Top 250 Borrowers 2016

The past 12 months have seen top borrowers embrace equity-linked bonds for the first time in many years. In Europe, the Middle East and Africa, issuance in recent years has struggled to keep up with bond redemptions, in large part due to the rarity of investment-grade issuers and reliance on small bonds from high-yield issuers. Finally, blue-chip issuers have woken up to the opportunities on offer, breaking records for high premiums and making negative yields a regular feature of the market – even back when Bunds still offered a positive yield. The attractions were not simply down to high premiums and low running costs for issuers but also the flexibility offered by the structured equity market, as illustrated by Vodafone with the largest deal of the year. Vodafone raised £2.88bn from mandatory convertible bonds in February, the largest ever sterling equity-linked transaction by a factor of four. Yet the UK telecoms operator will not dilute shareholders, as it will buy back the same amount of shares as underlying the bonds at maturity to offset conversion. In order to insulate itself from share price moves in the interim, Vodafone bought calls and sold puts to the lead banks on the transaction, JP Morgan and Morgan Stanley. The mandatory convertible monetised US$5bn of loan notes received as receipts for the sale of its indirect stake in Verizon Wireless in 2014 that have maturities of 18 months and three years. The company had no particular interest in convertibles, just to monetise those notes. The deal was unconventional – there was no premium and 45% of the bonds were retained by the banks as a hedge for their derivative exposure – leading to catcalls from rival bankers worried about the impact on league tables. Privately, competitors were pleased to see such creative use of the product to attract an issuer with zero interest in the traditional offering. Leveraging the product to suit companies with no desire to issue convertibles has been a theme of the past year. Welcome back Investment-grade issuance has risen sharply in two forms. One is the traditional convertible or exchangeable bond, where issuers have been able to exploit credit and rate environments to issue bonds with huge premiums – 62.5% in the case of Airbus last year – and negative yields, as low as –0.78% for Safran in January. Since September 2015, there has been a rush of non-dilutive cash-settled convertible bonds – which quickly became known as synthetics – where exclusively investment-grade companies issue convertible bonds to the market as normal but then purchase cash-settled call options matching those embedded in the CBs to remove the threat of dilution. “Investment-grade has opened up over the last 12 months in both dilutive and non-dilutive form,” said Bruno Magnouat, head of equity-linked origination at Societe Generale, the lead bank on Airbus. “The terms achieved by Airbus were the trigger for a run of deals in dilutive format with big premiums. Some issuers are not interested in dilution, but the synthetic product brought them to equity-linked.” Slow start German healthcare company Fresenius pioneered the synthetic CB – once Credit Suisse came up with the idea – through a €500m five-year issue that priced with a zero coupon. The company had recently issued equity for an acquisition, so dismissed a traditional convertible. A call spread overlay could have boosted the conversion price to extremely high levels but dilution would still have been a possibility. Fresenius instead opted to repurchase the calls, making the issue 100% debt and an alternative to a high-yield bond. A particular strength of the structure is that investors are broadly insulated from it, with a multi-day VWAP-based reference price the main difference from a vanilla CB. This was shown in Fresenius achieving a bumper book of 300 lines. The deal was such a success that, six months later, subsidiary Fresenius Medical Care followed its parent’s example with a €400m synthetic con

Primary Debt Market Conclave On the occasion of the International Capital Market Association’s Annual General Meeting and Conference in Dublin in May 2016, IFR convened members of ICMA’s Primary Market Practices Committee to discuss some of the key issues facing the debt syndicate and capital markets communities in the midst of regulatory upheaval and amid a volatile and extraordinary set of market circumstances. We dubbed the event IFR’s Primary Debt Market Conclave, to convey its flavour as a closed-session thought-leadership event. Martin Egan, committee chairman (and global head of primary markets and origination at BNP Paribas) attended, along with Hugh Carter, head of credit syndicate at Commerzbank; Patrick Wuytens, head of high-grade syndicate at ING; Nick Dent, head of EMEA and AEJ syndicate at Nomura; Sean Taor, head of European DCM at RBC Capital Markets; and Spencer Maclean, head of Europe and Americas capital markets at Standard Chartered Bank. It was a highly experienced group of individuals that has seen the market through many cycles over many years. Between the end of the ICMA board meeting at the Dublin convention centre on May 18 and ICMA’s opening reception at the Irish Museum of Modern Art at the Royal Hospital Kilmainham, we had a lively discussion that took in a number of key themes. Beyond the key role ICMA’s primary market practices committee plays in setting robust standards and high standards of conduct, injecting cross-market and cross-regional transparency, consistency and accountability into new issue execution and connecting different elements of the ecosystem, our discussion took in the role of syndicate in today’s