To win a relay race, not only does each team member have to give their best but there also needs to be constant communication and cooperation. A momentary lapse of concentration could see the baton dropped and the event lost; one weak link undermines the entire initiative.
BNP Paribas applied these principles to its bond business to produce results that were the envy of many, spanning various asset classes in the process.
“It’s all about cumulative advantage,” said Martin Egan, the bank’s global head of primary markets and origination. “Connectivity is the key, with the intelligence shared among the teams.”
The year was largely characterised by benign funding conditions. Any volatility proved short-lived, and what were flagged ahead of time as potential speed-bumps, such as the French presidential election or modifications to the ECB’s strategy, were negotiated with ease. This threw up problems of their own, however.
“Differentiation was quite difficult, given that execution risk was low,” said Fred Zorzi, global head of bond and loan syndicate.
Despite this, BNPP was able to push to the front of the pack yet again in the corporate market, one of its historically strong sectors, blazing a trail for duration and helping issuers tackle their balance sheets and pushing many of the year’s biggest deals.
BNPP’s wide-ranging client roster saw it playing an active role in the three largest transactions of 2017, highlighting a year of jumbo bonds, comeback deals and major liability transactions.
The bank was a bookrunner as General Electric paved the way for duration by launching the first 20-year corporate bond of 2017. GE’s trade was no small fry either. The issuer doubled its initial size expectations to raise €8bn, marking not just the joint fourth-biggest euro corporate sale of all time, but also the largest trade of the year.
GE’s 20-year tranche also set the tone for a successful run of ultra-long transactions. The bonds demonstrated important liquidity and market depth in duration, and gave confidence to a string of other high-profile candidates to follow into the long end. AT&T, Daimler, Unibail, Nestle and Vodafone were among the names to take advantage of demand for long-dated maturities.
But not all the stories that BNPP had to tell were straightforward. The bank played its part in bringing troubled issuer Volkswagen back to the unsecured bond market after the emissions cheating scandal had shut the door on the automaker since 2015.
VW hit the primary market in size in its comeback trade, and the €8bn deal silenced any concerns about its ability to re-establish its position as a key player in the capital markets.
As well as putting old names back in front of investors, BNPP continued to help corporates bridge the gaps between ratings, borders and currencies. Alongside deals for cross-over issuers such as HeidelbergCement and Beni Stabili, BNPP was in the mix for a slew of transatlantic deals as reverse Yankees came back into vogue.
US corporates, eager to capitalise on the ultra-low yields on offer in Europe and also with an eye on rate hikes in their domestic market, took advantage of an opportune issuance window. Two trademark deals with BNPP on the books were a pair of floaters – a Becton Dickinson €700m two-year and a John Deere €500m five-year. Late in the year, a dual-tranche fixed-rate deal from UPS that included a 15-year piece demonstrated that longer-end demand prevailed.
BNPP brought issuers from 26 different countries to the European markets in 2017, topping the league table even when stripping out French borrowers. But neither did the bank restrict itself to its home currency, playing a key role in the Swiss franc and sterling markets.
One stand-out bond was Roche’s SFr1.5bn offering. With a single-shot, triple-tranche deal, the Swiss pharmaceuticals company issued more in one go than the Swiss franc market usually sees in a week, with the largest single deal in more than four years.
Sterling was also a magnet for activity and gave BNPP the chance to showcase its Green credentials. The bank was sole structuring adviser on the utility sector’s first Green benchmark in the currency when Anglian Water raised £250m through notes due 2025.
Liability management was firmly on the agenda in 2017, with issuers driven by attractive refinancing yields and the tangible prospect of rate increases to secure attractive long-term financing yields, even when they were fully funded.
At the larger end of the issuance scale in sterling, BNPP was a global coordinator as Land Securities combined a successful liability management exercise with a new issue to raise £1bn.
The ongoing low rates environment also opened an opportunities for investors to pick up yield by travelling down the capital structure. BNPP brought innovation there by working with Dutch government-owned TenneT on the first Green hybrid bond and Eurofins on a deal that incorporated tweaks on previous structures so that it can qualify for optimum equity qualification by ratings agencies should the company opt for a credit rating in the next three years.
It was not just a question of offering yield, however. BNPP acted as global coordinator as Danone broke the record for the lowest yield and coupon on such an instrument with a 1.75% print as a lack of alternatives and search for value pushed investors to buy riskier instruments.
It followed this up by combining low-yield and SRI credentials, lead-managing the second Green hybrid, a 1.875% deal from Iberdrola.
NOT JUST ABOUT VOLUME
“It’s not just a question of being number one in terms of volume; it’s about dramatically improving the quality of our business,” Egan said.
This was evident in BNPP’s FIG franchise, where it straddled the asset classes from AT1 to covered bonds with greater elan than previously.
In the former, it broke new ground by introducing debut issuers such as RBI and Jyske Bank, while it was also heavily involved in the Tier 2 sector and at the forefront of MREL issuance for the likes of Nykredit, Belfius, ING, Mizuho, Sumitomo, Lloyds and Santander UK.
TLAC-eligible trades from Japanese banks looking to diversify into Europe provided another arrow in BNPP’s quiver, while early first-hand experience of the senior non-preferred asset class meant it was able to offer valuable insight.
Add to this work for insurance companies and a slew of senior issues, breaking into the SRI market in the process, as well as a more than respectable roster of covered bonds, and the result is an all-round proposition.
SRI credentials were also on view in the SSAR sector, where BNPP was a lead manager on France’s €7bn groundbreaking 20-year benchmark Green OAT, in addition to maintaining a leading role across fundraising for European sovereigns.
It also reaped the rewards of a continued relationship with Greece, playing a role on the country’s return to the capital markets after a three-year hiatus.
When Canadian provinces Quebec and Ontario chose to come back to euros, BNPP was there to aid them, while compatriot CPPIB also mandated it for its debut in the currency.
The usual raft of supranational and agency borrowers formed part of its deal roster, while more esoteric fare saw it bring Indonesia to the European market, building on growing credentials in the emerging markets.
And the key to BNPP’s success? “It’s trying to make a difference for the issuer in a market that’s been open pretty much all year,” said Zorzi.
This was not something all were able to achieve, however.
“People may think it’s been easy,” said Rupert Lewis, head of European bond syndicate. “But if it were that easy, everyone would be doing it, and doing it as well as we hope we do.”
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