Yankee Bond: Bayer’s US$15bn eight-part bond

It was big, bold, complicated – and a blowout deal. Facing regulatory challenges, market volatility, rising rates, and doubtful investors, drugstore chain CVS Health’s US$40bn nine-part jumbo US dollar bond issue to back the acquisition of health insurer Aetna set a record, a precedent for pricing, and was the US high-grade market’s third biggest issue ever. The deal was also seen as a turning point for the M&A market. The order book reached US$120bn at one point, with proceeds earmarked to fund CVS’s US$69bn acquisition. The March 6 deal repositioned a retail company into the healthcare business, offered a new model for healthcare, and pre-funded a deal before regulatory approval, with a unique compensation plan for investors if the takeover went south. Bank of America Merrill Lynch, Barclays, Goldman Sachs and JP Morgan were active bookrunners. “This was the first jumbo deal to be pricing in a choppy market environment, well into a Fed hiking cycle,” said Barbara Mariniello, head of Americas debt capital markets at Barclays. “You had a lot of uncertainty about whether you can get another one of these jumbo deals done.” For starters, investors initially were unhappy with the special mandatory redemption clause, which set a predetermined price that investors would receive if the acquisition failed to complete. Restructuring the clause would not work for CVS, so the banks involved decided to offer investors a discount on some of the tranches, giving them greater compensation. Investors hailed it as a breakthrough, with CVS breaking with tradition of pricing M&A bonds closer to par. Each of the selected tranches would see CVS buy back the bonds at a cash price of 101 under the SMR clause if the Aetna deal failed. Investors claimed the move was a big win for the buyside, and said they expected it to be the mould for companies going forward. “This was a way that we thought elegantly threaded the needle,” said Mariniello. “Investors were happy with it and the company was happy with it as it allowed us to price more efficiently.” In October, the Department of Justice approved the merger. In the end, final order books for the deal, rated Baa1 by Moody’s and BBB by S&P, were a record US$114.6bn. Even with the threat of a trade war and sinking stocks rattling markets, after the sale CVS bonds managed to trade in the secondary tighter than where the offering was priced. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

The strong foundations provided by a cohesive team are key to creating a winning formula. BNP Paribas has championed this view for a number of years and has reaped the rewards of fielding an experienced line-up well able to execute business in any environment. With rates on the rise, quantitative easing drawing to a close and political squabbles creating headwinds, the backdrop in 2018 became increasingly demanding. But this was not something that disadvantaged the French bank. “Previously, it was difficult to differentiate yourself because things were easy,” said Fred Zorzi, global head of primary markets. “But this is the kind of market where we can make a difference.” This sentiment was echoed by Rupert Lewis, head of European bond syndicate. “You have to change your game plan to suit the environment,” he said. ”We can do that better than most because we have experienced people, and that consistency of personnel is mirrored in our market presence. In a way, we’re contrarian when you compare it with the juniorisation that has gone on at some other banks.” While BNPP has historically played a leading role in the corporate sector, ­this relative stability has afforded it the opportunity to continue to grow in other areas such as financials. It particularly shone in the bail-in-able senior market, which arguably became the year’s most important asset class as banks strove to build up their stack of loss-absorbing debt. Nationwide’s complex four-part exercise combining liability management and multi-currency issuance with a “flipper” feature was one example, and BNPP followed up with new entrants Nordea, Danske Bank, Sydbank, AIB and Rabobank. BNPP was also mandated by repeat borrowers, helping La Banque Postale, for example, drag in the trading level of an outstanding seven-year SNP by recommending a 10-year on the basis that tenor trades technically tight. And it pioneered new markets, helping Commerzbank to sell the first German preferred benchmark that offered a crucial reference point for others. But the challenge did not end at merely winning the mandates. Issuance conditions soured significantly over 2018, making a bank’s ability to spot opportune windows imperative. BNPP repeatedly demonstrated its skill in that regard. It executed prescient deals for UBI, Banco BPM, Intesa and Banca IFIS before Italian politics became a major source of volatility, and helped BBVA seize on a short rally following Turkey’s economic crisis to raise euro Additional Tier 1 capital. “We were following flows closely, we were close to accounts and told [BBVA] to be nimble,” said Damian Saunders, FIG syndicate manager. “It would not have been done at that level even one day later.” FLEXING MUSCLES BBVA was just one of BNPP’s wins in the highly competitive AT1 sector, where it led 29% of the 17 eligible transactions (excluding self-led). While overall Tier 2 supply dwindled, it nonetheless achieved some notable outcomes including a DNB 10-year non-call five at swaps plus 77bp – the tightest euro benchmark Tier 2 since 2008. BNPP also helped ING take out size in Tier 2 when the Yankee market was unavailable, making use of its strong Asian franchise to market a Reg S US dollar tranche alongside a euro – a strategy borrowed from the corporate market to maximise price tension and underlining the bank’s integrated approach. “If a tactic works for corporates, we apply it for FIG clients too,” said Zorzi. Insurance remained a strength, but trades such as SCOR’s Restricted Tier 1 – on which BNPP was joint-structuring adviser – demonstrated brains as well as brawn. The note issue was the first RT1 from France, the first in US dollars and the first with a temporary writedown structure. It also placed an unusually large €2bn 31NC11 for AXA while containing the repricing of its curve

