EMEA Loan House
Across the board: If 2009 was all about survival, 2010 was about the return of risk-taking as underwriting resumed and banks gingerly started putting capital on the line again. For backing its convictions with its balance sheet and using capital creatively to support the eurozone economy, BNP Paribas is IFR’s EMEA Loan House of the Year.
It was undoubtedly the year of the French banks, which emerged relatively unscathed from the credit crunch with a healthy appetite for lending. The EMEA syndicated loan league tables were headed by a triumphant triumvirate of Gallic institutions.
Credit Agricole romped up the league tables to number two from number six and Societe Generale climbed from fourth to third. But BNP was top with both the highest bookrunner volume of US$49.75bn and the highest tally of completed loans at 183 deals.
“The French showed more mettle – French banks were the strongest and most consistent – all three of them,” said Julian van Kan, global head of loan syndications and trading at BNP Paribas.
The AA/Aa2 rated BNP, which has total assets of US$2.1trn and a market capitalisation of US$65bn, left its fingerprints over all of the key trends and deals of the year across the EMEA region, from the high-grade refinancing wave to the rebirth of the leveraged market, to project financing and asset-based lending.
The year provided a difficult environment to make money and do deals. The first half of the year was defined by uncertainty on the macroeconomic front and Greece’s sovereign debt crisis stalled momentum. Confidence returned in the second half along with competition and a steep fall in high-grade pricing as the focus remained on refinancing in the absence of M&A activity.
BNP gained the market’s respect for playing in – and making money in – every segment in the EMEA market. It achieved a rare double in bagging the coveted number one slot in both investment-grade lending and leveraged lending.
To do that, BNP diversified beyond its French customer base – only 26% of deals signed by the bank came from its domestic market. It led jumbos, debut borrowers, middle-market and SME loans in every EMEA market, with industrials, and energy and power topping the sector list.
It was a year driven largely by clients, which continued to refinance loans with bonds. Banks gained enthusiasm for lending as the year progressed but were often reluctant to underwrite and took comfort in numbers.
A consistent track record in lending allowed BNP to develop its combined loan and bond business to sell products across the range and transition lending to fixed income. This ensured the migration from loans to bonds and vice versa remained in house.
In the high-grade market, as much as banks had hoped otherwise, 2010 was about all refinancing at ever-decreasing rates. The coveted and lucrative event-driven M&A financings, which were expected to produce more of the year’s buzzword “multiproduct solutions”, largely failed to materialise.
BNP was the biggest investment-grade lender in the market for the second consecutive year, with volume of US$34.6bn and 130 deals giving it a 9.67% market share.
In a year where many corporate refinancings were in effect self-arranged, the ability to read the market, advise on price and deliver on strategically important and often challenging refinancings was a key differentiator.
Refinancing accounted for 43% of BNP’s deals and the bank led the refinancing market. Being in the market regularly conferred a competitive advantage: as the environment normalised, banks and leading arrangers recreated the market and determined what terms to lend.
“Being in the market constantly gives clients confidence. The team is constantly interacting with issuers and investors and sharing information between teams to ensure best execution for our clients,” said Charlotte Conlan, BNP’s head of leveraged finance origination.
BNP played a leading role in the refinancing round that characterised the year, initially for the run of commodities companies that was opened by soft commodity trader ED&F Man’s US$856m 364-day loan and US$582m three-year deal, which was the first to extend maturities.
That was followed by one of the most high-profile, high-grade deals of the year, the US$10.26bn refinancing for Glencore, which gave BNP a global co-ordinating role. The deal had a strong Europe-Asia cross-sell and included an accordion feature to accommodate Asian banks’ slower response time. In all, 97 banks joined the deal, including 50 banks new to Glencore.
Other blue-chip refinancings followed, with active bookrunning roles on Henkel’s €700m refinancing, AB InBev’s US$13bn refinancing and Finmeccanica’s €2.4bn revolving credit.
Throughout, BNP played an active role in defending the market against covenant erosion and deteriorating default language, particularly on thresholds on defaults and the treatment of banks in default. The bank was also vocal on a range of issues from bank funding costs to the impact of rising Libor rates and Basel III.