marketplace (including dealing with the vexed subjects of new issue allocations and order inflation); secondary liquidity; and electronification, including the extent to which elements of the syndication process could be digitised as technology solutions in investment banking become increasingly ubiquitous. Investment banks may be paid by issuers, but to make primary transactions work syndicate needs to work hand-in-hand with investors to make sure transactions are concluded on terms that work for both sides of the equation. Successful syndication – which has long since ceased to be a function of principal hard underwriting by bookrunners – derives today from a process of information-gathering, transparency, timely information-sharing and efficient dissemination of order book information. There was a sense among the speakers that transparency and information-sharing are a little too weighted to the issuer community and that the buyside needs to play catch-up and improve transparency around elements such as true demand and price sensitivity. Our panel strongly believes that syndication continues to be an art rather than a science and not always as easy as it looks. That may well sound like a cliché but that doesn’t make it less true. It’s also undeniable that while secondary markets are in effect broken as liquid transfer channels, that hasn’t prevented the primary market from being open and efficient. The discussion touched on the issue of technology. As an issue of art rather than science, syndication continues to be a matter for judgement rather than algorithms. Even so, the syndicate community is embracing solutions that can help make the process more efficient. Fully digital solutions, however, will probably remain beyond the capability of IT, on the basis that syndicate is ultimately about making sure the right people get the right bonds and that it reflects the requirements of the issuer. By the same token, there’s less than overwhelming support for corporate bond standardisation, particularly away from the world’s programmatic mega-borrowers.   On ICMA’s primary market practices committee Martin Egan “Regulation is truly changing today’s marketplace. The value of us coming together as the ICMA Primary Market Practices Committee is to help shape the market we work in. Regulators

The rankings reflect the activity of borrowers at the parent level. In some cases, where the overwhelming majority of the borrowing was conducted by an entity that was not the parent, the name of the relevant subsidiary has been used. Borrowing by private equity companies has not been rolled up to the parent level, but where possible, has been attributed to the portfolio company. For structured finance deals using separate special purpose vehicles, credit is attributed to the relevant parent group of the originator of the underlying assets. An exception to the rule of rolling up to the parent level has been made for sovereign borrowers: agency, regional authority and state-owned corporate borrowing has generally been shown separately, regardless of the degree of government liability for the debt involved. Sovereign borrowings include only syndicated capital markets transactions, not borrowing through auctions of treasuries or other similar methods. Transactions involving financial or corporate borrowers in which the debt is explicitly guaranteed by a government will be classified as agency debt. Issues that do not have an explicit government guarantee will not be credited as agency debt, irrespective of the stake owned by the state. Loans bookrunner league tables do not include club transactions, but the corresponding borrower tables do. For any data queries, please contact Ian Willmott (bonds) on +44 (0) 207 542 4376 or Ewelina Jarecka (loans) on 44 (0) 207 542 2246. To see the digital version of this special report, please click here To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

Dell wowed the market with a blockbuster debt financing for its US$67bn acquisition of data storage company EMC this year – but its success was never a sure thing and some doubted the banks could pull it off just weeks before it cleared. “It’s a big event for the Street,” one banker told IFR when the US$49.5bn debt commitment was signed in October 2015. “The fact that banks have shown up for Dell shows that they have balance sheet.” Indeed, the prior weeks had been rocky in the capital markets and by the time Dell launched the first bit of the financing – a US$10bn pro rata loan – four months later, markets were feeling a whole lot worse. Market volatility fanned fears about whether a company rated junk could win over investors with such a large and complex debt package that included loans, secured investment-grade bonds and a high-yield offering. The long-term prospects for both the personal computer and data storage businesses were a concern of the buyside. The early stages of the financing were tough. A commitment deadline on the US$10bn loan was pushed back in February due to a slow order book in turbulent markets. More strife in the high-yield market in March as computer storage company Western Digital hit roadblocks on its junk bond offering in March also unnerved the underwriters: Credit Suisse, JP Morgan, Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs and RBC Capital Markets. Western had to price its Double B bonds 500bp more than similarly rated debt, encountering difficulties even though the high-yield market had been on the rebound – and Dell’s financing was on a much vaster scale. But come May, things were looking a bit brighter and the linchpin to the whole financing – a blockbuster US$20bn investment-grade bond – meant bankers could breathe a sigh of relief. The trade was structured to please – and please it did, amassing more than US$88bn of investor orders. It was also upsized from US$16bn – taking significant risk off the table for Dell and its banks. The offering was secured by various forms of collateral: equity interest in Dell and its subsidiaries, property and inter-company notes, among other things. That allowed the company to lock in investment-grade ratings, keep down funding costs and strengthen the appeal of what ended up as the fourth largest US dollar corporate bond ever printed. Final pricing levels were about 50bp–75bp tighter than IPTs. Bankers said the deal lengthened Dell’s maturity profile at an overall financing cost they put at just 5.50%, and with access to the high-grade market, Dell should find it easier to manage its more than US$50bn debt stack in the years ahead. “There’s no other place a company can get 30-year debt than in the investment-grade market,” one banker close to the deal said. “Not in the loan market or high-yield.” Faith in veterans The success of that deal paved the way for the investment-grade term loan and junk bond sale. The upsized high-grade bond lowered the size of the term loan, and after asset sales, Dell also had to raise less debt overall – just over US$41bn. Banks launched the US$5bn term loan – the biggest in seven months – just days after the high-grade issue. As deal-starved investors clamoured for a piece of the debt, the banks were able to cut pricing to 325bp over Libor from 350bp–375bp and tightened the discount to 99.50 from 99. The junk bond followed soon after – and if Dell had been hoping goodwill would help win over investors, its bet paid off. Since its management buyout in 2013, the company had delivered on its promise to cut down debt – giving investors more faith that the company well achieve its new goal of getting back to investment-grade in the next 12–18 months. “Dell has built goodwill with significant debt reductions,” said one portfolio manager. “It is a veteran issuer in the leveraged finance markets that has demonstrated an ability to evolve as the business environment for its products changes.” Dell s

Italy, the eurozone’s most indebted nation other than Greece, has taken to using syndication to good effect to term out its high levels of debt. A succession of crises in 2011 and 2012 meant peripheral eurozone nations all saw their debt levels jump in a short period of time. Italy’s debt-to-GDP ratio went from 115.4% in 2010 to 132.7% in 2015, behind only Greece (176.9%) in the single currency bloc. Against this backdrop, its recent funding highlight was without question the €9bn 30-year bond printed in February this year, described by one banker as the “biggest duration event in European bond markets history”. It was the largest syndicated deal at the tenor from any eurozone sovereign in at least five years, the size made possible by a mammoth book of €25.6bn. “We’ve seen Spain get this sort of demand in the past, but not for a 30-year. To get €20bn-plus orders for a 30-year is super-impressive,” said one SSA syndicate banker. Another said timing was the key. “Italy was the first one to come out with a long bond in a market that had just turned in favour of duration, so the timing was impeccable.” An uncertain backdrop at the start of the year meant investors were wary of buying long-dated bonds. However, that sentiment changed, with ECB president Draghi hinting at further policy easing as soon as March. Bankers praised the transaction’s execution, saying Italy was right to start at a cautious level before tightening in the face of the demand “You don’t jeopardise a 30-year bond for a couple of basis points here and there. It can be a very complicated tenor; you just have to come at a price where there’s no discussion,” said a banker at the time. If the promise of central bank stimulus helped on the 30-year, the reality of monetary policy easing aided Italy’s next trade. With the ink barely dry on a rescue package for its banking sector, in April it brought a 20-year benchmark to similar effect, printing a €6.5bn September 2036 on a €17bn-plus book. The storming result confirmed expectations that a strong bid for duration would trump concerns around its struggling banking sector, although it also came in a month when there were record levels of redemptions and the ECB increased asset purchases by €20bn a month to €80bn. “It feels like January at the moment; it’s a perfect storm of factors making for an extremely conducive environment,” one SSA syndicate official told IFR at the time. “I think people are right to be concerned that tighter spreads and political events such as Brexit and Spanish elections could disrupt the market in the months to come. This really is the window to take,” he said. Mixed linkers  Italy enjoyed more mixed success in the index-linked sector. In October last year, it timed a 15-year to perfection, hitting a market that went soft soon after when growth and inflation expectations dipped. It was able to print €3.5bn on demand that took bankers by surprise, with the issue more than two and half times subscribed and real money accounts returning in force to this part of the market. “We went into it thinking it should work fine and a solid €3bn should be on the cards – we were really surprised by the strength of the demand and were able to print an extremely strong €3.5bn deal,” said a lead banker. “The whole thing seemed to come together effortlessly.” In May this year, however, it raised eyebrows by bringing a syndicated inflation-linked bond to market at time when expectations for growth and inflation in the eurozone were still ebbing. It printed a €3bn 0.10% May 2022 bond, surprising many by going for a short-dated linker at a time when most were expecting a long-dated conventional deal. “I find it a bit unusual both in the choice of maturity and the choice of a linker. Many people are at the moment scratching their heads wondering if yields will ever rise again,” said a SSA syndicate official away from the deal. “If you are an investor, would you buy a five or six-year linker or buy something in the