In a high-yield market dominated by headline-grabbing LBOs, executing a challenging trade wasn’t enough to stand out from the crowd. Italian pharmaceutical Recordati managed to be noticed, pricing in October the largest LBO out of Italy against a market increasingly spooked by the country’s budget drama. It achieved this despite presenting a highly complicated structure to an increasingly wary investor base. The €650m seven-year non-call one floater and €650m seven-year non-call three fixed-rate notes were sold to fund the purchase of a 51.8% controlling stake by CVC, an unusually low stake for a buyout. The notes, while senior secured, were issued by holding company Rossini, making them reliant on dividends from the operating company. But the structure also included €750m of subordinated notes issued to the Recordati family, outside the reach of creditors, but financed through the operating company, requiring additional flexibility in the documentation. CVC’s limited stake also meant that the bond deal would be followed by a mandatory tender offer for the remaining shares. The sponsor agreed to offer the €28 per share implied by the price paid to the Recordati family, which was significantly lower than the share price at the time of the agreement and in line with CVC’s desire for a limited stake. However, Italian volatility pushed the shares near that mark when the deal was being executed, which meant uncertainty around the company’s future ownership structure and the potential for further debt. Investors also had to grapple with a unique permitted sell-down clause to account for CVC’s limited ownership and facilitate its eventual exit. Another innovation was the holding company floater, given that the buyer base for those notes opts for priority debt. “With this one, the beauty is in the complexity,” said Diarmuid Toomey, head of high-yield capital markets at Deutsche Bank, which led the deal as global coordinator with Credit Suisse and Jefferies. Leads also managed to price such a complicated trade against a backdrop where the spread between Bunds and BTPs widened throughout marketing and reached its widest level since June 2013. The leads were vindicated as, while the Bund-BTP spread did tighten after Recordati’s pricing, the gains were quickly lost as the battle between Rome and Brussels only intensified thereafter. The deal is promising for capital markets ahead. “If we look at where the next stage for the M&A and LBO-related volumes are going to be, sponsors are looking at public-to-privates,” Toomey said. “We’ve essentially created a new product. This deal is being used as a case study by not only CVC but a broad brush of our sponsor clients, who thought that the technology was extremely interesting.” To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

