Issuers from across the globe were lured into the European corporate debt market during 2014, enticed by favourable cross-currency basis dynamics and the breadth of investor appetite. BNP Paribas stood at the forefront of a fast-paced market, making it IFR’s European Investment-Grade Corporate Bond House of the Year.
With record low rates and ever-compressing credit spreads, the European investment-grade corporate bond market was an inviting proposition for many issuers. Against those changing market dynamics, both issuers and investors were re-evaluating their own strategies, meaning all banks had to be nimble and think on their feet. BNP Paribas did exactly that.
“We’ve seen investors be more diverse in their approach to primary credits, changing their strategy in terms of size, names, and unrated issues,” said Mark Lynagh, head of European corporate DCM. “We’ve seen issuers change their models by expanding into multi-tranches and hybrids. The market overall has been pushed in 2014.”
In particular, BNPP demonstrated its strength in delicately managing a host of diverse debutantes to the market. The French bank managed 22 debut issues, raising over €14bn for well-known Europe-based companies including Ryanair and Royal Mail (where pricing dynamics interestingly saw it choose euros over a domestic sterling issue) and also high-profile overseas visitors such as Coca-Cola and PepsiCo. And it proved its expertise in certain industries, leading deals for Sydney Airport and Avinor in the airport sector and Net4Gas and 2i Rete Gas in the energy segment.
And as the funding landscape changed, it introduced a number of unrated borrowers to the bond market, such as ProSieben, Gemalto and Infrax.
Such public debuts require a huge amount of work to ensure a company is prepared.
“Making the decision to move from the private to the public markets can be daunting for some of the smaller companies and you can’t take it lightly. But we work with them from the planning and meeting stages to the execution,” said Rupert Lewis, head of corporate syndicate.
Another focus of the market was the explosion of hybrid bonds, which saw a steady flow of issuance throughout the year, and which shifted from niche to mainstream in 2014, racking up over €22bn of issuance.
BNPP played a critical role in that hybrid story, managing some of the most high profile deals – educating both issuers and investors on the mechanics of pricing and risk in the process.
The bank was the sole structuring adviser on the biggest hybrid of the year, Bayer’s €3.23bn issue. It held the same role on Orange’s €2bn deals issued in January and September, and Accor’s €900m offer in June.
“The hunt for yield … has seen this year’s volume overtake 2013’s,” said Fred Zorzi, the bank’s co-head of global syndicate. “We have aimed to educate everyone to the relative value of hybrids as they become more and more sophisticated.”
And the hybrid sector has provided a microcosm of the wider market, seeing debut issuers, such as Orange and Accor, join others in launching larger deals, often employing a dual-tranche strategy.
This multi-pronged approach was another key development across the corporate space, with such issuance comprising around 45% of the year’s total in terms of volume.
BNPP was again at the forefront, with deals for the likes of Shell (twice), GDF Suez (a Green bond) and BSkYB (M&A), and issuers adding longer tranches to optimise low rates and the hunt for yield.
“There is more leeway in euros in terms of maturities,” said Zorzi, “and investors have proved themselves willing to embrace a wider universe of investors and products.”
From core European credits to borrowers from the four corners of the globe, from vanilla funding through hybrids to liability management, BNPP proved itself adept at adjusting to an evolving market while ensuring that every borrower received the attention it requires.
“We have a duty of care to the clients. No matter whether it’s €100m, €500m or €1bn, we make sure we have experienced professionals covering the deal,” said Lewis.
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