Charter Communications’ first attempt to take over Time Warner Cable through a hostile bid in early 2014 was thwarted by a takeover offer from rival Comcast – the top player in the industry. Regulatory concerns ultimately forced Comcast to walk away from the deal, paving the way for a second shot from Charter, which, in May of 2015, finally reached an agreement to take over TWC for US$78.7bn, including debt and smaller competitor Bright House Networks for US$10.4bn. Financed with a mix of cash and stock, that merger came with a much more expensive price tag than Charter’s first offer, forcing the company to shop around for north of US$30bn of financing. Knowing that market conditions might be volatile, junk-rated Charter bought itself some flexibility by obtaining commitments from banks for over 18 months as it waited for the right opportunity to access the market with a mix of bonds and loans. “They were able to put themselves in a position where they were never a forced issuer,” said one banker who has worked with the company. “It was an unusually long commitment.” The linchpin of the bond and loan package was a US$15.5bn investment-grade bond offering the company completed in July, shortly before a spike in volatility caused credit spreads to start widening sharply. The six-part offering, which included maturities ranging from five to 40 years, was secured against the company’s operating assets, allowing Charter to obtain investment-grade ratings from two of the main agencies. “Charter was very smart in the initial structuring of the deal,” said the banker. “They figured out how much secured leverage they could put on to get the investment-grade rating and gave investors comfort that it was a priority for them to keep that rating.” The buyside gave the deal an overwhelming reception, with US$48.5bn in orders piling in for the Goldman Sachs-led offering, on which Charter ended up paying new issue concessions of between 5bp and 35bp across its curve. With concerns over the Greek debt crisis and the valuation of Chinese equities keeping many issuers at bay at that time, Charter’s ability to clear US$15.5bn through a market it had never tapped before was nothing short of remarkable. More importantly, the deal allowed the company to immediately de-risk a large chunk of the financing, helping build momentum for a US$3.8bn term loan that followed a couple of weeks later via Bank of America Merrill Lynch. Finding the right window to pull the trigger on the unsecured high-yield bond that was also part of the financing, however, proved trickier, as a pick-up in volatility caused credit spreads to back up to their widest in nearly three years by the beginning of October. Taking advantage of a short bounce-back, Charter eventually pulled the trigger on a US$2.5bn junk bond in early November, seizing on what appeared to be one of the last available issuance windows before a potential rake hike from the Federal Reserve, which materialised the following month. As one of the most liked credits in the high-yield space, Charter had no trouble attracting buyers and priced its new 10.25-year unsecured issue, led by Credit Suisse, at a final yield of 5.75%. At the time, Ken Monaghan, head of high-yield at Amundi Smith Breeden, described the financing as a model transaction. “Charter did not overwhelm the appetite of any pocket of capital and didn’t pay a large transaction premium to get the deal across the finish line,” he told IFR. The window for issuance closed only a few weeks later, after a multi-billion financing backing the takeover of data storage firm Veritas from Carlyle – the largest buyout of the year – failed to clear the market and oil prices took another major leg down. Even in the midst of the ensuing sell-off in early February, however, Charter gave the sputtering US junk-bond sector a welcome boost by opportunistically tapping the market with a US$1.7bn eight-year non-call three junk-rated issue that was mostly driven by revers

Indonesia has won its reputation the hard way, after years of brickbats from bankers and investors critical of its heavy-handed approach to issuance, which involved long drawn-out timelines and what became a signature compromising of price tension in the execution process. But a streamlining of the diligence process and a consequent tightening of execution in recent years has seen Indonesia emerge as a standard-bearer for offshore sovereign issuance from the region. Arguably, it has replaced the Philippines as the sine qua non of offshore public sovereign issuance in the region, as its regional peer has focused on bringing domestic bonds where possible and on reining in its offshore debt stock. Indonesia’s recent €3bn seven and 12-year was something of a showcase in this regard, emerging as the largest public offering in the currency from ex-Japan Asia and printing €1bn larger than the original plan on the back of a roughly four-times-subscribed book for both tranches. The Republic demonstrated the opportunistic drive-by approach that had become the Philippines’ trademark, pricing after the release of a US nonfarm payroll number that was sufficiently weak to rule out an