US IPO: Ferrari’s US$982.4m IPO

Yet, as the leaves began to fall from the trees in autumn, the wheels started to come off the wagon. The absence of a rates hike turned into volatility concerns surrounding when the hike would come. A strong dollar put pressure on emerging markets. Would-be president Hillary Clinton said drug companies were making too much money, and the healthcare sector promptly tanked. Depressed oil prices made a mockery of debt-laden E&P companies’ revenue projections. The IPO market quite simply stalled. By the time you read these words, the Fed will (probably) finally have made its move. Even if it hasn’t, though, the market itself – or at least the minds of those in the market – has moved on. If not a market correction, call it a mentality correction. Everyone was still gung-ho and risk-on in the first half of 2015. As the year draws to a close, sentiment is very different. As always, there are plenty of possible sources for worry. Terrorism, Chinese growth, the apparent tug of war between the central banks of the US and Europe – all of these (and more) will only add to the difficult work of keeping the machine of trillions of dollars of bonds neatly humming along. And the change in mentality surely means that buyside and sellside alike will be taking a much more considered look at the products brought to market in the year ahead. Collateral quality and ratings will matter more. A particular credit’s story will be, well, more than just a story. Risk assessment – not always a top priority when times are booming – will have renewed importance. All of this means that those who do the hard work – and do it properly – will still have loads of opportunities in front of them. The award winners honoured here all did that in 2015. When times were tough, their professional diligence and market intelligence were tougher. Risk is always there. This year’s winners showed that, with the right approach, reward is too. Please join us in congratulating all the winners of the 2015 IFR Awards. To see the digital version of the IFR Americas Review of the Year, please click here . To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

London, September 1992: That dreaded phone call from your boss – can you come to my office, on the hop? Bloody hell, what whingeing salesman had I beat up this time, or could it be a midday risk exposure check or, worse, yet another meeting with the lawyers. But it was none of those things: instead, at that meeting and several more over the following days I was recruited to help plot an assault on an elderly woman – the Old Lady of Threadneedle Street, aka the Bank of England. I was running Morgan Stanley’s fixed-income balance sheet in Europe and that meant that when George Soros’s US$7bn Quantum fund wanted to leverage its bets against sterling, I was the go-to guy. Stanley Druckenmiller, the chief architect of the Soros attack on the pound, needed to warehouse huge size to leverage Quantum’s holdings of European government bonds in order to have as much cash available as possible as it went into battle. And he chose Morgan Stanley (which under Bob Diamond as European head of fixed-income had risen to become the premier bond trading shop in Europe) to do it for him. All that cash would soon be employed by Druckenmiller to borrow sterling in the forward foreign exchange market, which was then dumped in the spot market – and in the final hours to the only bid, the Old Lady herself. Druckenmiller had started betting against the pound in August as it became crystal clear to the prescient positioner that the pound was locked into the European Exchange Rate Mechanism at a range versus the Deutsche mark that was far too lofty. (For younger readers, the ERM was a system designed to stop European exchange rates fluctuating too widely as a precursor to the introduction of the euro.) The Bundesbank had just raised rates to a record 9.75% as it fought surging inflation. The newly elected British Prime Minister, John Major, did not want to further aggravate slowing growth amid a recession and thus refused to match the rate rise. Instead, Major had his Chancellor of the Exchequer, Norman Lamont, practically on his knees begging the Bundesbank’s Helmut Schlesinger for a rate cut at the September 4 finance minister meeting in Bath. But Schlesinger dashed from Bath loudly and brashly instructing Lamont to raise rates or leave the ERM. It is important to note that it was Major, Lamont and (less so) Major’s inner circle that were making monetary policy decisions for the UK. The Bank of England did not become independent from government until 1998, and UK market practices were still not up to date in the early 1990s, with not even a Gilt repo market. That Major and Lamont were playing billion-dollar-a-hand poker with major gun-slingers like Soros and Druckenmiller proved to be an understatement The combination of antiquated markets and financially inept politicians running monetary policy proved to be a toxic shock for the Old Lady and her UK citizens. That Major and Lamont were playing billion-dollar-a-hand poker with major gun-slingers like Soros and Druckenmiller proved to be an understatement. Their stunning lack of market understanding was akin to bringing the