Structured Finance House

IFR Review of the Year 2012
17 min read
Anil Mayre, Owen Sanderson

Never missing a beat: Barclays has captured an important share of the structured finance market in Europe with key arranger roles and has been at the cutting edge of esoteric innovation in the US, despite having to rebuild its entire US outfit after the departure of several senior bankers. The bank is IFR’s Structured Finance House of the Year.

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Barclays’ ABS co-head Cory Wishengrad will never forget the ominous Monday morning in February 2011. Having just flown back to New York from Colorado nursing a broken arm from a skiing accident, he received “the email” from his manager.

It almost hurt more than his injury. Ten senior members of Barclays’ securitisation team – in addition to his ABS co-head covering consumer finance – had defected wholesale to Credit Suisse. Others left for RBC.

“At the time, I wondered what would heal more quickly: my arm? Or the business?” Wishengrad recalls. It was a chaotic, challenging time. A US$35bn ongoing programme from the National Credit Union Administration was in limbo with US$9bn still to be issued, and other deals about to go live.

But the answer to the question he had posed became clear just weeks later: the business. “By the time I was done with physical therapy for my arm, we already drew from our own internal resources and cherry-picked the very best talent from the Street to make the team whole again.

“We didn’t miss a beat.”

Amazingly, despite the upheaval of losing a co-head as well as many senior bankers, Barclays remained a major competitor. In the 2011 awards period ABS table it ranked fifth, according to Thomson Reuters data, but rose to claim the coveted top spot factoring in government-related mandates for NCUA. One year on, it sits comfortably in second place, excluding CDOs.

More than recovery

Throughout the turmoil, say those involved, the firm did not lose one mandate because of the defection; not one issuer pulled out and not one deal failed. Barclays moved quickly to fill vacancies, choosing from the deep bench of bankers in other areas of the company and recruiting from the competition too. Barclays did more than just recover.

It moved Diane Rinnovatore from its own debt capital markets team to co-head the ABS group with Wishengrad, who oversees “non-traditional” ABS. And it beefed up its securitised products origination group, rehiring Martin Attea from Morgan Stanley to oversee consumer origination, as well as several other newcomers in key areas.

“We replaced everybody; the treadmill never stopped,” said Tom Hamilton, the long-time head of securitised products trading at Barclays who left the role in October to become a senior adviser to the bank.

“I think it’s testament to the bank – to the culture of the institution and the business. It takes co-ordination across groups. It’s all hands on deck. A lot of quick moves were made; a targeted approach. We empower people and include them in the process.”

“It was a pretty amazing time,” Wishengrad said. “It really tests what you’re made of as individuals and as a franchise. But we didn’t have a single issuer pull out. The people who we performed for during that time have become big allies of ours.”

Certainly, the performance in flow ABS stayed strong. Barclays is typically not the lender with the largest balance sheet, but clients routinely choose the bank to structure and lead their securitisations.

In the US, Barclays structured and led an unprecedented 55% of Ford’s transactions by volume in the year to mid-November. It also structured and led five of the borrower’s last eight deals, and was a bookrunner on seven of Sallie Mae’s last nine deals.

It was bookrunner on 41% of Ally’s issuance in 2012, and 48% of General Motors’ financial transactions.

Movies, pizza, and billboards

While its flow business boasts some impressive mandates, it is Barclays’ strength in the esoteric US ABS sector that truly distinguishes it from its rivals.

Barclays excels in structural and product innovation and is the go-to bank for high profile transactions. It has been sole structuring adviser on every US operating asset whole-business securitisation since the onset of the financial crisis – topping US$4bn – including all three restaurant securitisations.

More importantly, Barclays continues to deploy securitisation technology to new sectors, growing the investor base.

In late November 2011 Barclays structured and led the first US film library securitisation – the US$500m Miramax 2011-1 transaction backed by an acclaimed library of over 700 films and licensing agreements.

The transaction enabled Miramax to refinance its existing capital structure, pay a dividend of over US$120m to shareholders, cut its cost of funds by more than 250bp per year – all while gaining a more flexible covenant package versus pre-existing bank debt.

And then in March Barclays priced a ground-breaking US$1.675bn seven-year WBS for Domino’s Pizza. The transaction was three times larger than any post-crisis WBS.

“We’ve reset the market in terms of the type of WBS transactions you can get done based on how many accounts we brought into the Domino’s deal,” Wishengrad said. “Investors say, ’I wish I could have bought more of Domino’s’, considering where the bonds are trading now.”

Strong demand facilitated a US$100m increase, and pricing came at the tight end of guidance with 57 unique accounts. The senior notes have since tightened from 6.3% to mid to high 2%.

Barclays has also been able to get difficult WBS across the finish line when other banks struggled. Outdoor billboard-advertising company Fairway Media Group engaged Barclays to structure and lead its transaction in October 2012 after a failed attempt to execute the securitisation with another bank in summer 2011.

The US$257m offering enabled Fairway to refinance its entire capital structure and pay a substantial dividend to shareholders with seven times leverage and at an all-in yield of 5.6%.

The securitisation priced only nine weeks after the initial rating agency meeting, with the senior term notes over three times subscribed, and the subordinated notes 2.5 times done.

At the end of October 2012, Barclays embarked on a two-week marketing phase for the largest ever brand-licensing US WBS. The deal was for Iconix Brand Group, which owns 28 high profile trademarks and licenses them out to strategic partners. The US$500m Iconix 2012-1 was also the first such deal broadly marketed in the 144a sector.

“Barclays did a great job,” said Neil Cole, the founder and CEO of Iconix. “They put us in front of all the right people. They have been the leaders in WBS/operating asset transactions, and we’ve had a relationship with them for over seven or eight years.”

In June, Barclays was sole structurer and bookrunner for a US$538m principal non-rehabilitated FFELP student loan ABS transaction.

Notes were placed with hedge funds, private equity funds and specialty finance companies. It even placed an unrated R Note, or equity, tranche.

This year also marked Barclays’ re-entrance to the CMBS market. It was co-lead manager and joint bookrunner for several Freddie Mac deals, and jointly led all four UBS-Barclays CMBS conduit securitisations.

It was also at the forefront of reopening the non-agency RMBS market, leading four of Redwood Trust’s six securitisations, backed by new, not legacy or resecuritised, collateral.

“It’s much bigger than just a revenue story; we’re trying to create a roadmap and be part of the solution for the new market when more RMBS originators come on board,” Hamilton said.

“We were all around when things went bad. We want to be here when things ’go good’. We want to make sure it’s done the right way and that we’re doing it with diligence.”

Leading where it matters

While the story in the US was one of consistency despite staff turmoil, in Europe it was more a case of steady as she goes, with Barclays winning significant amounts of UK business on its arranging/structuring skills.

“We have for a number of years very actively sought to lead with content and market-leading structuring expertise,” said Allen Appen, head of the financing solutions group in EMEA.

Though UK RMBS primary volumes are down versus 2011, Barclays has arranged most of the deals that got done, picking up prestige roles like arranger on the five-currency Fosse 2012-1 and joint dealer manager on UK Asset Resolution’s tender for old Northern Rock and Bradford & Bingley bonds.

Barclays supports the RMBS effort by taking on new counterparty roles, from GIC accounts to interest rate swaps and liquidity facilities – no mean feat for a bank retaining large legacy exposure to structured finance swaps and liquidity facilities while others shy away from the area.

“[Smaller UK issuers] need a third party to provide balance guaranteed swaps, a third party to provide a bank account and in the UK we have provided the majority [during the awards period],” said Arun Sharma, head of European ABS. Barclays provided five swaps and nine GIC accounts.

In EMEA, Barclays builds its structured finance efforts around the financing solutions team led by Appen – offering a full product suite, including covered bonds. Corporate securitisations and secured financing come through corporate DCM, but draw on the expertise in Appen’s team. It is a structure that clearly works – the bank tops the international issuers’ league table during the review period.

This team is complemented by a trading operation, led by Stuart Calnan, widely regarded as one of the best around. Greenwich Associates placed the firm second in European ABS trading in 2012 and 2011, behind Deutsche Bank.

The emphasis here is not necessarily on trading into the stranger corners of the ABS market – but making highly competitive markets in mainstream products. Barclays shines in UK and Dutch prime and Spanish assets, with strong franchises in CMBS and non-conforming as well.

Barclays research, led by Christian Aufsatz and Dipesh Mehta, also gets “a big thumbs up” from one major investor – incisive, thorough drilldowns into CMBS are a Christian Aufsatz speciality, with Mehta and Priya Balan splitting consumer content and James Martin on whole business and fixed-rate sterling.

All this reflects “commitment across trading, research and syndicate,” said Appen.

