Bond House: Deutsche Bank

IFR Review of the Year 2012
15 min read
Philip Wright

Regions to be cheerful: It took fortitude and skill to navigate from the troubles of 2011 to the sunnier climate – for bond markets at least – of 2012. One bank showed it had both in spades, matching a steady hand with solid execution to get all kinds of deals done in just about every corner of the globe. Deutsche Bank is IFR’s Bond House of the Year.

Now that we are in an improved market climate, it may be difficult to remember just how turbulent conditions were at the end of 2011 and the beginning of 2012. Challenges went all the way to the top, as even SSA issuers could no longer count on the rapturous welcome to which they were accustomed. Uncertainty was the order of the day.

“It was an extremely challenging backdrop – the close of 2011 and the start of 2012 were fraught with political uncertainty and currency volatility,” said Miles Millard, Deutsche Bank’s head of capital markets and treasury solutions.

“There were many challenges, so you had to be able to demonstrate a truly global platform and commitment.”

Deutsche Bank did just that, keeping a steady hand through difficult times. The bank helped calm nerves and execute transactions in extremely difficult conditions – all over the world.

In January, Deutsche successfully led euro deals for the EFSF, EU and EIB – the first of several for each borrower – and followed up on the sovereign side with transactions for Spain, Austria, Belgium and Finland.

The bank was also active in the European agency arena, with noteworthy deals for KfW, BNG, NWB, Cades and EAA, while at the same time keeping an eye on other currencies for opportunities.

“There were many challenges, so you had to be able to demonstrate a truly global platform and commitment”

This was perhaps nowhere better demonstrated than in the US dollar market, where KfW’s 10-year opened the way for other European issuers, including KBN, KommuneKredit, Kommuninvest, Municipality Finance, FMO, OeKB, Cades and NRW Bank.

Rare sovereign forays were also accommodated, such as the Netherlands’ inaugural Dutch State Bond sold via Dutch Direct Auction and Iceland’s return to the market. Meanwhile, more natural dollar borrowers such as Canada were also represented. And from the high-grade world in Asia, Deutsche acted as lead manager on the tight 30-year deal from Temasek, Singapore’s sovereign wealth fund.

Numerous transactions for the Washington supras were complemented by others for the Asian Development Bank and the EBRD, while Deutsche put in an extremely strong showing in sterling, where it was not only once again a trusted partner for the UK DMO with three syndicated Gilt deals, but also acted for key UK issuers such as Network Rail and TfL. The bank also provided arbitrage and diversification opportunities in sterling for overseas clients.

Company business

Deutsche remained a front-runner in the corporate arena, too. Highlights included printing deals for Anheuser-Busch InBev in both euros and US dollars, for Siemens in euros and sterling, and a three-currency, three-tranche hybrid transaction for BG Energy.

The bank arranged more than 20% of the bonds printed by US investment-grade corporates in EMEA currencies, and also secured itself substantial market share by ushering peripheral borrowers to the market amid the ongoing turmoil in the eurozone.

In May, it printed a €2bn dual-tranche offering for Hutchinson Whampoa, which was the largest ever bond financing in euros by an Asian corporate, as well as the first from the region since 2010.

In July, America Movil became the first Latin American corporate to issue in euros since 2011 with the assistance of Deutsche, which was also appointed as sole lead manager on a rare sterling deal. In September, the bank helped Petrobras price its inaugural bond in sterling as well as carry off the largest ever euro financing by a Latin American corporate.

Other highlights included acting as bookrunner on deals for AT&T, DirecTV and BMW in the sterling market, while its abilities in the non-core currency markets were demonstrated when it helped price Norwegian krone deals for Linde and Nestle as well as Australian dollar deals for BMW and Deutsche Telekom. It also led transactions for GECC in Australian dollars, Swedish krona and New Zealand dollars.

In US dollars, meanwhile, Deutsche was involved in noteworthy offerings for United Technologies, Kraft Foods, Walt Disney, 3M, Rio Tinto, Molson Coors, Unilever and a plethora of others.