proverbial knife to a gunfight. Thus it would be bloody but over in hours once battle was joined. Ramped up Global market volatility ramped up to new levels on September 7 when the Bundesbank dropped interest rates a measly 25bp, and Italy simultaneously devalued the lira by 7%. To make matters worse for the hapless Major and Lamont, talk soon boomed that the rate cut was a German government-led initiative that the Bundesbank did not fully support. And with the lira devalued, speculators set their sights on the weakening pound with the finale only about a week away. By now Druckenmiller was increasing outright short bets on sterling, selling short-sterling futures and buying German bonds that mimicked short pound versus long Deutsche mark main positions and to a lesser extent short pound versus French francs plus long US dollar/Treasuries. My desk watched Soros like hawks while makin

Issuers breathed a sigh of relief when bond markets finally reopened to high-yield energy companies in February. CrownRock, encouraged by a 20% rally in the price of crude over the previous three days, rushed a deal to market, breaking a three-month hiatus – and in style, gaining US$1.5bn of orders for its planned US$300m deal. As oil rallied back above US$60 over the next few weeks, others followed in its wake. Bumper deals returned as investors bet the precipitous drop in oil – crude had plunged from US$107 a barrel to US$42 in just six months – had gone too far. Energy XXI Gulf Coast and SandRidge Energy managed to print deals north of US$1bn each. But while markets had reopened, oil price volatility had left investors shaken. Finance was once again available – albeit at a price. Energy XXI’s second-lien bonds were priced at a whopping 12%. Put off by such levels, and despite having seen the market abruptly shut only months earlier, other companies chose to wait in the hope that costs would come down. A second leg-down in oil caught many off-guard, and as crude plumbed new lows of US$37 during the summer, many companies rued their decision to wait. Brian Gibbons, an analyst at CreditSights, said many had expected crude to rally strongly, as it had done after its initial steep decline when Lehman Brothers had collapsed. “Memories are short, and many of these companies thought the oil price collapse would be a re-run of 2008, when markets quickly snapped back,” he said. “As a result, many of them who held off refinancing at higher rates, as bond markets once again shut down, found themselves locked out. Refinancing has fallen through the cracks.” The closure of the high-yield market has removed an important source of financing for the sector. US and Canadian energy companies averaged US$40bn a year of high-yield issuance between 2011 and 2014. Despite a strong first half this year, issuance has since stalled, and will likely be half the previous years’ levels. Inability to access bond markets has hit the energy industry hard, prompting round after round of cuts to reduce financing needs. The number of oil rigs hit a record 1,609 in October 2014. Two-thirds of them have since been halted as companies seek to cut their losses. It isn’t only oil that has been affected: the number of gas rigs is one-seventh of what it once was. Bankruptcies dent confidence But aggressive cost-cutting has not been enough to save some companies. Samson Resources and Sabine Oil and Gas – the former with US$4.2bn of liabilities and the latter with around US$1bn – have both filed for bankruptcy in the last few months, further denting investor confidence and reminding them of the very real possibility of losses. With high-yield markets shut, companies are having to think outside the box. Lightstream Resources, a Canadian oil and gas exploration and production company focused on light oil in the Bakken and Cardium fields, became one of the first to move after the second leg-down in oil. “Liquidity is a good thing to have, but it comes at a cost, and companies are constantly seeking to balance the two against each other,” said Peter Scott, chief financial officer of the Calgary-based company. “But as the macro situation worsened and the oil price continued to fall, we decided we wanted to add credit capacity to our capital structure in the case of a lower, longer price recovery.” Fortuitously for the company, existing bondholders provided the solution. Lightstream had printed US$900m of eight-year senior unsecured paper with a coupon of 8.625% in 2012. As oil plunged, the company’s bonds did too, falling through the 70 level in June and prompting a call from some major holders of the paper keen to protect their investments. Under the deal, investors agreed to exchange US$465m of existing notes for US$395m in second-lien notes with a higher coupon of 9.875%. The investors also agreed to buy an additional US$200m of the notes, with Lightstream using the ad

