US Dollar Bond House: Morgan Stanley

IFR Review of the Year 2014
5 min read
Natalie Harrison, Shankar Ramakrishnan

The US dollar bond markets were sizzling with issuance activity again in 2014 as companies capitalised on low interest rates to refinance debt, buy back stock or embark on M&A. Morgan Stanley responded to opportunities faster than its rivals and led many market-defining transactions, making it IFR’s US Dollar Bond House of the Year.

Morgan Stanley showed an uncanny knack in 2014 to come up with unique solutions that allowed it to lure key mandates away from its US rivals with larger balance sheets.

According to Thomson Reuters league tables for all US dollar international bonds, the bank was placed sixth having led 408 deals for a market share of 6.4% during the review period.

The tally included mandates on a broad swathe of trades, ranging from debt IPOs in high-grade markets to landmark deals for credits with split ratings, to a dominant position in complex financings in the high-yield market – all this mixed with unique financings that were testament to the bank’s structuring ability.

“We were consistently delivering customised and differentiated solutions to a variety of clients across ratings, regions, industries and financing needs,” said Leo Civitillo, global co-head of fixed income capital markets at Morgan Stanley.*

“We optimised execution by leveraging on our differentiated institutional, middle markets and retail distribution capabilities.”

A jumbo US$9.2bn financing package to back Tyson Foods’ bid for Hillshire Brands was a great example of how the bank differentiated itself with innovative solutions. The financing was bolstered by an US$8.2bn bridge financing and a US$1bn revolver backstop that swayed the balance in favour of the company in a competitive bidding situation.

Eventually, the bridge was taken out in the form of a clever equity financing that comprised a sale of common stock and a concurrent tangible equity unit issue that met many of the company’s objectives, including minimal dilution. A highly successful US dollar bond offering and a US$2.5bn term loan capped the financing package.

Another original solution that exemplified the bank’s ability to respond to opportunities quickly was its role in pioneering the “Formosa bond” market.

Besides leading a trade for itself in August that opened up the unique market, Morgan Stanley in September helped Verizon Communications become the first company outside the financial sector to sell a US dollar Formosa bond in Taiwan since regulators allowed insurers to buy more foreign-issued bonds in April.

Another impressive transformative trade led by Morgan Stanley came from Synchrony Financial, the consumer credit card business spun off by General Electric. The debut deal received US$17.4bn of orders for US$3.6bn of bonds.

The four-part offering of three, five, seven and 10-year notes was increased from an initial US$3bn, while pricing was tightened in as much as 15bp–20bp across the tranches from initial price thoughts, as investors jumped at the opportunity to add a new FIG name to their portfolios. The US$3.6bn in proceeds helped Synchrony develop its new capital structure, after GE spun off 15% of the retail credit card business in a US$2.8bn IPO.

Morgan Stanley also acted as one of the bookrunners on a US$5.5bn five-part trade for Triple A rated ExxonMobil, which had not been to the bond markets since 1993. The deal comprised three-year and five-year fixed and floating-rate notes, along with a 10-year fixed bond. The spread levels on the three-year and five-year bonds were then among the tightest ever for a benchmark corporate.

The bank also led the charge on some of the most complex acquisition financings in the US high-yield bond space. It was lead-left on six of the largest 25 high-yield event financings of 2014 and was a bookrunner on 16 of them – more than any other bank.

It was involved in trades such as the US$1.25bn two-tranche debut bond issue to finance the 56.56% purchase by CEL of Trinidad company Methanol Holdings and also Dynegy’s US$5.1bn deal – the largest domestic US dollar bond offering of the year. These trades were led during volatile markets but slick execution ensured that the issuers got bonds at levels that impressed.

Calpine was another previously bankrupt power company to turn to Morgan Stanley for help, pricing a US$2.85bn issue in July – its first unsecured bond offering since emerging from bankruptcy in 2008.

The bank’s expertise in devising new solutions was also evident in Latin America, where it acted as sole global co-ordinator for Pemex, which in June launched a mammoth US$41.3bn consent solicitation exercise, the largest ever executed. It also led trades for YPF, including a US$1bn 10-year deal that was the largest corporate debt offering out of Argentina in at least a decade.

* Leo Civitillo’s title corrected to global co-head of fixed income capital markets at Morgan Stanley

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Standout performance
US Dollar Bond House 2014