Tightening currency basis swaps, easing geopolitical tensions between the US and North Korea and clarifications on holdings of loss-absorbing bonds provided a trio of tailwinds for the yen bond market in 2018, and Mizuho Securities was ahead of the game on all three fronts. Five-year dollar/yen basis swaps tightened from the –90bp area in early 2017 to around –50bp during IFR’s review period, making the yen market more attractive for foreign borrowers. Japan’s Financial Services Agency in April provided relief to many Japanese regional banks with guidelines that their investments in bail-in bonds from overseas banks would largely escape higher risk weightings. Meanwhile on the Korean peninsula, geopolitical tensions eased after the historic summit between the US and North Korea. Mizuho’s constant engagement with issuers and investors meant it was best-placed to capture the key deals of the year when the tailwinds started to blow. “Since last year and even the year before, we have been proactively making sales pitches to issuers and providing information to investors, and these efforts started to bear fruit,” said Masaya Mizobuchi, head of global debt capital markets at Mizuho. “We have also assisted investor relations work a lot more this year than last year, and this surely helped to bring investor feedback and issuer needs together.” Mizuho surprised other banks by opening the door of the yen market for Southern European issuers. Mizuho, together with Nomura, helped Banco Santander to make its Samurai debut in December 2017, an encouraging signal for the yen market, especially since it sold senior non-preferred bonds rather than old-style senior bonds. Since 2014, Mizuho had been assisting Santander group companies to sell Pro-bonds, including Banco Santander Chile, Santander International, Santander UK and Santander Consumer Finance. Bail-in bonds were flavour of the year in Japan, and nine global banks flocked to the yen market to sell their bail-in-able bonds after the FSA’s clarification, all of which drew enormous demand from regional investors. Mizuho helped bring seven of the nine to market, not just by acting as bookrunner but also by keeping investors updated with regular research reports on how much each global bank needed to raise from bail-in bonds and the legislative progress regarding loss-absorbing securities in each country. In the first trade after the FSA announcement, Mizuho helped Lloyds to sell loss-absorbing securities in a ¥169bn (US$1.5bn) three-part deal that was the biggest yen offering during the IFR review period. The deal attracted increased demand from regional investors and showed what was possible for non-preferred and regulatory offerings. Mizuho’s meticulous preparations on this deal and many others produced a vintage year, as its collection of key mandates helped it stand out from the pack. Among other deals from financial issuers, Mizuho also brought UBS back to the yen market after a 10-year absence, with similar success. In June, Mizuho reintroduced Export-Import Bank of Korea to the yen market, taking advantage of the easing of tensions on the Korean peninsula. Its ¥120bn dual-tranche deal came just a few days after the US-North Korea summit in Singapore. In order for the issuer to return to the Samurai market so swiftly, Mizuho, working with Daiwa, assisted with a non-deal roadshow in February. Kexim saw the total book reach close to ¥250bn, and its deal paved the way for yen issues from other South Korean borrowers, including two more Samurai bonds via Mizuho and other leads. Mizuho also continued the growth of global yen bonds with a ¥55.1bn debut for US real estate and logistics group Prologis in September, and was involved in bringing China Eastern Airlines to the Pro-bond market with a debut ¥50bn credit-enhanced deal in March. To see the digital version of IFR Awards 2018, please click here. To

Booming demand for loss-absorbing senior debt emerged as a key theme in the yen market in 2018, and Lloyds Banking Group was at the forefront of the trend, bringing the first deal to draw the attention of regional bank investors following a clarification of bank capital rules. The UK bank’s triple-tranche offering in May, sold from its holding company to count towards the EU’s definition of total loss-absorbing capacity, kicked off a run of similar deals as other global issuers lined up to tap a new group of Japanese buyers. Lloyds raised an impressive ¥169bn (US$1.54bn), split between ¥131.9bn 0.65% five-year, ¥31.3bn 0.968% 10-year, and ¥5.8bn 1.182% 15-year bonds. The spreads over yen offer-side swaps were 49bp, 65bp and 66bp, respectively. The deal was notable for the increased participation of regional buyers, including several first-time investors in loss-absorbing debt, after Japan’s Financial Services Agency clarified that domestic banks with no overseas branches would largely escape higher risk weightings on investments in loss-absorbing bonds. Limiting the changes to bonds from global systemically important banks meant loss-absorbing senior debt from banks such as Lloyds – which follows the EU’s minimum requirement for own funds and eligible liabilities (MREL) but is not a G-SIB – would be treated the same as preferred senior debt. The impact of the notice was clear. Lloyds had issued holdco bonds in yen in December 2017, but raised a much more modest ¥45.5bn, split between ¥37.8bn six-year and ¥7.7bn 10-year tranches. In the May issue, regional banks and shinkin banks more than doubled their allocations to ¥8.1bn and ¥28bn, from ¥3.6bn and ¥10.6bn, respectively. Lloyds’ success was no accident. The bank makes a point of visiting Japan twice a year to meet investors and broaden its name recognition, and held roadshows in early May in Tokyo, Osaka and in two other regions. Pricing also helped, as the bank chose to prioritise size rather than the tightest possible price, according to bankers on the deal. Still, pricing was competitive compared with its funding options in US dollars and euros. The five-year came flat to or inside its funding options in the two currencies, while the 10-year was at least 5bp inside its new issue levels in dollars and euros. Life insurers also participated, enabling Lloyds to issue a 15-year tranche – its longest in the Samurai market since 2010. Mitsubishi UFJ Morgan Stanley, Mizuho, Nomura and SMBC Nikko led the deal. The transaction had been closely watched as a litmus test of appetite for loss-absorbing senior deals following the FSA guidelines, and its success encouraged several other foreign banks to follow suit with TLAC-style deals of their own. Credit Agricole, BPCE, BNP Paribas, HSBC, Barclays, Societe Generale, and UBS all followed during IFR’s review period, the last six all raising more than ¥100bn each. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