It is common practice, law firm Neuberger Berman wrote in a client note, to use protective wrap when shipping fragile items. “Regulators have similarly tried to employ regulations to shield investors from a bubble in the US credit market,” it said. In 2013, regulators provided guidance that said leveraged loans should use pro-forma leverage of no more than six times, as measured by total debt/Ebitda; and have the ability to fully amortise secured debt or repay 50% of the total debt over a five to seven-year horizon. It was not until September 2014, when the Fed asked one bank to immediately address problems relating to its underwriting and sale of leveraged loans, that its guidance had the desired impact on the market. According to Barclays, the share of the market made up by loans with leverage exceeding seven times fell from 20.7% to 15.4% over the last three quarters of 2014. There has been a concomitant drop in bank participation in the leveraged loan market. The guidelines, which are in effect regulations, are intended to reverse a perceived deterioration in underwriting standards. They apply to US depository institutions and federal branches of foreign banks in the US. David Sharp, head of loan capital markets and syndicate in the US at Societe Generale, said: “The guidelines are similar to what we have always done when assessing a borrower’s ability to repay and delever over the course of a loan. Before then there was a bit more scope for nuance; some sectors might have a higher capacity for leverage, for example, where now we cannot always make that judgement.” This is, he admitted, a subtle difference. Usually it isn’t even a factor. He added: “On the vast majority of credit profiles we already viewed leverage in a similar way to how the Fed looks at it.” A weakening grip What is certainly clear, though, is that total issuance of leveraged loans in the US in 2015 has fallen significantly. In the period to mid-October 2015 total volume was US$652bn, according to Thomson Reuters, markedly down on the US$922m recorded at the same point the previous year. And while the biggest banks still dominate the league tables for leveraged loans, their grip on the business has been weakened considerably. Bank of America Merrill Lynch remained in top spot in 2015 as at mid-October, as it was at the same point of 2014, according to Thomson Reuters data. But whereas a year ago it had arranged deals worth US$101.4bn, this year that has fallen to just under US$56.5bn, with its market share dropping from 11% to 8.7%. JP Morgan and Wells Fargo, in second and third places respectively both this year and last, saw similar declines, from US$79.3bn to US$40.7bn, and US$67.8bn to US$39.8bn, respectively. The new guidelines are not the only explanation for this trend. The increased cost of capital has forced many banks to step back from a lot of businesses. Many banks may therefore have scaled back their activity in this area even without the guidelines. Economic conditions have also played an important part. Sharp said: “In 2014, we saw a lot of refinancing, repricings, dividend recapitalisations and other opportunistic deals. These deals inflated the new-issue numbers. This year, spreads have been flat or a little up, so the rationale for those opportunistic deals has not been there, leading to a large drop in that category of new issuance.” If that opportunistic element is excluded, he said, the decline has not been as significant as it initially appears. For those borrowers that have been unable to access bank financing this year, there have been two options. The capital markets are the preferred choice where they are available, offering cheaper financing, for longer durations, with a fixed coupon. There was an uptick in high-yield bond issuance in the first half of 2015, which can at least partly be explained by the diversion of flows from loans into bonds. Yet this market has also been affected by the new guidelines – even if the impact ha

The recent history of Venezuela has been a tale of tragic economic mismanagement and unfulfilled potential. “Recent years have seen the biggest oil boom in history, and yet Venezuela has suffered from perhaps the most wasteful economic management in the world. Its population should enjoy the same living standards as Norway,” said Jan Dehn, head of research at Ashmore. Instead, the population is struggling against violent and relentless economic headwinds that threaten to sink the economy at any time. Real GDP in Venezuela contracted by 4% year-on-year during the first three quarters of 2014, the latest data available in a country where reliable information is hard to come by. Unwilling to significantly cut spending and unable to increase revenues, Venezuela has largely closed its financing gap via a stealth devaluation of the bolivar. The official exchange rate is 6.35 bolivars to the US dollar, but on the black market it trades for as low as 1% of the official figure. This has suppressed domestic demand by discouraging imports. Optimists have long anticipated the recent elections, seeing in them Venezuela’s opportunity to chart a new economic course. The opposition party, Mesa de la Unidad Democratica (MUD), was still tainted by the reputation earned before Hugo Chavez seized power, with leading figures held responsible for the extreme poverty and inequality that paved the way for Chavez’s rise. Yet the scale of its victory – it won a two-thirds majority in the country’s legislature – proves the electorate was willing to put such reservations aside. MUD must now make the most of its new mandate. Despite winning control of Congress for