Financing Package: Refinitiv's US$13.5bn loan and bond financing

Nordea proposed moving its headquarters into the eurozone from Sweden in September 2017, seeing the relocation to Finland as placing it on a level playing field with European peers in a more predictable regulatory environment within the banking union. It was the first large lender to relocate its headquarters outside of a merger. “It was a defining moment in our bank’s history,” said Ola Littorin, head of long-term funding at Nordea. The re-domiciliation was completed on October 1 2018, the culmination of a remarkably smooth process in which the need to recalibrate Nordea’s liability stack in advance played a pivotal role. The bank also faced a higher funding target than in 2017, demanding regular trips to the wholesale market. Despite the complexities, Nordea managed to issue around €24.5bn across 13 benchmarks, about 350 taps and private placements, across seven currencies and five products. Over that period it achieved historically tight pricing, reopened dormant markets and pioneered a new asset class for the Nordics. That success was rooted in extensive investor dialogue to communicate clearly the implications of the Finnish move, which also helped Nordea retain its best-in-class investor relations profile. While ratings agencies deemed the move credit-neutral – and the bank remained committed to protecting its Double A ratings – it was “very important to keep our investors really informed”, said Petra Mellor, chief treasury manager and head of bank debt at Nordea. Members of the team conducted more than 500 meetings, an increase on the previous year’s 400, spanning 30 different countries globally. SETTING THE BAR The bank started IFR’s awards period on a high, proving just how low investors were willing to go on November 21 2017 with its no-grow €750m 3.5% perp non-call 2025, the smallest coupon to date achieved for any European Additional Tier 1 transaction in sterling, euros or US dollars. Despite pricing some 125bp through the next lowest euro AT1 coupons, the deal pulled in more than €5bn of orders from over 380 investors and was trading up half a point by the end of that week. As Nordea’s first capital issuance following its decision to relocate, the results bore out investors’ strong continued appetite and confidence in the bank. It came on the tail of an intricate consent solicitation targeting 14 tranches of outstanding capital instruments, effecting technical amendments to those bonds to reflect the move to Finland. The bank was eager for the consent solicitation, which also updated subordination provisions to permit the issuance of senior non-preferred, to complete before its AGM in March. After some debate over the premium, it opted for 20 cents over 15 to strike the right balance with bondholders. In the event it achieved a more than 90% acceptance rate, successfully eliminating documentation uncertainty for investors ahead of the move. The results also served as a springboard for the AT1 transaction, announced just one day later. “It de-risked the AT1 because of the very strong support,” said Littorin: “It was a conscious sequencing of two trades.” WINDOW SHOPPING As in the case of Nordea’s peers, 2018’s torrid investment backdrop forced its funding team to be ever more nimble in its execution strategy. The fact that the Finnish move shortened its available issuance windows for internal reasons made that challenge even steeper. “This year there were days when we stood down and others when we accelerated,” said Mellor. “Windows have opened quickly and shut quickly.” Nordea was also shrewd in the way it interacted with its advisers, tending to mandate deals relatively late in the process. That enabled it to continue bilateral discussions with individual banks for longer, particularly important in a year when views on pricing and execution could vary wildly. The bank

More than two years of toil finally paid off for German drugmaker Bayer in June when it completed a complex multi-stage financing to support its US$66bn acquisition of agrochemicals group Monsanto. The acquisition was vast in its ambition, creating the largest seeds producer and pesticides maker in the world. Such a transformative M&A transaction – the largest outbound acquisition by a German company and the largest all-cash deal ever – required an equally enormous financing effort. Bayer’s skill was in putting in place a flexible funding package and constructively using the months waiting for regulatory approvals to make the back-end funding more manageable. “We were managing the loan package to allow for any uncertainty, including a friendly or hostile trade, a long period of regulatory approval and a change in the White House,” said Lars Moeller, a director in debt capital markets at Credit Suisse, which was lead financial adviser and structuring bank for Bayer alongside Bank of America Merrill Lynch. All this, and the sheer heft of the transaction, meant that bankers had to manage a good deal of risk. For starters, the acquisition facility backing the deal was a mammoth US$56.9bn – the third-largest corporate loan of all time, split into a US$46.9bn bridge loan, a US$4bn three-year loan and US$6bn five-year loan. Although the loan closed in 2016, the underlying acquisition was completed in June 2018, making the loan eligible for the IFR Awards this year. TAKE ME OUT The loan was initially committed to by Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan, and was syndicated to a further 21 banks. The take-out that followed was a master class in refinancing risk. The series of acquisition facility refinancing steps included: €4bn of mandatory convertible bonds, €4.5bn of excess proceeds from selling shares in Covestro, a €3bn private placement, a €6bn rights issue, a US$15bn US dollar bond issue, and a €5bn euro bond offering. “Each individual piece of the financing is notable,” said Frank Heitmann, a managing director covering German clients at Credit Suisse and previously head of equity-linked at the time of the mandatory CB issue. “They are some of the biggest trades of the year across asset classes and the concurrent execution of the rights issue, euro and US dollar bond – as well as the exchange offer – was a unique challenge. But Bayer’s successful de-risking strategy made it a lot easier,” Heitmann said The mandatory issue in November 2016 was the largest ever seen in Europe and the largest equity-linked trade globally since 2003, but only a downpayment on a planned US$19bn of equity issuance. Plastics-making subsidiary Covestro was listed in October 2015, with Bayer retaining a significant shareholding that was sold over subsequent years. The last slice of Covestro was cleared in May 2018, just ahead of the Monsanto purchase closing, ending a series of five block trades and an exchangeable bond issue. Covestro completed a restructured all-primary IPO in October 2015 at €24 per share. The stock had doubled within 12 months and peaked at a close of €95 on January 19 2018 – up 295%. The remarkable performance of the stock enabled Bayer to book €4.5bn of “excess proceeds” across the €7.7bn of accelerated sales. The scale of the financing meant all options were considered from the outset and in April 2018 a €3bn equity investment was secured from Singapore sovereign wealth fund Temasek. The transaction was significant as the rights issue and bond financing would follow regulatory approval and this 3.6% sale came before that confirmation. The company also hadn’t given Temasek any discount. “The Temasek investment came ahead of the acquisition receiving regulatory approval but the at-market placing of €3bn of equity gave the market further confidence, boosting the share price and helping with de-risking the rights issue,” Heitmann said. REVIEW FINISHES Bayer and its banks moved quickly once