imminent rate hike from the Federal Reserve, and into a rallying Treasury and euro government bond market. “Indonesia used to engage in ultra-drawn-out marketing periods for its offshore primary debt, which invariably resulted in damp squib deals and poor secondary market performance. What they showed with this recent deal was that they are able to find the perfect market window and moreover to call upon a deep investor base even in a currency where for quite a few buyers there isn’t deep familiarity with the name,” said a Hong Kong DCM head. The Republic first issued in euros in 2014 with a €1bn seven-year that was almost seven times subscribed – the highest cover ratio in Indonesia’s issuance history – and which represented the first Asian sovereign benchmark euro deal in eight years, since the Philippines priced a €500m 10-year in 2006. Euros despite cost The euro has been a rich source of Asian G3 issuance this year, with the European Central Bank’s ultra-low-rate policy enticing issuers despite a less-than-benign basis swap, against which issuing in US dollars remains the cheaper option. Indeed, Indonesia paid up versus what could have been achieved in dollars, with the recent seven-year coming in at euro swaps plus 260bp and the 12s at plus 325bp, which equated to around dollar swaps plus 100bp on each tranche. “It looks like they paid up, but they may have been making a call on the rupiah/euro foreign exchange rate, which was close to an all-time low when they brought the issuance. Arguably, the rupiah has more ground to make up against the euro than the dollar, where in the latter case rate normalisation is on the horizon, whereas in the eurozone that’s still a long way off,” said the DCM head. “Indonesia’s debut euro deal can best be described as both pragmatic and strategic. Emerging market investors have broadened their mandates and euro assets as a result have a strong bid. The Republic has a natural need for euros, so the relative pricing using the dollar basis is not so relevant,” said Jake Gearhart, head of APAC debt syndication and origination at Deutsche Bank in Singapore. “Their roadshow marketing strategy was smart, delivering the desired results of a high participation rate from the investors they met. In turn, they have nurtured a strategically significant long-term investor base and locked into relatively low euro coupons for the life of the bond.” Meanwhile, Indonesia issued in mid-June a ¥100bn (US$1bn) three and five-year Samurai without the usual credit enhancement it has enjoyed from the Japan Bank for International Cooperation (JBIC), in what represented Indonesia’s first standalone Samurai since 1983. The deal cemented the new reality of a negative interest rate Japanese bond market. Indonesia, which is rated Baa3/BB+/BBB–, found de

A recovery in oil prices, some success in shedding non-core assets and proven access to market funding have all helped improve risk perceptions surrounding beleaguered state-owned entity Petrobras. The company still has a long row to hoe as it struggles to deleverage amid softer crude oil prices and contends with a corruption scandal that has tainted its reputation worldwide and limited its funding options. But investors are seeing some light at the end of the tunnel after a market-friendly administration replaced unpopular President Dilma Rousseff in May. And while acting president Michel Temer has problems of his own as he attends to corruption allegations within his own party, he is expected to give Petrobras freer rein after appointing Pedro Parente as the new CEO. As a former executive at agribusiness giant Bunge’s Brazil unit and chief of staff during the presidency of Fernando Henrique Cardoso, Parente has a wealth of experience in both government and the private sector. And investors hope he is the man to finally mend the company’s finances. “We are seeing the first of multi-step process that is putting the company back on the path to being run like a private entity rather than an extension of the Brazilian government,” Darin Batchman, a portfolio manager at Stone Harbor Investments, told IFR. Part of that process is regaining access to capital market funding, which the company did for the first time in close to a year in May 2016, when it raised a US$6.75bn through dual-tranche offer to fund a tender for short-term debt. The deal marked the first corporate bond sale of the year out of Brazil as Petrobras sought to take advantage of market optimism that a new business-friendly government could pull Latin America’s largest economy out of its worst slump in decades. The company timed the issuance of five and 10-year bonds well, coming just days after Congress agreed to start impeachment proceedings against now-suspended Rousseff. Important step Yet while some US$21bn in demand underscored the changing sentiment toward Brazilian risk and allowed leads to upsize the deal to US$6.75bn from US$3bn, poor secondary performance tainted the trade amid complaints of full allocations on the tightly priced longer dated tranche. The new US$1.75bn 8.75% 2026 sank several points on the break after pricing at 98.374, only to recover by early June to trade at 98.375–98.875. The larger US$5bn 8.375% 2021 has proven to be the clear outperformer after pricing at 99.002. It first slumped to the mid-97s but had jumped up to 102.75–103.25 by June. While some questioned the logic of retiring short-term debt using five-year money that cost over 8%, the deal marked an important step for Petrobras. It assuaged concerns about the fate of Petrobras, now considered the world’s most indebted company, and how it would tackle a wall of short-term maturities as funding