EMEA Loan House: HSBC

AbbVie’s deal epitomised the US loan market in a year that was dominated by mergers and acquisitions – in particular from a healthcare sector that never stopped bringing hefty takeover loans to the market. Morgan Stanley, through its lending joint venture with MUFG, underwrote the US$18bn 364-day senior unsecured bridge that gave AbbVie financing certainty when the takeover was announced in March. Morgan Stanley committed US$14.25bn and MUFG US$3.75bn. The bridge was Morgan Stanley’s biggest single commitment as a firm in 2015. Using the lending joint venture, Morgan Stanley and MUFG were able to provide the bridge within days with speed and confidentiality, ensuring that there were no leaks prior to the announcement. The loan kicked off a series of jumbo M&A loan financings in the healthcare sector and also gave the investment-grade loan market confidence early in the year. “It set the stage because it gave people confidence that deals of this size could be done and that they would be refinanced in the capital markets. It showed that the bond market … and the bank syndication market would be receptive,” said Anish Shah, head of investment-grade corporate debt capital markets and acquisition finance at Morgan Stanley. “It reaffirmed the structure of the investment-grade bridge loan,” he said. The bridge loan, which financed a cash/stock acquisition coupled with an accelerated share repurchase, allowed AbbVie to satisfy the seller’s preference to mitigate equity dilution. It also backstopped the acquisition funding and the buyback funding. “They structured this in a combination of cash and stock and then they completed an accelerated share repurchase to buy back approximately half of the stock consideration to synthetically create a structure that was much more cash-heavy,” Shah said. The transaction was syndicated to existing AbbVie relationship banks with a 100% hit rate. It was also arranged in less than two weeks to ensure AbbVie was best positioned to win a highly competitive M&A process. “We put US$18bn of committed financing in place, quickly, quietly, confidentially,” said Shah. “We then syndicated it and then took them to the bond market.” Concurrent with the syndication of the bridge, Morgan Stanley also led an amendment to AbbVie’s existing credit facility to provide covenant flexibility to assist the transaction. To see the digital version of the IFR Review of the Year, please click here . To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

The loan stood out for its complexity and the leads’ ability to syndicate among a whole new set of lenders at a time when investors were having second thoughts about committing funding in emerging market oil exporting countries such as Colombia. Looking for the longest tenor possible to fund fluvial equipment such as barges, Trafigura was unable to lean on its deep pool of around 130 relationship lenders. Not only were they unaccustomed to lending beyond three years, but many had already reached their limits on Trafigura exposure. “We didn’t want to compete against that capacity,” said Kristie Pellecchia, director of loan syndications in the US and Latin America at SMBC, which was joint bookrunner alongside Credit Agricole. “We felt there was a lot of liquidity in the regional market as well as in Asia.” Those issues hit home when Trafigura announced in July a US$1.68bn refinancing of its Asian revolver – just days after SMBC and Credit Agricole had launched general syndication on the asset-backed deal. The US$350m transaction comprised five and seven-year tranches, striking a balance between the tenors required by Trafigura and investor needs. The leads had to come up with a structure that mitigated some of the risks of having tenors that were shorter than the 20-year lease agreement entered into between the Trafigura subsidiary and the assets being financed. The solution was a hybrid loan that incorporated the features of straight corporate loans such as a guarantee from the parent as well as project finance structures such as a pre-payment mechanism with a cash sweep. “You had a corporate guarantee for the full seven years but also structural enhancements that are typical of a more project finance-type deal,” said Rose Mary Perez, director of the LatAm loan syndication group at Credit Agricole. Other such features included an equity cure in the event of a cash shortfall from the borrower, which is using revenues from the lease payments. The deal paid 265bp and 315bp over Libor on the five and seven-year tranches, respectively. That compares with the approximately 110bp over Libor that Dutch parent and guarantor Trafigura Beheer typically pays on a three-year loan. “The price levels reflected how people looked at an asset-driven transaction,” said Jaime Frontera, head of the Latin America loans syndication group at Credit Agricole.”It was a good balance between Trafigura’s needs and our ability to sell it.” The bookrunners spread their net far and wide to lure 10 more banks, many of which were new lenders for Trafigura. * Typical cost of funding corrected in paragraph 11. To see the digital version of the IFR Review of the Year, please click here . To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com . <object id="__symantecPKIClientMessenger" style="display: none;" data-extension-version="0.4.0.129" data-install-updates-user-configuration="true"></object>