“We’re not easy to work with sometimes, but we’re prepared to be ’bad cop’. If we allowed these things, we’d have a very upset investor and lender base. The market applauds us for being firm,” van Kan said.
M&A mandates
Although such deals were few and far between, BNP Paribas played a leading role on the largest event-driven M&A deals of the year in the EMEA market. It kicked off with the €4.2bn loan backing Merck’s acquisition of Millipore – the first syndicated acquisition financing of 2010 and IFR’s EMEA Loan of the Year.
BNP was one of five underwriters on BHP Billiton’s US$45bn acquisition financing backing its hostile bid for Canada’s PotashCorp in August. The deal was the biggest syndicated loan of the year, but the underlying M&A trade fell through months later, leaving banks with reduced fee payments and no bond refinancing business.
The bank also underwrote another US$15bn acquisition financing, backing Sanofi-aventis’s US$18.5bn hostile bid for Genzyme in October. BNP was one of three active bookrunners that launched the deal on October 4 and signed it on October 11 with a 100% hit rate.
BNP also banked more leveraged corporate acquisitions than its competitors. It was one of five active bookrunners on the US$3.4bn loan and US$1.1bn bond bridge loan backing Spanish haemoderivatives maker Grifols’ acquisition of US rival Talecris – one of the most innovative loans of the year.
Grifols, which was sold in Europe and the US to banks and funds in four stages of syndication, was one of the deals that helped to propel BNP to the top slot in European leveraged lending.
The bank topped the league tables of leveraged loans in the year from mid-November 2009 with pro rata volume of US$6.155bn and 21 deals giving it an 11.3% market share. It was also the fifth largest arranger of leveraged loans globally, with US$93.85bn of transactions.
The bank also scored successes in buyout financing, particularly with the LBO of Danish telecoms group TDC’s Swiss unit Sunrise. The SFr1.07bn deal had a complex loan and bond structure and was restricted in the amount of paper that could be placed with funds.
BNP was also involved in leveraged refinancings such as the £1.925m refinancing for Virgin Media, which featured BNP as a physical bookrunner for Tranche B. The deal, which revamped the company’s capital structure, was successfully placed along with senior notes. The company was subsequently upgraded.
The bank’s leveraged loans, including the €340m loan for Sebia International and €785m for the buyout of vending machine business Autobar Group, were supported by the bank’s secondary trading desk, which trades about €3bn annually and also supplies marks on off-the-run and active flow names.
Emerging markets presence
BNP’s reach also stretched to emerging markets, where it scored another success with Standard Chartered in arranging a fully underwritten and prefunded US$2.5bn deal for BP Angola. The deal, alongside a US$2.25bn facility for BP Azerbaijan, was IFR’s Emerging Markets Loan of the Year, combining reserve-based lending and pre-export finance. The bank won the mandate on the back of its track record in Angola. It was the only lender to feature on BP’s loan, bond and corporate deal.
BP’s loan was typical of BNP’s drive to use its balance sheet to support the real economy. More than 70% of all crude oil extraction and refining is financed by BNP in one way or another and the bank is developing expertise in reserve-based lending.
To tap more difficult geographies and risk BNP has developed access to the insurance market. The bank distributed US$8.5bn of payment risk through the Lloyds reinsurance market and also sold some risk to a newly-created captive insurance vehicle.
“The difference is how you attack certain markets – you make money by being brave and not foolish, by being able to go into products, areas and geographies and de-risking,” van Kan said.
De-risking was less of an issue on Russian deals, which continued to see strong demand as their higher margins comfortably exceeded banks’ cost of funds. Gazprombank’s US$900m deal reopened the market for Russian institutions in September with 12 arranging banks including BNP.
Risk was certainly not a concern on Qatar Telecom’s US$2bn deal in May. It was the first five-year Gulf deal since the financial crisis, raising a total of US$3.8bn as the oil-rich country’s star continued to climb.
Tessa Walsh