sources narrowed in the wake of a widening corruption investigation. “Their choice to take a market-friendly approach in dealing with their near-term maturities is a significant positive, as they could have chosen to be much more aggressive with their creditors,” said Jason Trujillo, a senior analyst at Invesco. With this transaction, the company cut 2017 refinancing needs to US$6.1bn from US$10.8bn in one fell swoop, according to JP Morgan . “We expect continued normalisation of the Petrobras bond curve following the recent debt issuance and tender,” Trujillo said. “From a fundamental basis, while the company still faces many challenges, we think they are moving incrementally in the right direction.” Yet while the liability trade makes a substantial dent in upcoming amortisations, more such exercises are likely. Aside from the remaining US$6.1bn for 2017, the company also faces some US$14bn of maturities in 2018 and another US$20bn or so in 2019. “They are kicking the can down the road,” said Sarah Leshner Carvalho, a director of research at Barclays. “I don’t think any sort of transacti

HSBC historically had little need for wholesale funding in the public debt markets. But facing one of the largest targets in Europe due to new regulatory requirements, the bank stunned investors and rival banks alike as it rapidly priced a series of deals in the first half of 2016, tackling those needs head-on.  As one of the world’s major lenders, HSBC must build up safety buffers of debt to meet a requirement known as Total Loss Absorbing Capacity (TLAC) that aims to lift the burden of future bank failures from taxpayers’ shoulders. It is aiming to raise around US$70bn by 2019 – US$51bn to replace maturing debt and between US$10bn and US$30bn to comply with that standard. That represents a “seismic shift” for a bank that has traditionally issued in limited volumes, said group treasurer Bryan Pascoe. It has also had to switch from issuing out of its operating companies to the holding company to make bonds easier to bail in. “We’re coming from a relatively low starting point in volume terms because, principally, we’ve never needed to rely on wholesale funding to support our balance sheet and growth, given the strength and breadth our deposit base,” he said. “From a purely commercial perspective, we have no need for the additional wholesale TLAC funding.” The bank swiftly overturned fears that those volumes would be too much for the market too absorb, pricing almost US$11bn-equivalent in TLAC-eligible senior debt in euros and US dollars in just one week in March 2016. Another US$8bn followed in May, the largest ever deal issued in dollars by any bank, taking the total past US$18.5bn-equivalent. Demand for the three deals was around US$45bn, according to market sources. HSBC has taken care not to wait indefinitely for perfect market windows, while also being mindful of the impact of expensive wholesale debt on the balance sheet, Pascoe said. “HSBC is pursuing a strategy of just executing deals, regardless of market conditions. It’s admirable – not all banks can do that,” said a rival banker. Building foundations The success of those trades was instrumental not just for HSBC but for the banking sector more broadly, proving the depth of demand for loss-absorbing debt as lenders across Europe start to address their own shortfalls. Orders for the US$7bn three-part trade in March alone drew US$19bn in orders. All three tranches were tightened by 22.5bp–25bp from initial price talk and at final pricing offered just 7bp of new issue concession, a strong result in a week flooded by financial paper. “It’s a good sign for all Yankee FIG borrowers,” Jonny Fine, head of investment-grade syndicate at Goldman Sachs, said at the time. The €3.25bn six and 11-year bonds drew orders over €10bn from 540 accounts, by far the biggest book for any European bank deal in any format for months. The deal was credited with providing a much-needed shot of confidence in Europe, where the market for holdco senior debt had struggled to find its feet. Not all about TLAC HSBC has also demonstrated strong execution in the subordinated market. Its US$2bn 6.875% perpetual non-call five-year Additional Tier 1 bond in May 2016 drew the biggest book for a deal in that format all year after the violent sell-off in February. It priced a €1bn Tier 2 bond just one week later. “We had been monitoring yields closely as we did not want to validate elevated levels, so we bided our time. AT1 at the right price is an important element in our capital strategy, so we were very happy to have successfully taken US$2bn out of the market,” said Pascoe. There was no need to rush into either the AT1 or Tier 2 market in 2016, given the bank’s strong capital position and the fact that it had also issued at regular points in 2015. It issued a well-timed €1bn Tier 2 bond in June 2015, for example – a market that had struggled to lift off since the first quarter and which closed again soon after.   HSBC’s decision to issue capital so close to the UK’s June referendum on EU membership surpr

