North America High-Yield Bond House: Barclays

IFR Review of the Year 2016
5 min read
Davide Scigliuzzo

The past year got off to a decidedly rocky start for the high-yield market.

Junk bonds were in the midst of their worst sell-off in four years, and banks were accumulating billions of dollars of unsold debt on their balance sheets.

In the very first week of IFR’s award period last November, a US$5.6bn loan and bond package backing Carlyle Group’s acquisition of software company Veritas collapsed.

The deal left the four main underwriters – Bank of America Merrill Lynch, Morgan Stanley, Jefferies and UBS – holding the bag.

While Barclays was also involved in a small piece of the Veritas financing, the British bank managed to escape many of the other sour financings that weighed down its competitors.

Free from those burdens, Barclays was able to reap the benefits of its long-term strategy this year, aggressively gaining market share against its rivals.

Barclays ended the IFR awards period in fourth place in the US high-yield league tables with an 8.9% market share.

It fared even better in the year to-date period through to November 15, jumping to third place ahead of BAML and not far behind Goldman Sachs and JP Morgan.

That was a remarkable achievement for a lender that has historically had a strong business in financing leveraged buyouts but otherwise spent most of the past few years in the bottom half of the top 10 in high-yield underwriting.

“It is not an outright goal to be number one,” said Peter Toal, head of leveraged finance syndicate at Barclays.

“We think you can lose a lot of money trying to get to number one,” he said. “The most important thing that we do is to run a very high quality, profitable business.”

Timothy Broadbent, a managing director at the bank, underscored the emphasis on taking the long view.

“It goes as much to the deals we do as the deals we don’t do,” he said. “A lot of our competitors blew themselves up on deals that they probably wish they hadn’t gotten into.”

Broadbent said that, while Barclays tries to “get to yes”, the bank would not hesitate to walk away if necessary.

“If it gets to a point where it doesn’t make sense – even if the deal is likely to get done – we will say no.”

When there were opportunities in the past year, however – especially in healthcare, TMT and energy – Barclays certainly seized the moment.

Still in the midst of the market sell-off in early February, Barclays was the sole bookrunner on a US$600m bond offering for Vizient’s acquisition of a portion of MedAssets – the first Triple C rated acquisition-related bond sale of the year.

The deal was part of a complex, three-step financing through which private equity firm Pamplona Capital Management acquired MedAssets and sold part of that business to Vizient, while merging the other part with one of its portfolio companies to create nThrive.

The transaction was well received by investors at a time when other underwriters were having trouble getting committed debt off their books.

And in a tough year for the energy sector that saw a host of independent crude producers pushed into bankruptcy in the first quarter, Barclays led the first debut bond for a junk-rated exploration and production company in more than a year.

The deal, for Extraction Oil & Gas, cleared the market in July and was instrumental in allowing the private-equity owned company to complete a successful IPO – the first by a US E&P company in two years.

Playing to its strengths, Barclays was quick to win more business from Apollo, the most active private equity sponsor of the year, winning roles for the financings of leveraged buyouts for ADT, The Fresh Market, Diamond Resorts and Rackspace.

But over the years the bank has cut its reliance on LBO business – a strategy that has paid off as volumes in that market remained subdued in 2016.

“A number of years ago we were far more dependent on the sponsor community LBO business,” said Toal. “The LBO business will always be critical, but you need do have a balanced mix.”

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North America High-Yield Bond House: Barclays