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

Tackling the challenges posed by a post-Libor world is no mean feat, but the European Investment Bank took a bold step in 2018 when it priced the first ever bond linked to the newly reformed sterling overnight index average (Sonia). The £1bn five-year FRN set the blueprint for further issuance in the market, which went on to grow to £6.3bn in just over four months, spurring not just other public-sector issuers such as the World Bank and the Asian Development Bank but also financial sector borrowers. A previous attempt in 2010 to open the market did not go far, as only a few investors could settle Sonia-linked bonds. However, this time around, the stakes were higher. Libor, used to price US$350trn of financial contracts, will be phased out completely by the end of 2021, after being undermined by a rigging scandal. There is therefore very little time left for the market to make the transition to the new reference rate, which is set to become the new benchmark not only for bonds, but also loans and derivatives markets. Unlike Libor, which is determined by bank quotes, Sonia is based on actual transactions and therefore harder to manipulate. The supranational left little to chance and started work on the project in April 2017. The Bank of England is Sonia’s administrator and has offered its support for all initiatives to step away from Libor, including the EIB’s bond. Before going live with the deal, the issuer had to amend the documentation multiple times and adjust the index calculations. It also engaged with the Bank of England, the Financial Conduct Authority, working groups and investors on the topic. Finally, NatWest Markets and TD Securities (structuring advisors) together with the other joint leads, HSBC and RBC, conducted a dummy £2m new issue run to make sure everything worked.* This was followed by a week-long marketing period, starting with the deal announcement on Monday and culminating with pricing on Friday, giving the market enough time to put the final touches to the preparations. The supranational printed the £1bn June 2023 at 35bp over Sonia, in line with initial pricing thoughts, and offering a 3bp premium over EIB’s Libor curve. EIB’s effort paid off handsomely: final books for the trade were in excess of £1.55bn, with 51 investors onboard. Since then, more and more buyers have joined the fray, increasing the investor base to more than 120. The increased familiarity with the product also means marketing time has gone down, reducing execution risk considerably and putting the market in good stead for 2019. *Clarifies banks’ roles To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

For many years it had been the poor second in the Swiss franc bond market, but UBS has finally caught up with its larger rival, at times even beating it in the league tables over the course of 2018, despite a reduced syndicate function. In the end, Credit Suisse sneaked ahead in the league table but UBS had the more impressive story. A decade ago, UBS had only half of Credit Suisse’s market share, but a strong vision and long-term plan from Manuel Gadient, head of debt capital markets and syndicate for Switzerland, turned the firm around. Gadient, a long-time vocal advocate for the Swiss bond market, said that UBS’s success was based on three pillars: identifying market-driving trends early, developing trade ideas based on lead demand, and supplementing conviction trades with hard underwrites. Identifying trends focused on capturing any open arbitrage windows to cater for international issuers, especially those from emerging markets, and financials. It also involved catering to increasing investor demand for shorter duration, as volatility was high. Finally, and arguably most importantly, UBS spearheaded the return of national champions as investors were pointed to household names. Armin Peter, UBS’s global head of bond syndicate, said he was “very pleased with the Swiss team, especially in their role as global ambassadors for the Swiss franc”. UBS works arguably more collaboratively than Credit Suisse, with the syndicate team using the global DCM group to source paper rather than having a separate DCM team in Zurich. Aside from Gadient on DCM, the syndicate team, led by Andreas Tocchio, has only two members, Florian Hessel and Max Weis, having lost Dominic Wirtensohn earlier in 2018. From the first EM deal of the year – a SFr175m five-year from Abu Dhabi Commercial Bank, sole led by UBS – through a slew of South Korean issues, including the first commercial bank name from the country with KEB Hana Bank in mid-August, UBS has been at the forefront of emerging markets issuance in the franc in 2018. UBS also brought new names to the market, as sole lead for Banorte and Korea Water Resources, as well as a deal for rare issuer Korea Gas, not seen in the franc since 2010. Firm favourites were also well represented, with UBS on Gazprom’s largest emerging markets deal ever in the franc at SFr750m, as well as Pemex’s SFr365m issuance in May. In total, UBS took a stunning 47.1% share of emerging markets’ issuance in the market. Financial issuance provided a steady stream of revenue and headlines for UBS, which took a leading role on Canadian bank deals, both senior and covered, from BMO, CIBC and RBC. It also sole-led a Credit Agricole Home Loan SFH French covered, and was involved in the reopening of the UK sector with Barclays and Lloyds. Domestically, UBS was a joint lead on the Swiss Life dual-tranche insurance hybrid in March, and on Zurich Insurance’s senior offering in October. Corporate issuance was a mainstay again, with UBS as sole lead on several of the most interesting deals of the year, including Transurban Queensland and domestic Sika’s SFr550m triple-trancher. It was also very visible on several high-yield deals, including Aevis Victoria, Zur Rose and Hochdorf Holding’s hybrid. And UBS was a lead on IFR’s Swiss Franc Bond of the Year, the Nestle SFr1.5bn dual tranche, which beautifully exemplified the firm’s focus on big deals from national champions. Others of a similar ilk included Roche’s SFr900m dual-tranche offering and deals from Schindler, Swisscom and Givaudan. UBS even managed to slip in a last-minute surprise in mid-November, braving shaky markets to price Panalpina World Transport Holding’s SFr150m 1% four-year, the company’s debut issue and the first Triple B corporate in almost a month. It went well enough that it sparked a small flurry of announcements from similar names, including LafargeHolcim’s hybrid, also joint led by UBS. Last, but certainly not least, UBS remained the number one Swiss franc bond trad