the first time in 16 years, MUD is likely to be cautious. It will want to maintain the social programmes that Chavez put in place and will therefore be desperate to increase government revenues. The obvious solution is to attract foreign investment and, crucially, ramp up oil production. Dehn said: “The opposition party’s priority will not be to oust [current president] Nicolas Maduro, it will be to secure the release of various political prisoners. Once it has achieved that, it will want to push through reforms to increase transparency, for example forcing Maduro to explain where all the money has gone. “They will want to expose corruption in order to undermine the credibility of the Chavistas, who are still seen by many as being on the side of the poor. Then a moderate, centrist leader can emerge.” With a majority of 112 seats out of 167, the opposition will have the option to change institutions, including the courts, and could even pass motions for recall referenda, Dehn said. “Change requires several conditions to be satisfied: political change and then economic and institutional change. The former has now happened. We now look forward to the latter two,” he said. Yet some still worry that the election result will not lead to a substantive change. Ben Ramsey, an analyst at JP Morgan, said: “Institutional clashes between the different branches of government can lead to uncertain outcomes, and stability is not taken for granted. As such, with Venezuela facing another large external funding gap next year (we estimate US$16bn), default concerns will remain elevated.” To default or not to default? There is considerable debate around the possibility of default in 2016. Many predicted 2015 would be the year it happened, but Venezuela defied these expectations. Capital Economics, for example, predicted Venezuela would probably default around October or November this year. Thus far it has been kept afloat in large part thanks to deals with China. Some have concluded that 2016 will see Venezuela continue to muddle through, making repayments to avoid default, despite the rapid deterioration of its economy. The government depends on its oil output to remain solvent, but cannot keep the oil pumps on without maintaining access to markets for working capital. Any government that was unable to keep the oil

Argentina likes to confound and lived up to its reputation with the election in late November of conservative Mauricio Macri as president, bringing to an end an era of populism that has isolated and stunted its economy. The result was a clear vote for change, despite the slim margin of victory by the centre-right candidate (Macri won 51.5% of the vote, compared with 48.5% for his Peronist rival, Daniel Scioli of the ruling Frente para la Victoria). But although markets responded enthusiastically to Macri’s pro-business agenda, investors would do well not to overestimate the prospects for dramatic reform: the new administration inherits a toxic legacy of endemic inflation, stifling currency controls and debt default – and the political support it will need to engineer change is flaky where it matters most. Edward Glossop, emerging markets economist at Capital Economics, said: “The outlook for the economy has undoubtedly brightened. We still see some reasons to be a little bit cautious, but the economic adjustment that the country desperately needs could be just around the corner. It is the start of a new era because undoubtedly we are going to see positive change – the only question is how much change and how quickly.” Macri is a two-term mayor of Buenos Aires and leader of the Cambiemos opposition alliance. His victory over Scioli – hand-picked as the Peronist candidate by the outgoing president, Cristina Fernandez de Kirchner – tapped into deep frustration with “Kirchnerism”, a protectionist and confrontational style of statism that in recent years has stunted growth. As the investors’ choice for his promise of shock therapy, Macri’s win sent ripples of unease through left-of-centre governments in neighbouring Brazil and as far afield as Venezuela, while raising the prospect of improved ties with the US and Europe. Nevertheless, the scale of the task confronting him should temper excessive optimism. Plugging the holes Official Argentine figures put economic growth in 2014 at 0.5% but many analysts cast doubt on this and suggest Latin America’s third-largest economy contracted. Estimates for this year among multilateral bodies have varied wildly from 0.4% to 1.6%. There is broad consensus that Argentina needs access to international finance to plug a soaring budget deficit financed by printing money that has fuelled double-digit inflation. Fiscal and monetary policies have been excessively loose as Fernandez and her predecessor, Nestor Kirchner, expanded welfare programmes, and high inflation has pushed up the real effective exchange rate, fuelling concerns about dwindling reserves. Officially these stood at US$27bn in October, but in reality are generally thought to be much lower once debt arrears and other outgoings are subtracted. Buenos Aires must tap external capital, and to do that a new government must settle with the holdout creditors who refused to participate in debt restructuring