Trusted in the US

The bank also had a role in Ford Motor’s two bond deals, including the company’s first 10-year after it was upgraded to investment grade – just one among many examples of how much of a trusted counterpart Deutsche has become in the US market.

Indeed, the bank featured as a bookrunner on some outstanding transactions that defined the US debt markets this year. It was on General Electric Company’s US$7bn three-parter early in the year, the company’s first transaction since 2007.

Even as a non-US bank, Deutsche managed to notch a top five position in the league tables for all US dollar debt, excluding ABS and MBS. Much of this success was on the strength of its relationships with North American clients.

“The long-standing relationships Deutsche Bank holds with blue-chip corporations were evidenced by multiple repeat mandates this year,” said Marc Fratepietro, co-head of US corporate coverage.

When it came to first-timers, issuers like DirecTV, eBay, Flower Foods, ADT and Motorola Solutions – among a host of others – chose Deutsche as the way into the US markets.

“We opened the markets for some first-time issuers and showed our ability to bring challenging credits to the market,” said Nigel Cree, head of Americas syndicate.

Rising trend

But it was not just flow business for Deutsche, which was also on top of a rising trend of liability management activity in 2012. In May, it led IBM to launch and complete a US$2.05bn exchange of 2038 and 2039 high-coupon bonds into newly created 2042 relatively lower coupon bonds.

The response was so strong that investors inundated IBM with more bonds than it was prepared to take up.

And in the high-yield sector, the bank’s team demonstrated its strength through a number of challenging and well-executed transactions across the globe, receiving accolades from investors for its solid performance.

Among its most important deals in the US was a sole led US$1.9bn two-part five and 10-year Double B rated issue for Dish Network, which priced in early May with one of the tightest coupons seen all year (4.625% on the fives).

Deutsche followed up in July with another US$1bn sole led add-on to Dish’s 5.875% notes due 2022.

It also oversaw a US$1.25bn eight-year senior notes issue for Rockwood Specialties Group that priced at a 4.625% coupon, and tackled Univision’s balance sheet as well, with three tightly priced deals for the Spanish-language media company to push out maturities and cut interest expense.

“We know where pockets of money are around the world and we know how to structure transactions so they are attractive to both issuers and investors,” said Kevin Sherlock, head of loan and high-yield capital markets.

Other notable US transactions included lead-left deals for Nuveen Investment, NRG Energy, General Motors Financial, Frontier Communications and WaveDivision Holdings, which priced a US$250m Caa1/B– rated deal in August to fund its LBO.

Deutsche’s Yankee dominance was also seen in left-led dollar-denominated deals for Wind Acquisition Finance, Macao gaming entity Studio City Finance, European drilling company Ocean Rig, Algeco Scotsman Global Finance, Shui On Development, China SCE Property Holdings, Sunac China Holdings and CITIC Pacific, among others.

Close to home

Deutsche also cemented its leading role in the European high-yield market, getting tough rescue deals for Europcar and Viridian over the line as well as achieving record low coupons for higher rated clients such as Fresenius.

The bank led a string of deals for European issuers in dollars at the start of the year when the outlook for the volatile European market – closed for most of the second half of 2011 – was still looking very shaky.

Standout cross-border deals included the dual-currency €900m equivalent leveraged buyout bond financing for Polish telecoms firm Polkomtel – the largest ever LBO in the CEE region – which was followed up by a US$201m PIK note.

Schaeffler was another knockout deal, hailed by several investors as the one true global deal of the year, which tapped leveraged loans, bonds, dollars and euros.

The bank was also active in Asian high-yield, one example being the unrated transaction from Hong Kong infrastructure company NWS Holding in the first week of February, which set the stage for a record year in unrated issuance out of the region.

FIG business

Of course the financial institutions sector was destined for a vastly different year from any that had preceded it, given the combination of the LTROs, extreme market volatility and continued regulatory uncertainty.

However, Deutsche’s capabilities across the various parts of the capital structure – subordinated, senior and covered – and a proven track record in numerous currencies meant that the bank was able to demonstrate leadership in the sector at a time when it was most called for.