The transaction helped create a top three global automotive supplier with pro forma sales of over €30bn and more than 130,000 employees. The European loan market had already welcomed the return of big ticket M&A with Germany’s Bayer closing a US$14.2bn loan in June 2014 to back its purchase of Merck & Co’s consumer goods business. However, a multi-billion acquisition loan for an unrated and relatively unknown borrower was an altogether different proposition. “This was unknown territory. The company had no established international banks in its relationship group. The deal was transformational not only in putting the company onto the international stage but also in the way the company funded itself,” said Paul Gibbs, head of Western European loans, structuring and syndication at Citigroup. ZF secured fully committed financing from underwriters Citigroup and Deutsche Bank on a confidential basis prior to the merger announcement on September 15 2014, providing certain funds for the acquisition and comfort to both ZF and TRW. The financing comprised a 364-day bridge loan split between US$3.5bn and €4.79bn, initially paying 225bp over Libor/Euribor; a three-year term loan split between US$1.5bn and €1.34bn, initially paying 250bp; and a five-year term loan split between US$500m and €612m, initially paying 275bp. Syndication was planned as a two-stage process, with an early-bird phase launched in September to relationship banks and banks that had expressed interest in the transaction. Such was the overwhelming response from the market, however, that the planned general syndication was scrapped. The deal closed in early October after a total of 22 banks out of the 23 invited joined the two underwriters. The lightning-fast syndication strategy effectively minimised the underwriting period for the two coordinating banks, which was important considering the size of their commitments, while limiting the number of banks in the syndicate created a new relationship bank group for the enlarged ZF company. In addition, lending banks were comforted by a clear deleveraging story. ZF placed a €2.2bn Schuldschein in January 2015 – the largest-ever corporate Schuldschein – and followed that benchmark deal by placing €5.4bn-equivalent of bonds in April 2015, fully replacing the bridge loan element of the loan. Although the financing closed in October 2014, the underlying acquisition completed on May 15 2015, making the loan eligible for an IFR award this year. To see the digital version of the IFR Review of the Year, please click here . To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