after 2001. For the capital markets, the approach of the presidential candidates to the holdouts was the key barometer of their commitment to change – Scioli was steadfastly ambivalent, and the consensus view was that Macri would be more decisive. But during the long political campaign that culminated in Macri’s victory, several factors qualified the conservative candidate’s robust image. He moved inexorably towards the centre, softening his stance on orthodox policies, and faced the recurrent threat of divisions within his own eclectic coalition. Walter Molano of BCP Securities and author ofIn the Land of Silver, a history of Argentina’s political economy, said: “Macri really has a strong conviction of applying a shock therapy to the country and addressing some of the things that really need to be addressed very quickly, ie, devaluing the currency, realigning it with trading partners, and in a very short time period removing subsidies and normalising the fiscal accounts. But he’ll still have to deal with the legislature and senate, control

Pre-IPO fundraisings entered the mainstream as a source of funding for fast-growing technology companies in the US and Europe in recent years. But they also have the potential to disrupt the traditional IPO process. Uber Technologies became the world’s most valuable start-up in 2015 with a series of private fundraising rounds that pushed it beyond the US$50bn valuation carried by Facebook before its IPO. But while Facebook’s last round of capital-raising was soon followed by its public market debut, Uber has no such plans. In adopting this stance, Uber is proving a disruptive force not just in its own industry, but in the capital markets more broadly. Late-stage fundraisings are commonplace in the US technology sector, where fast-growing companies such as Uber, Dropbox and SnapChat have all raised billions of dollars privately rather than go to the public markets. Hunting for the next winner A slew of successful pre-IPO fundraisings have triggered a stampede by investors looking to pick the next winner. Traditional fund managers are starting to allocate a portion of funds to private investments, while family offices are becoming more sophisticated at putting money to work. Bankers say sovereign wealth funds are increasingly attracted to fundraisings while private equity firms are tweaking their traditional investment approach that focuses on acquiring majority control and adopting a longer-term view. Now they are coming to Europe and banks are dedicating increasingly more resources to generating private fundraising deals. Notable transactions in 2015 included one from Swedish music-streaming company Spotify, which raised US$526m in a funding round that valued it at US$8.5bn, a sharp rise on the US$5bn valuation placed on it by investors a year ago. In April, Funding Circle, the online marketplace for business lending, raised £100m in equity capital, in a round led by DST Global, with participation from Baillie Gifford, a fund managed by BlackRock, Sands Capital Ventures and Temasek. In October, Scottish Equity Partners hired Goldman Sachs to offload 10% of online airline comparison website SkyScanner that would value the company at £1bn. A different route In some cases, companies are disintermediating banks and going directly to potential investors. This was the route taken by HelloFresh, a Berlin-based food delivery start-up backed by Rocket Internet, which raised €75m in a funding round from Baillie Gifford. Late-stage fundraisings are most suited to technology companies but they have also been applied to the healthcare and financial sectors, especially where traditional businesses meet technology. During the last commodities boom there was plenty of private capital heading into natural resources companies. Private placings are well-suited to technology companies because they are fast-growing and need capital. The current wave has its roots in the US, where traditional long-only fund managers such as BlackRock have started allocating capital to growth companies in private fundraisings. Those companies have then gone on to produce some of the biggest IPOs in the US – both Facebook and LinkedIn did pre-IPO fundraising rounds. Fund managers have flocked to pre-IPO fundraising rounds because they can gain anchor investor status that bumps them higher up the pecking order for allocations when the IPO finally arrives. “Over the course of the last 12 months this has become a positive, somewhat self-fulfilling process. More investors are willing to participate and that in turn has prompted more companies to consider private-stage fundraising,” said Dan Martin, head of European equity syndicate at Goldman Sachs in London. For companies, this new wave of private fundraisings has created a compelling alternative to the IPO market because it provides the company with time to grow scale and establish its business model and revenue streams away from the scrutiny of the public company arena. “Companies securing late-stage private financing

To see the digital version of the IFR Americas Review of the Year, please click here . To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