When brewing giant AB InBev began marketing the mega-bond backing its acquisition of SABMiller in early January 2016, the high-grade market had got off to its rockiest start in years. Stress in the credit market was sky high as worries about China, commodities and other headline risk put the primary market in uncertain mood – even on the heels of a record US$1.269trn of issuance in 2015. Pulling the deal off was not just crucial for AB InBev but also for the hoards of other companies that had to follow in its wake to sell debt to finance M&A. But pull it off the brewer did. The drinks giant behind Stella Artois, Budweiser and Corona sold a US$46bn seven-tranche bond – the second largest corporate deal of all time, just shy of Verizon’s record-breaking US$49bn issue in 2013, and also bigger than the US$40bn many had expected. As investors piled in, AB InBev managed to etch itself into the record books with a US$110bn order book, the largest ever seen on a corporate deal. “It is the perfect name and sector for a volatile market,” one banker said at the time. “Look at the financial crisis: people were drinking more beer than ever before.” Still, pulling off a deal of such magnitude was a mammoth task. The company had a record US$75bn syndicated loan in place, and taking that out with bonds was a priority. Market conditions during the two-day bookbuilding process were not ideal. As the bond launched, the Dow Jones Industrial Average sank 365 points. Yet investors barely blinked an eye, and the issuer still only paid new issue concessions ranging between negative 5bp and plus 20bp after pulling in pricing by 15bp–35bp. As the bonds widened on their first day of trading, the timing of the trade looked even more spectacular – at least from the issuer’s point of view. One debt capital markets banker close to the transaction tipped his hat to private equity firm 3G – run by some of AB InBev’s controlling shareholders – for the timing of the financing, which landed months before the acquisition was due to close and bypassed even rockier conditions weeks later. “They always want to take all the risk off the table and hit the market when they can,” said the DCM banker of 3G. “We told them they could go and they didn’t flinch; they don’t care about the negative carry.” Last orders AB InBev also sold bonds with maturities as long as 20 and 30 years, a brave move given that most other high-grade companies in prior weeks had mostly stuck to defensive tenors of 10 years and under as volatility reared its head. In fact, more than half the debt – some US$28bn – was dated 10 years and longer and all came with interest payments of less than 5%. Not a bad result for a company with more than five times leverage, according to ratings agencies. To be sure, the AB InBev company (A3/A–) had a good track record on its side. Formed in 2008, when Anheuser-Busch merged with InBev, it had stuck to its promise to delever, and in doing so made the new debt-raising that little bit more palatable for investors. And even though its dollar bonds fell victim to market volatility in the days and weeks after their launch – they widened considerably as global financial markets sold off – they had recovered in time for the launch of the company’s record-breaking euro deal in March. The issuer’s €13.25bn outing easily became the biggest bond in euros – ahead of Roche’s €11.25bn deal – and was more than double the size the market had anticipated. And it hit the market just days after the European Central Bank shocked the market with its plans to buy more corporate bonds that prompted a frenzy of new issuance and rally in spreads – once again, perfect timing from AB InBev. That deal also marked a return of demand for long-dated paper. The more than €31bn book was heavily skewed towards the longest dated 12 and 20 years bonds – the latter of which was the first in euros in almost a year. BNP Paribas, Deutsche Bank, ING and Santander were global coordinators on the euro

It remains an international scandal. In September last year, German car manufacturer Volkswagen admitted that it had installed secret software to cheat US diesel emissions tests. When the news broke, the push-back was immediate and the whole industry found itself under the microscope. Over the next two weeks, Volkswagen’s share price crashed from around €170 to €92, its five-year CDS jumped from 74bp to 306bp, it found itself embroiled in court cases across the world and had to book €16.2bn of provisions to cover risks. Downgraded by the ratings agencies – it is now rated A3/BBB+/BBB+ with negative outlook by all three – and effectively shut out of the corporate bond market in the aftermath of the affair, VW turned instead to asset-backed securities for funding. In fact, it has printed a hefty €6bn since September 2015, much of it retained by VW. “Retaining a material proportion of ABS has increased Volkswagen Bank’s on-balance-sheet assets. While the increased use of ABS enables maturity-matched funding, it also increases Volkswagen Bank’s risk-weighted assets, against which more capital has to be held, and subordinates senior unsecured bondholders to a greater degree,” said Bernhard Held, senior analyst at Moody’s in Frankfurt. Even while news about the emissions scandal was still front page news, Volkswagen asked its relationship banks for up to €20bn in emergency short-term loans to shore up its balance sheet. It was a defensive move reminiscent of that used by BP after its Gulf of Mexico oil spill. Since January, however, Volkswagen’s ABS issuance has been slick, targeted and multi-currency. It was out of the door efficiently with several issues, many of which had a distinct Asian flavour. First off the mark was a Rmb3bn (US$460m) Driver China issue, Volkswagen Financial Services’ third Chinese auto ABS, which found distinct favour with both Chinese and international investors. The largest Chinese ABS ended up oversubscribed and with the tightest pricing of any auto ABS in the country. Tranche A has a fixed 3.30% rate, while tranche B is fixed at 5.10%. The portfolio comprises fixed-rate auto loans, with a weighted average life of 0.84 years, extended to 52,093 individuals.  “We are significantly expanding our refinancing volume in renminbi generated by auto ABS,” said Frank Fiedler, CFO of Volkswagen Financial Services. “We will be expanding our refinancing volume via auto ABS in the international arena as planned and will be introducing our familiar ABS programme into further currency areas over the next few years.”  That proved the case. The Chinese deal was swiftly followed by the largest auto ABS transaction ever issued in Japan. The senior tranche of the whopping ¥64bn (US$593.9m) issue priced at a tight 30bp over the base rate. And then, even before the ink was dry, the third deal followed, this time Down Under and off the company’s Driver Australia ABS programme. The AAA rated Class A notes, which have a WAL of 1.76 years, priced at the tight end of the BBSW plus 170bp–175bp range and the deal was upsized to A$500m (US$372m). VW was also confident enough to dip its toes into the unsecured Chinese bond market, selling Rmb2bn of three-year onshore paper at 3.60%. “The fact that we are now also active in the unsecured capital market in China following the establishment of our ABS programme is a consequence of our clearly defined refinancing strategy. It is our intention to refinance ourselves locally and do so with a diversified range of instruments,” said Fiedler. Although the focus has been on ABS funding in APAC, Volkswagen has not ignored the rest of the world. Europe has remained, as always, a mainstay of funding. In January, Volkswagen brought the Driver Espana Three deal to market. Just shy of €1bn, it was the largest Spanish auto ABS transaction for several years. Nor did it price too badly. The senior tranche was placed at 105bp, in the middle of 100bp–110bp guidance. That was pretty much double the spread o

After reaping the benefits of a strong run-up in Argentina assets, investors are taking stock and viewing the South American country more cautiously as the new government starts to hit road blocks in its efforts to fix the economy and garner political support. President Mauricio Macri’s rapid rollback of his predecessor’s statist policies and a historic settlement with holdout investors earlier this year quickly made Argentina the new market darling and one of EM’s top performers. The spread on Argentina’s country component of JP Morgan’s EMBI Global Diversified tightened 149bp between January 21 and April 21, outperforming the 99bp narrowing on the broader index. How much upside is left, however, will depend on whether Macri’s minority government can kick-start the economy before the mid-term elections in 2017 as it seeks to gain legislative support to carry out further reforms. “For the Macri pop to continue you need growth to recover,” Anupam Damani, a portfolio manager at TIAA Global Asset Management told IFR. Hopes of a fast convergence to double B status – in line with Brazil – may take longer than some had initially thought. Indeed, markets arguably got ahead of themselves earlier in the year amid the initial euphoria over the first bold steps taken by Macri’s crack finance team of former Wall Street bankers. The removal of FX controls, the lifting of utility tariffs, the resumption of payments to bondholders and the sovereign’s return to the capital markets after a 15-year hiatus all lifted the spirits of investors earlier in the year. “There was some initial euphoria about buying Argentina, but it was not so much credit momentum but euphoria about the charm offensive from the economic team,” said Siobhan Morden, head of Latin American debt strategy at Nomura. Indeed, much of the heavy lifting lies ahead and the jury is still out on whether the government can carry out its macroeconomic adjustments before political fatigue sets in. High inflation and a tough economic backdrop have already spurred strikes and protests as the populace feels the pinch. Failure to rapidly put the economy back on track could give investors second thoughts about the credit. “We are very conscious of the backtracking on some of the fiscal discipline that was earlier espoused,” said Sean Newman, a senior portfolio manager at Invesco. “We will be looking at the extent of further deterioration.” Investors, including the Argentine money that fled during the Kirchner years, will need some convincing before committing long term to a country that has a long history of defaults and populist governments. Non-Peronist presidents – such as Macri, who only took office in December – have struggled to stay in power very long. “We will have a shallow recession this year but, in order to have a real catalyst to turn growth, you need foreign direct investment and there are no FDI flows that validate strong growth momentum,” Morden said. The government proposed a tax amnesty plan in May as sought to lure back billions of dollars in offshore money. The idea is to use the funds for infrastructure investments, but also to pay pensioners as the government seeks Congress’s support. Supply surge In the meantime, municipal governments and corporates have been rushing to market to take advantage of the rally in the wake of the sovereign’s historic US$16.5bn multi-tranche bond sale in April. Close to US$70bn in orders for the new bond underscored the pent-up appetite for Argentine risk, not to mention investors’ hunger for yield at a time of loose monetary policies across the developed world. At the time, it sold a US$2.75bn three-year at 6.25%, a US$4.5bn five-year at 6.875%, a US$6.5bn 10-year at 7.50% and a US$2.75bn 30-year at 8% with a 7.625% coupon. By early June, yields on those bonds had tightened to 4.41%–4.23% on the 2019s, 5.64%–5.52% on the 2021s, 6.61%–6.53% on the 2026s and 7.12%–7.07% on the 2046s. The City of Buenos Aires, as well as the provinces of Co