It lead managed five bonds for National Australia Bank throughout the year – its debut euro and US dollar-denominated covered bonds, a US dollar dual-tranche senior transaction, a euro 10-year senior and a Swiss franc three-year senior for BNZ, its New Zealand subsidiary. Deutsche was almost equally active for Westpac, taking it to US dollars for both senior and subordinated trades, as well as to euros for its first covered foray.

The bank showed a propensity for taking issuers to markets that might not have been the obvious choice, such as Wells Fargo, for which it acted in both euros and sterling – Wells’s first time in those currencies for five and six years, respectively. It was also instrumental in resurrecting the GIC-backed sterling market for MetLife after a four-year hiatus.

“We are uniquely positioned to help the issuer do the deals it wants to do, or even the deal it doesn’t yet know it wants to do,” said Vinod Vasan, head of European FIG DCM.

Indeed, the bank was truly agnostic when it came to currencies, often recommending sterling or dollar trades over euros. Yet it still played a role in rehabilitating Italian bank credits with an 18-month transaction for Intesa in January, the first from the country for three months, as well as a stream of other senior deals from a number of jurisdictions.

Its Yankee prowess found it taking borrowers such as ING to the US, and it continued the theme in the capital arena, acting as a lead manager on the Barclays total loss high-trigger CoCo.

In the Reg S market, it managed innovative trades for Swiss Re (for which it also acted in Swiss francs, where it again enjoyed a strong year), Westpac and UBS, tapping into the Asian retail bid. And it was active in euros, selling old-style Tier 2 deals for DNB and ABN AMRO.

One notable deal was Munich Re’s tender and refinancing, which saw the issue of a 30 non-call 10 security.

In fact, liability management was a big part of Deutsche’s arsenal throughout the year. One obvious – and massive – example was the €206bn debt restructuring for Greece, where it was one of the banks entrusted with carrying out the exercise.

In the more usual LM arena, Deutsche was just as key a player, able to advise clients, especially on the FIG side, where much of the action took place.

Deutsche was involved in a number of the Lloyd’s trendsetting multicurrency exercises, such as December’s Tier 2 to Lower Tier 2 exchange as well as the two tenders for senior notes in June and September.

And it was instrumental in various exercises for peripheral banks, from Santander’s tender for a series of capital notes to ABS buybacks for the likes of BPI and Santander.

Just about everywhere

In EEMEA, meanwhile, Deutsche maintained its strong position, arranging Zambia’s first ever international bond, SOCAR’s debut from an Azeri issuer and Saudi Electricity’s dual-tranche sukuk financing.

It opened new markets up to borrowers, such as Halyk Bank’s first bond in US dollars, Gazprombank’s first subordinated offering, and Dubai Islamic Bank’s inaugural FRN.

In the EEMEA sovereign sector, it arranged Russia’s largest international bond – a US$7bn triple tranche offering – and Romania’s first US dollar transaction.

It was also involved in Lebanon’s any-and-all exchange offer on three issues towards the end of November 2011 and strengthened its presence in the sukuk market with deals such as Qatar’s US$4bn mammoth transactions and Banque Saudi Fransi’s debut from a Saudi Arabian bank.

In Latin America, in addition to its experiences with America Movil and Petrobras, Deutsche led the first ever covered bond from the region – for Global Bank of Panama – as well as the first Schuldschein (for CAF) and a blowout 10-year subordinated deal for BTG Pactual.

In the sovereign arena, it acted on deals from Mexico, Peru and Guatemala, among others.

Not known has a house that leverages its balance sheet in Latin America, Deutsche Bank takes pride in its execution skills and bringing ideas to the table.

It won repeat business in LatAm among a string of clients which don’t award business based on lending capabilities. “We get mandated to do sovereign deals by virtue of good advice,” said Cree.

All in all, there was hardly a stone that Deutsche left unturned throughout the year.

“It is staggering to think back on how difficult it was at the beginning of the year,” said Millard.

“What was needed at that time was key advice about where to go and how to go about it,” he said. “However, the result was that, globally, we brought more borrowers from more countries to market, for more volume.”