Nestle made a rare appearance in its domestic market, selling a SFr1.5bn dual-tranche six and 10-year bond that exemplified one of the major themes running through the year. Where 2017 had been a year of new corporate names coming with smaller and frequently lower-rated or unrated deals, 2018 saw a resurgence of “national champions” – household names bringing big, flashy trades. Nestle printed one of the biggest and flashiest deals ever in the Swiss franc market in early June, after several weeks of monitoring the market. With an investor list reading like a ”Who’s Who” of the Swiss market, the deal was launched before lunchtime as a SFr900m six-year at swaps plus 9bp and a SFr600m 10-year at plus 14bp, both upsized to nearly double the initial indicated size and 9bp inside the wide ends of initial guidance. While it is unusual to see that degree of tightening during the marketing of a Swiss franc bond, the leads defended their decision to do so, asserting that the wider starting levels grabbed the attention of the market, giving them the traction to tighten. The book closed just shy of SFr1.8bn, with the shorter bonds clocking up around SFr1.05bn of orders, while the longer tranche saw some SFr750m of interest. Final new issue premiums were 4bp and 7bp versus its (longer, less liquid and out of the US entity) Swiss franc curve. Against its own euro secondaries, the bonds came nearly flat to the curve, when adjusted for cross-currency basis swaps. Bank treasury accounts were particularly interested in the deal, especially the shorter tranche, of which they took 37.8%, piling into a top-quality corporate name giving 8bp–12bp of pick-up to their usual covered fare. Bonds from Nestle, as it is a domestic Double A rated corporate, qualify as HQLA Level 2. All the other investor types took part as well, with asset managers, insurers, pension funds and private banks all piling in. In total, there were around 125 orders for each tranche. The deal was huge on a relative basis, with the SFr900m six-year being the biggest single tranche in a corporate bond ever in the Swiss market, and the full SFr1.5bn total being the largest dual-tranche corporate in at least five years, according to one lead official. It also ostensibly beat early 2017’s SFr1.5bn Roche deal, which had three tranches, although one was a “near-rates instrument” 18-month note issue. The three powerhouses of the Swiss bond market – Credit Suisse, UBS and ZKB – were joint lead managers. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

Few bonds over the decades can claim a potentially revolutionary impact on capital markets, but the World Bank and Commonwealth Bank of Australia won that right with the world’s first public offering of blockchain bonds. The International Bank for Reconstruction and Development’s A$110m (US$82m) 2.2% two-year Kangaroo may be modest in size and short in tenor, but its implications could be huge if the groundbreaking trade is replicated and improved to establish a new, more efficient template for global bond issuance. Blockchain advocates emphasise the technology’s potential to deliver substantial savings as intermediary activities, including clearing and the use of depositary institutions, are eventually reduced or removed. The Blockchain Operated New Debt Instrument, or Bondi, was issued in August 2018 under the IBRD’s existing global debt issuance facility. It trades on a consortium blockchain platform operated by the World Bank and sole lead manager CBA. In technological terms, the deal looks more likely to become the prototype for the bond market’s Facebook than its MySpace, helping usher in revolutionary new tools that will result in greater transparency and more efficiency. This is the first time globally that a legally binding bond issue has been created, allocated, transferred and managed solely using distributed ledger technology. The World Bank gave two reasons for Australia becoming the venue for its first blockchain issue. The first is that the Australian investment community has shown itself to be receptive to this technology, as underlined by the decision by the country’s stock exchange in December 2017 to replace its equity clearing and settlement system with a distributed ledger system. Second, Australia’s self-contained market and easily identifiable participants make it an ideal observable arena for the inaugural blockchain bonds. A diverse group of investors showed that they were ready to embrace the technology. CBA secured sole-lead manager status thanks to its credible track record in the space, having previously put together an experimental cryptobond for Queensland Treasury Corp in January 2017 using its capital markets blockchain platform. The new bond does not fully embrace blockchain technology, as payments are made via the existing SWIFT system to avoid the 10% Australian goods and services tax on fiat currency-linked tokens. “We are yet to work out the benefits in terms of cost using the blockchain platform for this bond but we have demonstrated the principle that this technology could be used to efficiently settle transactions,” said Paul Snaith, the World Bank’s treasury head of capital markets operations. The Bondi trade ably demonstrated that blockchain works as a sound concept for the bond market and provides a solid foundation for others to take the next steps to bring it into the mainstream. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