Despite distractions at head office and a slowing Asian market, Deutsche Bank stuck to its guns in Asian loans in 2015, relying on its risk judgement and distribution skills to chalk up numerous sole mandates while maintaining a healthy return on risk-weighted assets. Deutsche did not have things all its own way in 2015, with a management reshuffle back in Germany and painful group writedowns raising plenty of questions over its risk appetite. The German lender also faced a tough operating environment in Asia, as China’s slowing economy took its toll on the rest of the region. With every major loan market in Asia off the boil, the lacklustre deal flow and increased competition among market participants led to significant pricing compression. Deutsche, however, distinguished itself during the review period, providing creative financing solutions for a variety of Asian borrowers and targeting event-driven situations and sole mandates to enhance its returns. “The Deutsche Bank Asian loans business has continued to grow its market and wallet share in 2015, building further on a model that focuses on borrowers and investor-clients while leveraging our market-leading structuring and distribution capabilities to generate a strong return on capital,” said Amit Khattar, head of Asia loan trading and syndication and co-head of Asian loan capital markets. The German lender underlined its commitment to the Asian market with a successful bid for a near-US$1.1bn loan portfolio from British bank RBS, in a deal that offers the opportunity to cement its relationships with top-tier Asian borrowers and generate additional interest income from loans paying higher margins than the current prevailing rates. The highlight of Deutsche’s year in primary syndications was the €500m (US$556m) seven-year acquisition-related loan for Malaysia Airports Holdings in March. The bank was one of three bookrunners on a hugely successful deal that came with a unique toggle feature allowing MAHB to decide between a partial or full guarantee, as well as a rare reverse flex. Deutsche also impressed with its leading roles on deals for Canada’s Brookfield Asset Management, which borrowed A$1.9bn for its proposed purchase of Australian infrastructure firm Asciano and a further US$557m in a uniquely structured financing for its maiden property acquisition in India. The bank was active in Japan, too. In February it provided a US$170m bridge to Japanese pachinko manufacturer Universal Entertainment Corp to finance the construction of a casino in the Philippines and a few months later arranged a US$600m five-year private placement that refinanced the loan.Going solo Leveraged financings, which fall under head of high-yield and leveraged DCM, Asia, Deepak Dangayach, also marked a key feature in Deutsche’s deal list as it pursued opportunities to make better returns. High-profile transactions included its sole underwrite in July of the A$290m senior and mezzanine loan backing Australia’s Quadrant Private Equity’s buyout of VIP Petfoods, the NZ$310m five-year loan to fund Pacific Equity Partners’ buyout of Auckland-based Academic Colleges, the US$145m buyout loan for Blackstone’s acquisition of the Indian operations of British outsourcing firm Serco, and the US$100m three-year bullet term loan backing private equity firm KKR’s purchase of a nearly 40% stake in unlisted Indian company Gland Pharma. Deutsche also bagged a sole mandate on the cross-border €190m non-recourse loan for Thai petrochemical giant PTT Global Chemical’s loss-making French subsidiary Vencorex Holding. The lender showed its prowess notching up sole mandates from other credits, including first-time borrowers such as China’s Dalian Wanda Commercial Properties, which raised US$500m in May, and the standby letter of credit-backed US$200m financing for Vietnam Investments Group – the country’s first such loan – in June. While rivals turned cautious on private-sector risk, Deutsche thrived in bringing private-se

MAH’s discussions centred on debt at Istanbul Sabiha Gokcen International Airport and the change of control clauses that would be triggered after the Malaysian borrower opted to buy the 40% stake it did not own in the airport. One of the requirements for the acquisition was the approval of ISG’s existing lenders. Refinancing the existing debt was therefore critical to MAH’s plan to take complete control of ISG. However, the financing faced a major hurdle as MAH could only provide a partial guarantee commensurate to the 60% stake it held in ISG. The solution came from MAH’s M&A adviser Deutsche Bank, which introduced a toggle to address the issue – a feature that was unique to the Asian loan market. The toggle allowed MAH the flexibility to convert the partial guarantee into a full guarantee at a time of its choosing. The facility agreement also provided MAH with a long-stop date where the borrower could elect to provide a full guarantee at the original margin or continue with a partial guarantee with a step-up in margin. Employing the toggle gave MAH the option to lock in long-term funding at a lower cost of debt for ISG, which was paying north of Libor plus 500bp on its existing loans. Moreover, the refinancing was priced as Asian risk with or without MAH being able to provide the full guarantee. In late December 2014, Deutsche, BNP Paribas and CIMB Bank signed and pre-funded the €500m seven-year loan to refinance the existing debt at ISG. By mid-January, the trio launched the amortising loan into general syndication offering a top level all-in pricing of 285bp, based on a margin of 275bp over Euribor and an average life of five years. The €500m financing proved popular among lenders, and in early March, the state-owned airport operator embarked on a reverse flex in the wake of strong appetite. The margin was cut to 250bp over Libor, with the top level all-in pricing reduced to 260bp as a result. Reverse flexes are seldom seen in the Asian loan market – the previous occurrence was a 25bp cut in the pricing on a US$200m three-year onshore debut loan for Fubon Bank (China) in August 2014. The appeal of MAH’s financing was also evident from the fact that all lenders committing in general syndication on the original loan renewed their commitments to the deal despite the reduction in the pricing. To see the digital version of the IFR Review of the Year, please click here . To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