Just a couple of years ago, First Data didn’t exactly look headed in the direction of awards territory. Saddled with 9.6 times leverage in the wake of its US$27.5bn buyout in 2007 by KKR – one of the largest LBOs in history – the financial data processing company was struggling to add revenue and get out from under its mountain of debt. But with a remarkable series of capital transactions that included a US$2.8bn IPO this year, First Data reduced its annual interest expenses by US$500m, unlocked major gains in shareholder value – and helped turn its debt profile around. “The strategy was to opportunistically attack debt on economics,” said Cade Thompson, head of debt capital markets at KKR Capital Markets, “[using] a waterfall process that went from the most expensive to the cheapest debt.” The overhaul began in earnest in April 2013, when JP Morgan co-COO Frank Bisignano was brought in to lead a turnaround effort that had failed under a series of chief executives after the original LBO. “The challenges that First Data faced historically were lack of revenue growth that was healthy and that came in many different ways,” said CFO Himanshu Patel, who was brought on board by Bisignano. “Some of it was market-share challenges, some of it was pricing, some of it was lack of innovation,” Patel told IFR. “For example, we have bought six start-ups since Frank came on board. We have also spent a lot on client-facing teams to build back relationships.” Chief control officer Cynthia Armine-Klein, head of global business solutions Daniel Charron and head of corporate and business development Christopher Foskett were also among the key management hires recruited away from JP Morgan. Deleveraging For all the personnel improvements, dealing with the debt overhang was crucial. A US$3.5bn injection of additional equity in June 2014 – a US$1.5bn investment from KKR and existing investors (US$700m of which came from KKR’s own balance sheet) and US$2bn from institutional investors – was essential to the deleveraging process. “The injection of the additional equity allowed us to enter a phase where the business would generate free cashflow as opposed to a static approach toward leverage,” said Ed Law, head of ECM at KKR Capital Markets. “That the existing owners were willing to put in new money served as an important validation of the business.” For the IPO this year, Citigroup, Morgan Stanley, Bank of America Merrill Lynch and KKR placed 160m shares on the base deal during the second week of October at US$16, well below the US$18–$20 indicative range, with an additional 16m shares sold on partial exercise of the greenshoe. The public offering was part of an ongoing recapitalisation that allowed repayment of US$510m principal of 11.25% unsecured notes and US$1.6bn of 12.625% unsecured notes all due in 2021. With US$19.2bn of debt still in place, though, more needed to be done. “The issue for [equity] investors was not the amount of leverage on the business,” Evan DaMast, head of equity capital markets at Morgan Stanley, said of the IPO. “Investors questioned how much of the US$7bn of debt they were planning to refinance could actually get done – and at what rate.” In late October, after reporting quarterly results, First Data began marketing an eight-year non-call three senior note issue, through which it was initially looking to raise US$750m to continue refinancing its high-coupon debt. Overwhelming investor demand allowed it to more than quadruple the size of the offering to US$3.4bn. The eight-year notes were priced at 7%. First Data then returned to the markets the following week to refinance loans and bonds, both of which deals were similarly upsized – even though similarly rated credits at the time were struggling to raise new debt. Incremental term loans of US$1.25bn and €200m, both maturing in July 2022, were followed by the combined sale of an additional US$3.2bn comprising US$1bn 5% first lien and US$2.2bn 5.75% second-lien notes, both

When Charter Communications agreed to buy Time Warner Cable in May for US$78.7bn including debt – just over a year after it lost its hostile bid for the cable operator to Comcast – TWC bonds sank. Hours later, when the first details of the financing emerged, and Charter declared its intention of maintaining an investment-grade rating for TWC bonds, they rallied again. Charter president and CEO Thomas Rutledge was sitting pretty. But then the market began to ponder: How can a company like Charter, which only had high-yield debt, pull that off? “We knew we were talking about a very large capital structure with around US$61bn–$62bn of debt,” said Charles Fisher, a senior vice-president in corporate finance at Charter. “That’s a lot of capital to raise, but it’s also a lot of capital to continue to manage over time. We wanted to make sure we had access to all the markets.” So rather than bunging a load of new debt on top of the existing TWC bonds – and creating a pure high-yield capital structure that might have proved costly and difficult to refinance in times of stress – Charter did the unthinkable. It worked out a way to give security to the new and existing unsecured TWC bonds, ensuring they maintained investment-grade index eligibility – and with that, accessed the most stable part of the corporate debt capital markets. “It was the secret