Sterling Bond House: NatWest Markets

IFR Awards 2018
5 min read
philip wright

While it has been on something of a journey over the past few years, NatWest Markets never took its eye off the bond ball. It stuck valiantly to the task in hand, especially in its home market. NatWest Markets is IFR’s Sterling Bond House of the Year.

From the very first transaction priced during the IFR awards period – a senior unsecured debut from the Principality Building Society – to the last – a tap and refinancing of Center Parcs’ whole business securitisation – NatWest Markets kept itself busy in the sterling bond arena.

In between, it priced more than 100 other deals for issuers across the borrowing spectrum from around a dozen different jurisdictions.

But volume – and the resulting increased market share – was just one string to the bank’s bow. It was augmented by a more cerebral approach that put NatWest at the forefront of the developments that framed the market in 2018.

Two prime examples were the establishment of Sonia-linked bonds as a solution to the transitioning away from Libor to risk-free rates, and nailing down the optimal structure for insurance companies’ Restricted Tier 1 issuance.

In the case of the former, NatWest was one of the banks that acted for the European Investment Bank on its groundbreaking FRN issue, leveraging its membership of the Bank of England and UK Financial Conduct Authority working groups on Libor transition to Sonia. It subsequently repeated the feat for the World Bank and then segued into the financials world with a covered bond for Santander UK.

In the case of the latter, NatWest helped structure RT1 transactions that espoused equity conversion (Direct Line) and permanent writedown features (Phoenix).

“It’s all about interaction with the market,” said Jonathan Peberdy, head of syndicate. “We like to think we’ve been very diligent and thorough. We see ourselves as a natural leader in the sterling market. Sterling is at the absolute core of what we do.”

While league table dominance was not a primary objective, NatWest’s efforts have led to a natural progression.

The bank achieved a number one position in public sector issuance, for example, increasing its market share during the awards period by 340bp, according to Refinitiv data, to 11.8% from 8.4%.

This momentum was matched or even bettered in other asset classes, its FIG showing increasing to 13.3% from 8.4% and corporates to 8.8% from 8.2%. Overall, it claimed a 10.5% share, up from 8.8%.

“It’s not just one of SSA, FIG or corporates,” said Peberdy. “We’ve shown progress in all of them. We’re not overly reliant on one franchise.”

No bond market was immune from volatility in 2018, and sterling was no exception. Uncertainty surrounding Brexit added further complexity, although NatWest was able to harness a long-standing knowledge of the currency to its advantage.

“We were very clear with clients,” said James Marriott, head of FIG DCM. “It was critical to be nimble. There were good issuing opportunities, but there were also periods of great volatility.”

“For our part, we put a lot of work in,” said Peberdy. “There were non-deal roadshows, lender days, and investor and issuer meetings.”

The result was an enviable deal roster. In the insurance field, for example, aside from RT1, there was also an innovative Tier 2 transaction from Prudential plc that enabled it to effectively pre-capitalise the future M&G Prudential before that company had even been set up, while the banking sector saw Santander issue an inaugural senior non-preferred loss-absorbing deal in the currency.

Both transactions featured NatWest on the top line, as did debut deals from the likes of Leeds Building Society, Clarion Funding, Close Brothers, Just Group and REIT Tritax Big Box that spanned senior unsecured to Tier 3.

Liability management exercises resulting from S&P’s hybrid criteria change brought about tender offers from Telefonica and EDF, and there was also something of a rarity – the first buyback from an agency as Denmark’s KommuneKredit undertook a tender and switch offer.

As ever, arbitrage and diversification played their part, and NatWest was again to the fore with numerous transactions from overseas issuers looking for a strong partner.

It was not plain sailing in any market in 2018, however, especially as the year progressed.

NatWest had no magic wand and found itself in the unenviable position of shelving trades from RCI Banque and TSB Bank, the latter as Brexit headlines wrought havoc, and relaunch one for Southern Housing.

“No one likes to pull a transaction but, equally, if you have to, then it’s best to act quickly,” said Peberdy. “Leadership is not about making the easy decision; it’s about making the right decision.”

NatWest did just that for the main part, and was rewarded with an impressive roster of business in return. And it is in no mind for that to change. “We are ambitious and very much in growth mode,” said Peberdy.

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Sterling Bond House: NatWest Markets