Loan House and Asia-Pacific Loan House: Deutsche Bank

IFR Review of the Year 2013
9 min read
Prakash Chakravarti, Michelle Sierra, , Tessa Walsh

World view

For leading complex event-driven deals and driving the development of a truly global credit market by championing the cross-border migration of European and Asian issuers to the US leveraged loan market, Deutsche Bank is IFR’s Loan House and Asia-Pacific Loan House of the Year.

It was not a standout year for M&A financing, but Deutsche Bank was a force to be reckoned with in acquisition and structured finance. The bank showed its ability to commit capital and leadership by sole-underwriting deals, by being willing to handle transactions for companies with difficult credit stories – and by helping drive development of a truly global credit market.

Indeed, the German powerhouse led from the front in all market segments and in every region and helped to champion cross-regional lending and a more global investor base by introducing foreign companies to the US institutional loan market.

“When it comes to ‘what is your ability to conduct business where your clients need you around the world’, we stand above and beyond anyone else in our ability to do that – and have proven it time and again, whatever the situation,” said Rob Danziger, head of investment-grade loan syndications, Americas.

“Whether it is a general liquidity facility in South-East Asia, whether it is a first-time transaction in new markets, whether it is a cross-border M&A – we tend to drive the process.”

Success came in the investment-grade market by concentrating capital on the bank’s closest clients and increasing exposure to those firms. In the leveraged space, Deutsche’s transatlantic sales and trading platforms in loans and high-yield bonds provided unmatched market intelligence as well as close relations with investors and sponsors, giving the bank the ability to price and distribute risk efficiently.

An integrated P&L book for loans and bonds – in a better year for revenue generally – helped Deutsche book more volume as it moved between different markets.

“We’re not worried if it’s Europe or the US, or a loan or a bond. We’re focused on what’s best for the client, not Deutsche Bank,” said Nick Jansa, head of EMEA leveraged DCM.

That kind of fluid view about where to place deals allowed Deutsche to lead the way when it came to taking a global view of credit, particularly in leveraged lending, as the bank helped match borrowers with investors regardless of their physical location.

European companies including ceramics components maker CeramTec and chemicals manufacturer Oxea tapped the US institutional market for cheaper, covenant-lite US dollar loans. Australian companies such as Alinta Energy and Nine Entertainment followed suit with deals that spanned markets, currencies and debt instruments.

And Asian companies raised euro deals as well in 2013 as the markets began to converge, with US investors looking abroad for fresh supply and larger fund managers starting to market themselves as global funds – and Deutsche helping to set the pace.

Winning at home…

Deutsche was also dominant in its EMEA home market, even though increased competition meant that the bank’s well-established team had to work harder to win mandates, especially in leverage.

The bank was sole underwriter on M&A debutante Altana’s €375m bridge loan as well as M&A regular SAP, as the German software maker took a €1bn loan to buy Switzerland-based Hybris. The underwritten £2.56bn loan backing Schneider Electric’s acquisition of Invensys was another win.

Underwriting big primary deals and multicurrency loans helped grow market share and increase volume in European leverage for Deutsche, to a 11.5% market share during the review period, from 2.76% in the 12 months beforehand. The bank was also active in introducing covenant-lite and covenant-loose loans to European companies.

Deutsche was initially the sole underwriter of the €1.45bn covenant-loose, senior leveraged loan for German metering company ISTA, the largest purely euro-denominated sponsored buyout loan this year, which helped redefine euro liquidity.

“It was innovative and we gave the right advice to push covenant-loose, give high leverage and do the deal in euros,” said Jansa. “We did the loan in one-and-a-half weeks.”

… And away

In the US, amid early-year concerns about Basel III regulations and the general state of the market, Deutsche helped to provide incremental liquidity facilities for investment-grade borrowers including a US$2bn, 364-day revolving credit for Philip Morris International and a US$1.5bn, 364-day senior unsecured revolver for Walt Disney, both of which attracted new lenders.

Again, it was in leverage that Deutsche really shone, with a wide variety of deals that rode the repricing wave, the rise in second-lien loans, and opportunistic dividend recapitalisations, which culminated in winning the beauty pageant to lead the highly coveted Hilton transaction.

Deutsche led Hilton Worldwide’s US$8.6bn credit backing the refinancing of existing CMBS debt at the company, effectively pushing US$7.6bn of new money into the market on the heels of the launch of a jumbo loan for computer maker Dell less than a week earlier, which was the largest single-tranche term loan since the financial crisis.

After months of pre-marketing, Hilton already had US$2bn of commitments in hand when the loan launched for syndication. The term loan reverse-flexed in syndication, and priced with step-downs related to an upcoming IPO and the leverage ratio.

Deutsche showed it was also able to push through difficult deals in challenging times. In July, when there was plenty of market turbulence centred on whether or not the US Federal Reserve would start tapering its asset-buying programme, it launched deals for hairy credits American Airlines and True Religion, a clothing retailer.

“Not only can we sell the middle-of-the-fairway big deals, we can also do really, really tough transactions,” said Sandeep Desai, managing director, leveraged loans capital markets.

Asian growth

In Asia, Deutsche demonstrated an innovative approach on structured and event-driven financings – and successful distribution. It had its hands full from the start of the review period, with lead roles on some eye-catching transactions.

For example, Deutsche was the only non-Japanese bank on the ¥1.65trn (US$19.7bn) one-year bridge signed in December 2012 backing Japanese wireless carrier SoftBank’s US$20.1bn acquisition of US carrier Sprint Nextel. It also bagged a bookrunning role on the mammoth ¥1.98trn dual-tranche takeout for the Japanese company a few months later in September 2013. The deal was Asia’s largest ever loan.

“Deutsche differentiated itself with its ability to provide complex event-driven financings to its key clients requiring large underwrites in time-critical situations,” said Amit Khattar, head of Asia loan trading and syndication, and co-head of Asia loan capital markets.

The bank was one of nine bookrunners and underwriters of the US$1.725bn leveraged buyout financing backing the privatisation of Chinese display advertising firm Focus Media and had the lead-left role on Australian company Spotless Group’s US$1.05bn Term Loan B. It also led two Indian LBOs and a rare Maldivian buyout.

Deutsche also featured as a lead on big-ticket transactions such as the US$6bn bridge for Chinese oil major CNOOC’s acquisition of Nexen Energy and the US$8bn dual-tranche loan for Alibaba Group.

Structuring in Asia was another strength. Deutsche stood out early on as sole bookrunner on a US$400m loan backed by a standby letter of credit for mid-tier Indian electronics retailer Videocon Industries, which set the tone for similar transactions from India when there seemed no hope of other borrowers coming offshore amid a currency slump.

In the review period, Deutsche brought 14 debut names to the G3 loan markets, demonstrating an astute market read. Syndicating loans for foreign borrowers tapping Taiwan – a market known for retail liquidity – was also a forte.

This global approach to the markets easily made Deutsche Bank the deserved choice for these two awards in 2013.

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