High-Yield Bond House: Deutsche Bank

IFR Review of the Year 2013
9 min read
Natalie Harrison, , Robert Smith

Everything, everywhere

To be number one consistently in your home market is impressive. But to climb the ladder in the US with some high-profile brand names under your belt, while also being well-established in Asia, is simply outstanding. Deutsche Bank, the only bank to rank top three in every region, is IFR’s High-Yield Bond House of the Year.

The numbers all but speak for themselves. Of the 17 dual-currency deals brought to the high-yield bond market in 2013, Deutsche Bank was involved in 11 – and it was lead-left on eight of them. Only a bank with the true global reach that Deutsche has could have achieved that.

Throughout the awards year it showed that it stands head and shoulders above its peers. Its lead role in the US$2.485bn and €625m high-yield bond financing backing SoftBank’s acquisition of Sprint – the largest high-yield issue on record out of Asia – is one of the best examples of that. The deal was a real coup for Deutsche, given the borrower’sstrong lending relationships with other banks.

“When firms want to do transatlantic deals, they hire us,” said Henrik Johnsson, head of EMEA high-yield and loan capital markets. “We’re truly open-minded about the market, something which is unique to Deutsche. There is no infighting.”

Those comments allude to the fact that many houses still split revenues on dollar and euro transactions between their respective regional headquarters – a practice that can work against a client’s best interests.

Take the example of Amsterdam-based packaging firm Clondalkin. Deutsche advised the company to tap the US leveraged loan market in June – the first time it had ventured out of European debt capital markets. That advice paid off for both parties: Clondalkin achieved outstanding results and diversification, and Deutsche won another lead-left mandate.

Most houses claim to be, but Deutsche truly is loan, bond and currency agnostic. That has allowed it to go from strength to strength in Europe, where it has dominated the landscape for years, and to rise up the league tables in the mighty US market.

American beauty

While Deutsche is the only European bank to nab a top three place in the dominant US high-yield market, with 8.5% of overall share, it has gained the most share versus all of its top 10 peers since 2008. In 2007 it had a 6.6% share and ranked eighth in the league table.

Its US roll of honour in 2013 includes leveraged buyouts such as Gardner Denver – which Deutsche executed with first-class style during the market’s “taper tantrum” volatility in the summer – as well as some of the biggest names in telecoms, such as T-Mobile, and huge US brand names like Hilton. In all, it played a role in six of the 10 biggest deals of the year.

T-Mobile’s mammoth US$5.6bn deal in October was the largest “new-money” high-yield bond offering since TXU in 2007. The five tranches required a careful balancing act to attract sufficient demand, and the use of proceeds meant investors had to get comfortable with the story.

The bonds were refinancing non-reset notes that accounted for half of the US$11.2bn of T-Mobile debt that Deutsche Telekom took on its books to help its 74%-owned US carrier to merge with MetroPCS. The deal cast doubt about Deutsche Telekom’s support of the business.

But Deutsche pulled it off, driven by Alex Barth and the bank’s TMT team, who have left-led three T-Mobile deals. The October issue, the second-largest junk offering this year behind Sprint’s US$6.5bn issue, was almost doubled in size from an initial US$3.1bn. By November, most tranches were five to six points higher.

Indeed, the bank’s success in the TMT space deserves special praise. In a growing market, it is No.1 for both lead-left in the US and globally this year, following similar success in the two previous years.

Outside of that sector Deutsche has also done very well. Being mandated as one of the lead-left banks for hotel chain Hilton’s bond and loan refinancing was a proud moment, said Kevin Sherlock, head of US loan and high-yield capital markets. The overall US$14.3bn refinancing across six separate transactions, including CMBS, was one of the largest of the year, attracting US$25bn in demand for the loans and the bonds.

“It just doesn’t get any more American than that,” said Mark Fedorcik, global head of leveraged finance.

Another standout was the US$575m bond issued in July, which along with US$2.825bn of leveraged loans, backed the buyout of Gardner Denver, an industrial machinery maker.It was an impressive transaction because it priced in intense volatility – and amid US$9.1bn of high-yield mutual outflows. The deal surpassed all expectations. The bonds printed 12.5bp through price talk, even as the market had been expecting underwriters to suffer some losses.

European flair

In Europe, Deutsche retained its unassailable lead, winning IFR’s EMEA High-Yield Bond House for the second year running.

In a year that smashed all previous volume records, Deutsche led all corners of an increasingly diverse market, including the first PIK toggle in European currencies for Sunrise, as well as the largest and lowest-yielding PIK toggle in history: a dual-currency dollar and euro bond for Schaeffler.

This was a deal where Deutsche’s distribution on both sides of the Atlantic came to the fore, but Deutsche also channelled US demand to create price tension on euro-only trades such as CeramTec.

Above all, when European issuers looked for attractive pricing on a highly levered deal, they turned to Deutsche. The bank led the two highest leveraged buyouts in Europe this year – for Ista and CeramTec – at yields that were whole percentage points tighter than many in the market had anticipated.

Its two deals for The AA also demonstrated just how adept Deutsche is at selling highly leveraged credit in Europe. The first deal entailed selling a £655m Class B tranche in a whole business securitisation, taking leverage to 7.6 times.

This is a difficult sell at the best of times – and yet Deutsche got the deal done around the height of market volatility, when offerings on both sides of the Atlantic were being pulled.

When the market settled in October, Deutsche was able to increase leverage to an eye-watering 8.1 times in The AA, through a £350m PIK toggle note, the largest ever in sterling. The yield, at just 9.5%, matched where the Class B notes had priced four months previously.

Heading east

Deutsche has also firmly established itself as a high-yield shop in Asia, and it is one of the few banks with a dedicated high-yield team in the region.

“High-yield is a separate asset class that deserves to be looked at like that – structured appropriately with a more bespoke way of selling it,” said Haitham Ghattas, head of high-yield DCM, Asia.

The bank led the league table for rated high-yield transactions in Asia – executing some 40 high-yield deals in the IFR Awards period. It held a very wide lead when junk-rated bonds issued in the 144A/Reg S format are also considered.

“We can originate bonds globally and distribute them globally. It shows you the seamlessness and integration of our platform,” said Herman van den Wall Bake, head of Asia DCM.

Deutsche’s reach across Asia was broad, bringing deals for companies in China, Indonesia, India and Singapore. It also led the most liability management transactions for companies in the region.

Its landmark transactions this year included Studio City, a US$825m eight-year bond printed to fund the construction of an entertainment complex in Macau. That bond was sold even before the company had all the permits to build the full project. Deutsche still managed to get an 8.25% yield for the B3/B– rated company.

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