The loan market was in a period of turmoil as oil prices plummeted in the second half of 2014, causing investors to tighten their purse strings. The size of the deal – which would end up being the largest leveraged buyout loan of 2015 – added to the potential difficulty of getting the loan done. “At different times we’ve had the view that US$4.3bn is a walk in the park, and at other times we’ve said it’s virtually impossible,” said William Hughes, head of North America syndicate at Citigroup. There was also unease over the amount of debt involved, which put adjusted leverage at the company near seven times, as regulators have cited loans with debt compared with Ebitda of more than six times as a concern in their leveraged lending guidelines. Additionally, PetSmart was part of a retail sector that had not performed well during the previous year. That led several banks, including Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs and Wells Fargo, to pass on the deal. “Some people couldn’t get there on a regulatory basis, but there were others who couldn’t get there on the credit,” said John McAuley, co-head of US leveraged finance at Citigroup. Barclays, Deutsche Bank, Nomura, Jefferies, Royal Bank of Canada and Macquarie joined Citigroup in underwriting the buyout, which also included US$1.9bn of bonds. Their confidence in the credit was rewarded when regulators reviewed the loan to see if it met the leveraged lending guidance rules, which include the ability to pay down half the debt within five to seven years, and passed the deal. “We had done enough credit work to put together a case and ultimately they saw it the same way we did – that it was actually within the guidelines,” Hughes said. By working with virtually all the investors who had ties to BC Partners, over US$100m of commitments was raised in an early round and PetSmart’s deal ended up more than three times subscribed. The loan was priced at just 400bp over Libor with a 1% floor and traded up after allocating. In May, the company returned to the market and repriced the loan 75bp tighter than the original coupon. <object id="__symantecPKIClientMessenger" style="display: none;"></object> <object id="__symantecPKIClientMessenger" style="display: none;"></object>

Verallia’s loan was eagerly awaited, providing a big boost to Europe’s liquid loan market that had been crying out for new event-driven paper following relatively little supply. The financing was executed in challenging market conditions, navigating around a potential Grexit and a number of failed loans pulled from syndication amid jittery markets. Arranging banks Deutsche Bank, Credit Suisse, Barclays, BNP Paribas, Nomura and Societe Generale had delayed syndication of the financing at the end of June to await the outcome of an emergency eurozone summit. It was then launched in mid-July as the first deal to take advantage of the market window reopening following the temporary resolution to the Greek situation. As a large, first-time issuer, the deal “ticks all the boxes the market wanted to see”, one investor said at the time of launch. As Apollo’s largest deal in Europe, Verallia tapped both the loan and bond market. However, the success of the loan saw the Term Loan B increased twice by a total of €335m, to €1.337bn from €1.002bn, and the bonds reduced by the same amount. A €200m revolver remained unchanged. “The term loan’s upsizing and consequent reduction in the bond demonstrates the flexibility and maturity of the loan in a market filled with secondary LBOs and IPO repayments,” said Charlotte Conlan, head of loan and high-yield syndicate, EMEA, at BNP Paribas. “Verallia, as a new sizeable credit to the LBO market, is a very positive signal for the durability of the European leveraged market.” The timetable was accelerated and resulted in a speedy one-week syndication, despite market turbulence and competition from other leveraged loans that had been launched into the same market window and were competing for investor attention. The term loan also closed with a margin of 400bp over Euribor – the tighter end of pricing guidance of 400bp–425bp following a strong response from institutional investors. The 1% Euribor floor and 99.5 OID were unchanged. The final term loan book attracted five banks and 50 funds, the majority of which were managed accounts. The loan traded up on the break and managed to remain above its break price throughout the year, despite macro volatility suppressing loan prices in Europe’s secondary loan market. “Verallia tested the depth of liquidity in the loan market as the company wanted to raise as much loans as possible given the volatility in the bond market. The deal had to get the relative value right between the two products [loans and bonds] to attract loan liquidity,” said Hoby Buvat, managing director, leveraged debt capital markets at Deutsche Bank. To see the digital version of the IFR Review of the Year, please click here . To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .