The original expectation was September or October to launch the IPO,” a banking source said. "If they don't do it during that window [before December 31] the [loan] commitment will expire.”The US office-sharing company made a last-minute decision last week to postpone an investor roadshow for its IPO that was expected to launch as early as September 16. The US$3bn-plus IPO was expected to value the company at US$10-$12bn, a dramatic discount to the US$47bn valuation it achieved in a private funding round in January.We Company is now hoping that it can relaunch the IPO in October after updating its earnings with a strong third-quarter performance, but runs the risk of weak demand towards the end of the year - and faces the inevitable difficulty of trying to renew momentum of a stalled deal.Lenders are currently locked in after committing to provide the loan, which was contingent on the IPO happening but not the valuation the company secures. But there are no extension options in the loan agreement and if WeWork fails to complete its IPO by December 31, banks' commitments will expire.If WeWork wants to extend the loan, it will have to approach lenders again, which could be an uphill struggle as investors’ view of the loss-making company’s business model cools.“We had to imagine this company with its momentum, with its US$3bn IPO proceeds, the bank debt and cash. It was hard to believe that we would have a large problem in the next five years to create a financial stress,” the banking source said.Thirteen banks provided the loan but asked for changes to get more comfortable with making a large commitment as doubts grew about WeWork’s valuation.Nine of the eleven banks invited in August to make commitments of US$750m-$800m signed up - JP Morgan, Goldman Sachs, Bank of America Merrill Lynch, Barclays, Citigroup, Credit Suisse, HSBC, UBS and Wells Fargo. Another four banks - Bank of Montreal, Mizuho, Credit Agricole and Deutsche Bank - subsequently joined the deal with commitments of US$250m-$500m.Lenders demanded additional protection on the US$6bn loan, which comprises a US$2bn letter of credit priced at 100bp over Libor, and a US$4bn delayed draw term loan priced at 475bp.A cash collateralisation was added to the US$2bn letter of credit, which can require borrowers to deposit cash matching the size of the loan as collateral, and the deal was also secured on the IPO proceeds.Access to the US$4bn delayed draw term loan was originally restricted with only US$1bn of the US$4bn available initially and WeWork had to maintain a minimum amount of liquidity.Banks were expected to syndicate the US$4bn delayed draw loan to the institutional market to further reduce their exposure, but that now looks increasingly difficult.“The bet was that the company would have enough incentive in terms of pricing and tenor to replace the delayed draw loan quickly in the bond or the institutional [Term Loan B] market,” a second banking source said.Lenders stand to make 2%-3% fees on the loan, which would bring in US$100m-$160m, and could make additional fees of 1%-1.5% or US$60m by selling the debt to the institutional market.The company’s IPO is still hanging in the balance, however, as SoftBank, the biggest external investor in WeWork, tries to protect a US$2.5bn investment. A sub-US$20bn valuation would force SoftBank to inject another US$1bn to anchor the US$3bn IPO to limit dilution.
UK banks lose historical home ties as foreign money muscles in
For 160 years, UK banks held a close relationship with Tate & Lyle, helping finance its expansion from a single sugar refinery in Liverpool to one of the world's largest suppliers of sweeteners and food additives. But when the company came to renew its revolving credit facilities – essentially an overdraft – earlier this year, the outcome left a bitter taste for many of what had until then been its closest banks. Not a single UK bank made it onto the US$800m deal. Barclays, RBS and Lloyds, which for years had formed part of the close-knit group of banks that provided Tate & Lyle with a low-cost RCF on the understanding that it would reward them with lucrative ancillary work, were no longer there. Picking up their spots were rival banks from the US, Japan, Germany and China. It's a pattern that's been repeated time and again over the past couple of years. UK banks have lost dozens of prized positions as providers of RCFs to core domestic clients. In recent months, companies such as Jaguar Land Rover, JD Wetherspoon and Dixons Carphone have signed new facilities without some – or all – of their traditional UK relationship banks. In a sign of the shift, three of the top six providers of RCFs – when measured by number of facilities – to UK corporates in the year to date are foreign banks: BNP Paribas is second in the league table, Citigroup fifth and Bank of America Merrill Lynch sixth. Traditionally, the UK banks have locked out the top spots. All three banks have been steadily climbing up the league tables over the past few years. PRESSURE ON RETURNS One driver is simply that UK banks, like their global peers, are becoming much more ruthless about how they employ their balance sheet. More onerous capital rules brought in after the financial crisis and the resulting collapse in return-on-equity has made it more difficult for banks to justify extending RCFs, many of which have traditionally made little – or no – money on a standalone basis. In some cases, UK banks are withdrawing from RCFs to focus on more profitable business. The trend is forcing many corporates to look not just at funding from foreign banks but for alternative sources of capital. An increasing number are turning to private capital providers – mainly investment arms of US insurers – which don't have the same capital requirements as banks and so can make a decent return by lending money to UK corporates. "Banks have certainly become more selective over where they deploy balance sheet – there's been a constant churn of clients," said Akshay Shah, head of the London office at New York Life Investors, one such capital provider. "It's left us in a pretty good position. What we are offering is absolutely pari passu with banks loans – our product isn't really any different." Private capital providers have seen a big pick-up in issuance from UK companies over the past few years, with volumes roughly doubling since 2015. Companies including Thames Water, BUUK Infrastructure and even Tottenham Hotspur Football Club have all borrowed money in the private placement bond market over recent months. "If banks are retreating from the market, for whatever strategic reason that might be, we should be able to see the benefits of that," said Shah. "It's no different from what happened in the US banking system a few decades ago: capital is expensive, and for many clients – even if their credits are strong – the pricing just doesn't work. Loans are a loss-leader for many banks in the UK." OPPORTUNITY KNOCKS But while new capital rules have led some banks to cut back on lending, others are taking the opposite approach. BNP Paribas and Citigroup have both launched a big push in the UK over the past two years, expanding their corporate banking offerings to target mid-sized companies. Lending is at the heart of the strategy. Both were on the Tate & Lyle RCF. The two banks see UK clients as pote
IFR Awards 2019: Call for entries
We invite banks, issuers and advisers to pitch now for the IFR Awards 2019, including several new categories
IFR Awards 2019: Call for entries
We invite banks, issuers and advisers to pitch now for the IFR Awards 2019, including several new categories
Rose gets top job at RBS
Royal Bank of Scotland named Alison Rose as its new chief executive on Friday, becoming the first major British lender to appoint a woman to its top job.Rose, who was widely tipped to get the role at the state-backed lender, will succeed outgoing CEO Ross McEwan on November 1. McEwan is due to join National Australia Bank as its next chief executive. Rose has worked at RBS for 27 years and takes on the role at a pivotal time for the lender, as British banks prepare for the economic fallout if Britain leaves the European Union without a deal next month.She will also be tasked with further patching up RBS's damaged reputation and trying to return the bank to private hands, more than a decade after its £45bn state rescue in the financial crisis."Following a rigorous internal and external process, I am confident that we have appointed the best person for the job," RBS Chairman Howard Davies said in a statement.Rose will receive a fixed base salary of £1.1m (US$1.4m) a year plus a fixed share allowance set at 100% of her salary. That's up slightly from McEwan who has a base pay of £1m a year, plus a 100% fixed share allowance.RBS said Rose's pay package "continues to represent a restrained pay position in terms of comparable roles".But Rose's pension will be set at 10% of her salary in line with other RBS employees, compared to McEwan who is receiving £350,000 a year in pension funding.British banks have been criticised by investors this year for giving their executives more favourable pension arrangements than the rest of their workforce.TRAINEE TO CEORose has risen through the RBS ranks from a trainee to deputy CEO of the lender's biggest business NatWest, as well as head of its commercial and private lending.She also won plaudits for leading a government-commissioned review into the barriers holding back female entrepreneurs.The appointment means RBS will be led by two women in its top executive roles, after Katie Murray was promoted to the chief financial officer role in January.McEwan, who has led the bank since 2013, announced his decision to retire in April.The British government has committed to fully privatising RBS by 2024, but political and economic turmoil triggered by the Brexit vote has delayed further sales of the state's remaining 62% holding and thrown the timetable into doubt.
UK financials back in business
A wave of UK financials supply broke last week amid a relative pause in Brexit headlines, with subordinated sterling trades getting a roaring response and euro supply welcomed, although bankers are unsure how long the good times will last. Six issuers took advantage of lighter Brexit news flow while the UK parliament was suspended to sell £3.64bn-equivalent of cross-sector issuance. The biggest blowouts came in sterling in the AT1 market, where Barclays racked up £7.5bn-plus demand for a £1bn issue and Nationwide Building Society took more than £3.75bn of orders for a £600m offering. The first benchmark AT1s from the UK since June, the deals were a testament to the demand for the riskiest class of financial institution debt. Nationwide came first. It printed its perpetual non-call December 2024 at 5.875% on Tuesday, inside initial price thoughts of the 6.375% area, upping the size from an expected £500m. "We were overwhelmed by the investor response and it quite clearly demonstrates that, for the right name and the right asset class, there's a huge amount of cash on the sidelines," said Alexander Wall, head of financial risk and resource optimisation at Nationwide. Barclays followed on Wednesday. Its self-led perpetual non-call six-year deal was marketed at the 6.875% area and priced at 6.375% on the back of more than £7.5bn of orders. Bankers said Barclays paid little to no new issue concession, seeing fair value at 6.25%-6.375%. "That's a fabulous outcome, in particular for a £1bn trade," said a source close to the deal. EURO MARKET OPEN In the euro market, Lloyds Bank set the tone for the week with a twice-subscribed €750m 10-year covered bond on Monday. "The reception to Lloyds demonstrated that UK PLC was back in business," said a DCM banker away from deal. It was the first benchmark from a UK bank in euros since June and market participants had cast doubts on euro investors' appetite for UK risk. Earlier this month, Bank of Ireland pulled a euro Tier 2, with some bankers blaming Brexit. But feedback indicated investors were willing to play, albeit at "a level back" according to a banker on the Lloyds deal. A Brexit premium is already priced in to UK spreads. In covereds, UK lenders offer a pick-up over core European and Canadian comparables. "The outcome Lloyds was able to achieve is a testament to how high that Brexit premium continues to be," said another banker away from the deal. Lloyds' result encouraged Virgin Money that the time was right to finally bring out its inaugural euro covered on Tuesday, which it had marketed at the end of August. Virgin's €600m bow was priced at 30bp and attracted interest of more than €1.35bn. Skipton Building Society followed, printing the UK's first negative-yielding covered bond, a €500m five-year yielding -0.123%. DIFFICULT TO GAUGE More UK supply is to come. Lloyds Bank is preparing an inaugural euro senior issue from its non-ringfenced-entity while challenged lender Metro Bank is expected to offer a sterling benchmark senior non-preferred trade this week. Metro's deal could be a relatively difficult sell, bankers said. The UK lender is still suffering after a gaping hole in its balance sheet was uncovered in January. The bank needs to raise £500m of MREL-eligible debt to meet a January 1 2020 deadline. Imminent events could cloud the outlook for UK lenders, at least in the euro market, bankers said. A UK Supreme Court ruling on whether Prime Minister Boris Johnson's suspension of parliament was lawful is awaited, and market participants are uncertain on how investors will interpret either outcome. If the court sides with the government, it could be seen as decreasing the risk of a no-deal Brexit. However, it could also cause a pick-up in headlines and increase execution risk. "It's difficult to gauge, to be honest," said a syndicate banker.
Rose gets top job at RBS
Royal Bank of Scotland named Alison Rose as its new chief executive on Friday, becoming the first major British lender to appoint a woman to its top job.Rose, who was widely tipped to get the role at the state-backed lender, will succeed outgoing CEO Ross McEwan on November 1. McEwan is due to join National Australia Bank as its next chief executive. Rose has worked at RBS for 27 years and takes on the role at a pivotal time for the lender, as British banks prepare for the economic fallout if Britain leaves the European Union without a deal next month.She will also be tasked with further patching up RBS's damaged reputation and trying to return the bank to private hands, more than a decade after its £45bn state rescue in the financial crisis."Following a rigorous internal and external process, I am confident that we have appointed the best person for the job," RBS Chairman Howard Davies said in a statement.Rose will receive a fixed base salary of £1.1m (US$1.4m) a year plus a fixed share allowance set at 100% of her salary. That's up slightly from McEwan who has a base pay of £1m a year, plus a 100% fixed share allowance.RBS said Rose's pay package "continues to represent a restrained pay position in terms of comparable roles".But Rose's pension will be set at 10% of her salary in line with other RBS employees, compared to McEwan who is receiving £350,000 a year in pension funding.British banks have been criticised by investors this year for giving their executives more favourable pension arrangements than the rest of their workforce.TRAINEE TO CEORose has risen through the RBS ranks from a trainee to deputy CEO of the lender's biggest business NatWest, as well as head of its commercial and private lending.She also won plaudits for leading a government-commissioned review into the barriers holding back female entrepreneurs.The appointment means RBS will be led by two women in its top executive roles, after Katie Murray was promoted to the chief financial officer role in January.McEwan, who has led the bank since 2013, announced his decision to retire in April.The British government has committed to fully privatising RBS by 2024, but political and economic turmoil triggered by the Brexit vote has delayed further sales of the state's remaining 62% holding and thrown the timetable into doubt.
UK financials back in business
A wave of UK financials supply broke last week amid a relative pause in Brexit headlines, with subordinated sterling trades getting a roaring response and euro supply welcomed, although bankers are unsure how long the good times will last. Six issuers took advantage of lighter Brexit news flow while the UK parliament was suspended to sell £3.64bn-equivalent of cross-sector issuance. The biggest blowouts came in sterling in the AT1 market, where Barclays racked up £7.5bn-plus demand for a £1bn issue and Nationwide Building Society took more than £3.75bn of orders for a £600m offering. The first benchmark AT1s from the UK since June, the deals were a testament to the demand for the riskiest class of financial institution debt. Nationwide came first. It printed its perpetual non-call December 2024 at 5.875% on Tuesday, inside initial price thoughts of the 6.375% area, upping the size from an expected £500m. "We were overwhelmed by the investor response and it quite clearly demonstrates that, for the right name and the right asset class, there's a huge amount of cash on the sidelines," said Alexander Wall, head of financial risk and resource optimisation at Nationwide. Barclays followed on Wednesday. Its self-led perpetual non-call six-year deal was marketed at the 6.875% area and priced at 6.375% on the back of more than £7.5bn of orders. Bankers said Barclays paid little to no new issue concession, seeing fair value at 6.25%-6.375%. "That's a fabulous outcome, in particular for a £1bn trade," said a source close to the deal. EURO MARKET OPEN In the euro market, Lloyds Bank set the tone for the week with a twice-subscribed €750m 10-year covered bond on Monday. "The reception to Lloyds demonstrated that UK PLC was back in business," said a DCM banker away from deal. It was the first benchmark from a UK bank in euros since June and market participants had cast doubts on euro investors' appetite for UK risk. Earlier this month, Bank of Ireland pulled a euro Tier 2, with some bankers blaming Brexit. But feedback indicated investors were willing to play, albeit at "a level back" according to a banker on the Lloyds deal. A Brexit premium is already priced in to UK spreads. In covereds, UK lenders offer a pick-up over core European and Canadian comparables. "The outcome Lloyds was able to achieve is a testament to how high that Brexit premium continues to be," said another banker away from the deal. Lloyds' result encouraged Virgin Money that the time was right to finally bring out its inaugural euro covered on Tuesday, which it had marketed at the end of August. Virgin's €600m bow was priced at 30bp and attracted interest of more than €1.35bn. Skipton Building Society followed, printing the UK's first negative-yielding covered bond, a €500m five-year yielding -0.123%. DIFFICULT TO GAUGE More UK supply is to come. Lloyds Bank is preparing an inaugural euro senior issue from its non-ringfenced-entity while challenged lender Metro Bank is expected to offer a sterling benchmark senior non-preferred trade this week. Metro's deal could be a relatively difficult sell, bankers said. The UK lender is still suffering after a gaping hole in its balance sheet was uncovered in January. The bank needs to raise £500m of MREL-eligible debt to meet a January 1 2020 deadline. Imminent events could cloud the outlook for UK lenders, at least in the euro market, bankers said. A UK Supreme Court ruling on whether Prime Minister Boris Johnson's suspension of parliament was lawful is awaited, and market participants are uncertain on how investors will interpret either outcome. If the court sides with the government, it could be seen as decreasing the risk of a no-deal Brexit. However, it could also cause a pick-up in headlines and increase execution risk. "It's difficult to gauge, to be honest," said a syndicate banker.
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