US Bond House: Goldman Sachs

IFR Review of the Year 2016
5 min read
Natalie Harrison, Davide Scigliuzzo

High wireless act

In a year of political shocks and whipsawing markets, one bank showed particular leadership. For remaining committed to clients through all the ups and downs, reopening markets after periods of stress and developing creative solutions, Goldman Sachs is IFR’s US Bond House of the Year.

Sprint was already burning through plenty of cash in the autumn as it saw another wall of debt maturities appearing on the horizon, including a US$2bn bond coming due in just a couple of months.

The company was keen to cut its reliance on the volatile high-yield market, where it had been the number one issuer of bonds for some time, and needed to reduce its interest expenses and slow its cash burn.

Goldman Sachs stepped forward with a unique solution.

It structured a US$3.5bn bond that effectively mortgaged 14% of the company’s unused wireless spectrum rights, one of Sprint’s most important assets.

Rival bankers wondered if the deal belonged in the structured finance, high-yield or investment-grade league tables, underscoring what Goldman was doing differently.

By using spectrum to back the bonds, it secured an investment-grade rating for the Single B issuer’s deal, broadening its investor base.

“The Sprint deal is emblematic of what our franchise brings to the table,” said Vivek Bantwal, co-head of the Americas credit finance group in Goldman’s investment banking division. “Our competitors would not have been able to do this.”

His group, created at the start of the year when Goldman merged its leveraged and structured finance businesses, has helped the bank look more broadly at capital market solutions, without infighting about which departments get the profit.

The deal amassed a US$32bn order book from investment-grade, high-yield and structured-finance accounts and the five-year amortising trade was priced at 3.375%, less than half the coupon Sprint pays on most of its junk-rated debt.

“The approximate interest saving is in the order of US$100m on a running basis,” said Srujan Linga, a vice-president in Goldman’s investment banking division.

Keeping promises

In leveraged finance, Goldman signed commitments for deals even in turbulent times – such as the Brexit vote in June and Donald Trump’s US election victory in November.

Just days after the UK voted to leave the European Union, Goldman signed a debt commitment for private equity firm Onex’s acquisition of a majority stake in WireCo WorldGroup, a lifeline to restructure the business.

It was a bookrunner on seven of the largest LBO deals in 2016, and lead-left on four of them. In all, Goldman signed about US$10bn of debt commitments for financial sponsors.

Goldman was the most active bank in the US high-yield market around the time of the US election on a variety of deals and by the end of the awards period it was number one in the Thomson Reuters US high-yield bond league table, up from fifth the year before.

“We’ve supported clients in some of the most difficult times of the year,” said Kevin Sterling, head of the US leveraged finance syndicate desk.

The deals were not always easy.

A US$3.9bn cross-border leveraged loan and bond debt package backing Vista Equity Partners’ US$6.5bn buyout of US software giant Solera reflects Goldman’s grit.

The deal was the biggest LBO since the collapse of data storage firm Veritas’s US$5.6bn bond and loan package in November and came just days after yields on Triple C rated bonds had peaked at more than 20%.

After twists and turns, the deal cleared the market at double-digit yields but not in the original shape envisaged. The euro tranche was dropped and the US loan increased, but it was credited with bringing LBOs back from the brink.

“Solera reopened the LBO market,” said Christina Minnis, co-head of the Americas credit finance group. ”It was the litmus test.”

Muscling in

Goldman was also involved in the US$49.5bn acquisition financing of computer giant Dell’s purchase of EMC, one of six banks providing bridge financing for the complex transaction that included a secured investment-grade bond for a junk-rated issuer – a deal some said could not get done.

There were many other highlights, including the US$10.5bn bridge loan for Newell Brands’ acquisition of Jarden and the US$10bn bridge loan for Mylan’s acquisition of Meda, both subsequently taken out in the bond market.

Goldman also helped reopen the market in February with a US$12bn deal for Apple after an unexpected sell-off at the start of the year.

As well as remaining a top player in M&A on the sellside this year, it was bookrunner on a number of the year’s biggest M&A bond deals, finishing in the top five in the Thomson Reuters US investment-grade league table.

“We’ve definitely had a more balanced mix,” said Jonny Fine, head of the Americas investment-grade syndicate desk. “About 60% of business done in the last year has been sellside, but we’ve written large cheques and want to be seen as a leading provider of acquisition finance.”

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US Bond House: Goldman Sachs