It wasn’t clear that the first week of October provided the right window to announce a jumbo M&A deal to fund Comcast’s acquisition of British pay-TV company Sky. There were murmurs of volatility resulting from US/China trade talks, the 10-year Treasury rate was on the rise and election rhetoric was ramping up. Perhaps, Comcast should wait. But Bank of America Merrill Lynch convinced Comcast to push forward as the market was coming off the hottest month of the year – September saw US$137bn in debt deals – and sentiment can change fast. It was a good call, as investors lined up behind the second largest deal of the year, swelling order books to US$87.7bn for the US$27bn transaction. The market immediately soured and never really recovered through to the year-end. The following week, the benchmark 10-year Treasury rate climbed to its highest level in seven years and then the Dow Jones Industrial Average dropped over 830 points on October 10 – the third biggest one-day fall on record – as President Donald Trump lashed out, saying the Federal Reserve has “gone crazy”. “Had we tried to wait and thread the needle through a more perfect market, in hindsight, that would have been a big mistake,” said Andrew Karp, managing director at BAML. In a year of declining issuance, BAML led the league tables in 2018 with nearly US$80bn in corporate funding accumulated for its clients and a 12% market share, in part through the organisation’s ability to navigate choppy markets. That volume includes the three largest trades of the year – CVS, Comcast and Cigna – as well as Yankee issues for the likes of Bacardi, Sands China, Tencent and Vodafone. “2018 demonstrated how deep and liquid the high-grade bond markets are despite that volumes are lighter than they were a year ago,” Karp said. BAML recognised that tech issuance was bound to take a hit in 2018 because US tax reform allowed tech companies to use overseas cash in lieu of issuing new debt. Sure enough, US investment grade corporate tech issuance fell 79% year-on year in 2018 to US$23.15bn, according to IFR data. The bank decided early on to focus on the food and beverage sector as a growth area. It served as active bookrunner for General Mills, Keurig Dr Pepper, Constellation Brands and Nestle. BAML even helped Conagra Brands issue a seven-part US$7bn bond during mid-October’s hyper-volatile markets, which one syndicate banker coloured by saying: “I’ve never seen en masse so many issuers holding off”. With the exception of the two longest-dated tranches, Conagra bonds have traded tighter or on par with pricing. “Being able to talk with investors about product in a dynamic sector was important and having a holistic view of the space, as opposed to any one individual transaction, was a key component,” Karp said. “Being on so many of those trades helped us get the execution we did.” Despite this view of the sector, BAML dodged a bullet in March when it missed a role as an active bookrunner on Campbell Soup’s US$5.3bn bond to fund the acquisition of Snyder’s-Lance. The deal ended up being one of the most disastrous trades of the year. Campbell was downgraded to one notch above junk following the trade as spreads on its 30-year notes widened more than 100bp from pricing. BAML was also among the bookrunners experimenting with innovative structures. For example, AT&T’s US$3.75bn bond launched in Asian hours to engage a new investor base that did not already own a piece of the telecoms firm’s US$180bn in debt. The offering was upsized and became the largest ever non-bank unsecured floating-rate note trade as investors took advantage of higher Libor levels and rising interest rates. “It’s not obvious that waiting is the right strategy any more,” Karp said of what defined issuance this year. “Sometimes you have to execute a deal in a window that might not be ideal in order to get the best execution.” To see the digital version of IFR Awards 2018, please click here. To purchase printed copies