An impressive list

Highlights for Barclays in the awards period have to begin with Fosse 2012-1 – the second -argest RMBS of the year, the first to sell mezzanine notes, and the first across five currencies.

Given the spread tightening since Fosse priced in May, it is easy to forget what an achievement this deal was. £2.26bn is a huge volume, even if eclipsed by the LTRO-fuelled Arkle 2012-1 (£3.25bn of which £2.5bn was sold), while the breadth of distribution has not been equalled since – over 100 orders from 70 accounts, totalling £4bn-equivalent.

Barclays was sole arranger – usually a role reserved for Santander’s investment bank – Santander UK’s master trust programmes. It also arranged the mezzanine tranches – the first since RBS’s Arran 2010-1. And just two weeks later Barclays jointly placed Santander’s Holmes 2012-3 mezzanine notes.

Barclays won more UK mandates which decisively reshaped market expectations for European RMBS, taking the sterling market from £200m tranches that characterised 2011 to the £1bn plus sterling books that became the norm.

Orders for the Cooperative Bank’s Silk Road 3 (Barclays joint arranger), Clydesdale Bank’s Lanark 2012-2 (arranger), and Yorkshire Building Society’s Brass No. 2 (arranger) chart the progress of the sterling investor base – and a spread tightening of more than 100bp.

Earlier in the year, before the Bank of England’s Funding for Lending Scheme squeezed flow, Barclays played an even more dominant role, with Skipton Building Society’s Darrowby No. 2 (joint arranger), Investec’s debut prime RMBS Gemgarto 2012-1 (joint arranger), West Bromwich Building Society’s Kenrick No. 1 (joint bookrunner), Virgin Money’s Gosforth 2012-1 (joint arranger), Lanark 2012-1 (arranger), and Nationwide Building Society’s Silverstone 2012-1 (joint bookrunner). It also provided a GIC on AIB’s Tenterden Funding.

Though UK issuance has declined drastically since then, it is hard to argue with the way Barclays captured such a huge share of the most important sector of the market – both in master trusts and standalone deals.

In credit cards, meanwhile, Barclays is without peer, thanks partly to an active internal client in Barclaycard securitising via Gracechurch Cards Funding. It also launched the US shelf Dryrock, inaugurated with a US$1bn deal in November. It has sold the only euro-denominated card deal of the year, and also picked up a joint lead role on HSBC’s rare Turquoise programme.

Arguably, though, the LM exercise for UKAR was the most significant mandate of the year, changing the dynamics of the secondary market permanently, and inaugurating the year’s spread tightening.

UKAR hired Barclays and Citigroup to target legacy bonds. Granite Triple Bs effectively ceased acting as a risk proxy as the LM exercise soaked up the market’s holdings, forcing dealers to show their clients a more varied inventory.

Executing the deal also threw up its own challenges – with more sensitive political implications for a UK government body than for a bank viewing buybacks as capital exercises, noted Sharma.

Barclays’ structuring expertise enabled it to run numerous cashflow permutations for the government.

Stretching out

Barclays has also been active in corporate securitisation, kicking off the awards period by arranging the £500m Associated British Ports deal – part of the refinancing package for its acquisition debt from 2006. This priced against challenging market conditions in December 2011, being switched from a twin tranche deal to a single 15-year during marketing.

It has also had joint lead roles in two BAA deals – including its Swiss franc debut – as well as a joint lead role on Center Parcs, IFR’s EMEA Structured Finance Issue of the Year.

On top of that, Barclays helped bring two debut UK social housing associations to market, and recorded the lowest coupon for Affinity Sutton, with a book almost four times covered.

Barclays has seen fewer auto mandates than it would like, and less placement from niche geographies, but it is right to say the core of the EMEA market remains the UK.

This does not mean it has no presence in other areas. It was joint bookrunner on Achmea’s DMPL X Dutch RMBS in June, and in Spain was joint dealer manager on LM exercises for BBVA, which had over €9bn outstanding, and Kutxabank.

In Asia, Barclays is a designated dealer for the Japan Housing Finance’s JFM monthly issuance programme, featuring on five of 13 issues during the review period.

Barclays has also crossed borders with assets to Asia, and the US, through UK RMBS. It was joint bookrunner on Fosse 2012-1’s Australian dollar tranche – the first UK master trust RMBS placement in Australia.

It was also joint bookrunner on the Japanese yen tranche, helped place Fosse US dollar bonds in Japan and also sold US$500m of its own previously retained Gracechurch 2012-1 RMBS in Japan too.

Never missing a beat