sauce,” said Fisher, on the US$15.5bn investment-grade bond that the company sold a few weeks later. That was followed a couple weeks later with a US3.8bn term loan, led by Bank of America Merrill Lynch. The IG bond, led by Goldman Sachs and significantly bigger than the US$10bn–$12bn Charter had first envisaged, was the linchpin of the financing, ensuring that both the company and its bankers had de-risked. After the loan and IG bond were sold, about 90% of the financing was complete. Charter had a US$2bn term loan held by its relationship banks and a US$1.7bn revolver – giving it leeway to wait for the riskiest part of the entire plan: a jumbo US$2.5bn high-yield bond. In the end, and in the face of a re-pricing in the junk bond market, Charter priced the 10.25-year unsecured issue, led by Credit Suisse, at just 5.75%. Charter’s banks knew that the M&A process might be long and difficult, but it was able to get banks comfortable on terms that worked for the company. Charter told its banks – BAML, Goldman Sachs, Credit Suisse, Deutsche Bank and UBS – they needed to provide around US$6bn of capital each, and that they needed to keep that commitment for upwards of 18 months. But the company then said, as Fisher put it: “We want to pay as little as we can in terms of commitment fees and gross spread, and we want the caps to be as tight as they possibly can be.” In return, Charter said it would go to market to place the debt as soon as market conditions were favourable. Built into the commitment papers was an inducement to do so. “Every three months we hadn’t gone to market, the commitment would step up,” said Fisher. “That was relatively bespoke. We basically said: Give us below-market rates in the short term, and we’ll work our way up to market rates – or even beyond market rates if we haven’t taken you out of your commitment.” Now, the most expensive debt in the capital structure is the old TWC bonds, averaging 6.4%. Even so, the average cost of capital for the new debt financing is 4.77%, and 5.48% for the whole debt pile – all the way out to 40 years. Charter has smoothed out maturities in practically every year out to 2055; pro forma about 85% of its debt is, remarkably, due after 2019. Now, other would-be borrowers are looking at the financing as a template for future transactions – most notably Dell for its US$67bn purchase of EMC. “It’s being pitched,” said Fisher. “It’s being talked about.” And for good reason. To see the digital version of the IFR Americas Review of the Year, please click here . To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.

The themes that dominated the US bond market in 2015 were the massive resurgence of M&A, the billions of dollars of investment-grade bonds that financed those acquisitions and the intense volatility that banks had to navigate along the way. Having a safe pair of hands to steer companies through the ups and downs was crucial, as spreads blew out to three-year wides – and Bank of America Merrill Lynch was at the forefront of many of the biggest and most challenging bond sales. In a year that saw a record US$4.2trn of M&A announced, BAML was a lead on four of the five largest M&A bond deals: AT&T, Medtronic, AbbVie and Charter Communications. The bank was also bookrunner on some of the trickiest acquisition financings, including for companies such as Halliburton and Southwestern Energy in the choppy oil sector. As liquidity became a greater concern, investors clearly showed a preference for larger deals, and without a doubt 2015 was truly the year of the jumbo. There were only three investment-grade deals sized at US$10bn or larger in both 2013 and 2014; this IFR Awards year there were 14 of them, all intended for either M&A or shareholder-friendly measures such as share buybacks. But that didn’t mean the sales were a simple slam dunk. A number of events caused havoc in the markets: oil price volatility, worries about Chinese growth, Greece’s debt woes and the seemingly unending uncertainty about whether the Fed would hike rates or not. Yet as far back as December 2014, when IFR’s awards season was under way, BAML – under the leadership of co-heads of Americas investment-grade capital markets, Brendan Hanley and Andrew Karp – was already blazing its trail to the US Bond House of the Year. Mindful of the huge M&A pipeline about to be unleashed once the new year began, BAML was one of the banks on the US$17bn seven-tranche issue for medical device maker Medtronic. The trade at one point was expected to be less than US$3bn, and ended up becoming the largest investment-grade bond of 2014. The company’s debt financing needs for its US$43bn acquisition of Covidien skyrocketed after the US government closed the loophole on so-called tax-inversion M&A trades – a move that increased the cash portion of the financing to US$16bn. To offset concerns about higher leverage and subsequent credit rating downgrades, Medtronic offered juicier new issue concessions of about 15bp–20bp. Though high at the time, that plump spread allowed the company to attract some US$45bn in demand, lock in cheap rates on long-term debt and keep refi risks in balance: US$12.5bn of the bonds, accounting for 73.5% of the deal, carried maturities of 10 years or more. When to say when BAML had plenty of other standout issues as well: the US$17.5bn bond for AT&T that financed its US$48.5bn purchase of DirecTV; the US$16.7bn deal for AbbVie to help fund the pharma giant’s acquisition of Pharmacyclics; and the highly structured US$15.5bn trade for Charter Communications – a vital part of the financing backing its headline acquisition of Time Warner Cable. AT&T’s deal in late April came as demand for high-grade was reaching fever-pitch – and just before spreads really started to come under pressure. Not only was it able to price the transaction with minimal concessions, but the red-hot market also enabled it to insert a clause leaving three of the tranches outstanding even if the M&A deal didn’t go ahead – a savvy move that left AT&T with cheap, long-term debt whatever the outcome of the acquisition. BAML also showed it was on top form in getting deals done when the moment was right. One such deal was the US$10bn debut from chipmaker Qualcomm. The bonds, which financed share buybacks, were priced in mid-May and weakened within a couple of months after reports that the company was considering a break-up. That risk was well known to investors when the debt was raised. But BAML, one of three bookrunners on the trade, smartly spotted t

As equity was bought back or doled out to finance acquisitions this year, ECM volumes slipped and IPO activity collapsed. This presented an opportunity for a canny bank to attack, carve out niches and accelerate its way up the league tables. Those that best understood risk could pump up returns by using capital judiciously. Credit Suisse was one such bank. While it has a smaller investment-banking footprint than its rivals, Credit Suisse is also lighter on its feet – and that helped it repeatedly find the right solution for clients. Of course, the dominance of the domestic US houses meant the Swiss bank could only rise so far. In the awards period it ranked fifth with US$19.5bn of bookrun business across 140 transactions, its best year since 2000. Yet the momentum is clearly with the foreigner. In the first 11 months of 2015 it ranked third in the US, outpacing Goldman Sachs, Citigroup and Bank of America Merrill Lynch. That performance was all the more impressive in a year that saw overall equity volumes decline 4.7% year-on-year to US$208bn, and US-listed IPOs slump 58% to US$38.7bn. While those figures are distorted by Alibaba’s US$25bn IPO in 2014, the declines were still enormous. Credit Suisse proved it clearly knows how to make use of its capital. Of the US$17bn of follow-on business it completed in 2015, more than half was completed on a risk or accelerated basis. Plenty of banks are happy to swing a big cheque book around in order to leap up the league table, ignoring profits in the process. But Credit Suisse’s cheque book is anything but big – and its moves actually enhanced the bottom line. “The trend in blocks over the last couple of years of ‘Anything will work’ has become ‘You’d better know what you are doing’,” said David Hermer, Credit Suisse’s global head of ECM. “We try to excel in the spaces where we are most knowledgeable.” That means avoiding widow-makers such as the US$2.7bn block sale of Hilton Hotels, the “Mother’s Day Massacre” that left the three leads with US$100m-plus in combined losses. Instead, the bank made its own jumbos through repeated sales in stocks it knows well – notably the four secondary sales of Aramark totalling US$3.12bn – alongside notable one-offs such as the US$1.1bn sale of HD Supply. Risk rewards The bank’s US$9.4bn of capital-committed and accelerated sales was the highest across the market on an absolute basis. While Credit Suisse wrote plenty of cheques, there was an effort to be careful. The bank frequently employed a “shared upside” strategy, providing a backstop in return for a fee, while sharing proceeds above that level with the issuer. This was particularly suited to the struggling E&P sector, where Credit Suisse also sought to minimise risk by employing pre-open execution. “Execution was down to the minute,” said Trevor Reuben, VP of corporate development at Newfield Exploration, of a US$835m primary block the company completed on the morning of February 26. “Credit Suisse’s conviction, and its ability to articulate the execution strategy, provided comfort in moving forward.” The strategy, championed by Americas ECM co-head Robert Santangelo, was to check oil futures each morning and discuss options, launch publicly at 6am in New York, and price just ahead of the open. (In Newfield’s case, just nine minutes ahead.) The investment grade-rated company had not sold stock publicly in more than a decade, and there were reasons for caution – not least concerns over the quality of investors that would be allocated. Yet the outcome exceeded expectations. The deal was increased from a base 18m shares to 22m and priced at US$33, in the lower half of guidance but comfortably above the US$32.24 backstop. Pricing was relatively tight to the previous day’s close of US$36, especially considering the stock had jumped 13.7% that day on the back of strong full-year results. A 15% greenshoe was fully exercised a few days later. Concerns about relying on momentum investors proved unfou