Refinitiv lives: carve-out begins life as debt market darling

The overwhelming response to the US$13.5bn buyout loan and bond financing for Refinitiv and the similar US$7.6bn debt financing backing Akzo Nobel’s spin-off of its chemicals business looks set to have far-reaching consequences for the debt markets. A rising tide lifts all ships, and the level of demand revealed by Refinitiv and Akzo is boosting demand for other deals, including the US$5.05bn loan backing Envision Healthcare’s buyout. It is also helping banks to make money on deals that they would otherwise have struggled to sell at profitable levels during tougher markets in the summer. “There’s a collective sigh of relief across the underwriting street that these deals worked brilliantly. It’s really consequential. These were big and risky deals and they’ve gone much better than expected,” a global head of debt said. The rousing results are likely to boost secondary pricing and will intensify pressure on primary pricing and other terms and conditions, after investors won a reprieve in the summer from aggressive transactions amid a surge in supply. The SMi 100, an index that tracks the 100 most widely held loans, stands at 98.73, the highest point since February. About 42% of US loans are now trading above par, according to LPC data. Average US high-yield bonds, meanwhile, have rallied sharply over the past couple of weeks to Treasuries plus 325bp, or just 3bp off post-crisis lows, according to ICE BAML data. “We can see some tightening in the secondary market because there aren’t as many new issues,” a portfolio manager said. The successes could also herald a more aggressive underwriting era as private equity firms squeeze arranging banks harder, which could open the door to another round of opportunistic repricings, refinancings and dividend recapitalisations that allow sponsors to take advantage of weak documentation. “The next stuff behind the scenes is going to be punchy,” the global debt head said. PROS AND CONS While the results are undeniably good for private equity firms, they may not be good for investors who are increasingly nervous about aggressive deals as an economic downturn draws closer at the end of an unusually long economic cycle. With Refinitiv, Akzo and Envision, technical factors – primarily huge demand and a small visible pipeline of deals – overwhelmed any specific credit concerns and fears about aggressive documentation that allow sponsors to extract dividends quickly or make transformative asset sales and acquisitions without investors’ consent. The three jumbo loans, each of which are capital-stretching, represent half of the forward calendar, which is already looking thinner. Worries about future supply encouraged investors to join the big, liquid deals in droves, particularly as new money carve-outs have previously proved to be particularly profitable. “The market is strong and people are worried about the calendar,” a banker said. One large deal that could materialise soon is the financing to fund the buyout of Johnson Controls International’s power solutions business. The unit is on the block and attracting private equity interest. The business makes advanced batteries for cars and could fetch US$12bn and a debt financing of more than US$10bn on the cards. PRIMARY PRICING The trio of jumbo loans have cemented primary pricing in a 350bp-450bp context and set a dollar bond benchmark at around 8%, bankers said, which should allow banks to clear any existing underwritings off their books at a tidy profit. Banks are generally offering 125bp of flex language on first-lien loans and 150bp of flexibility on second-lien loans and bonds to allow for another possible market shift, a US head of leveraged finance said. “A bumpier ride at that price point would have tempered global markets’ enthusiasm; now these deals have fuelled it,” the global debt head said. In the US loan market, demand is pushing into smaller deals such as the financing for Web.com’s buyout by Siris Capital. The company increased the si

Pressure has increased on HSBC’s investment bank after a scathing memo that claims to have been sent by disgruntled senior bankers about its strategy and leadership and the exit of markets chief Thibaut de Roux. “We are entirely fed up and demoralised, and have no confidence at all in the existing leadership,” said the memo, a copy of which was seen by IFR. The seven-page memo was unsigned and IFR does not know the author or authors. It was dated August 25 and sent to chairman Mark Tucker, CEO John Flint and board members. IFR spoke to senior HSBC bankers and former bankers who said they were not the author, but some said many of the criticisms struck a chord. “There’s definitely a lot of truth in it,” one former senior HSBC banker said. Another former banker said that, aside from criticism of some individuals, the memo could stoke questions from shareholders and Tucker and Flint about whether more needs to be done to tackle underperformance. The memo mostly focused on the Global Banking business – which includes M&A advisory and debt and equity underwriting – and its co-head Robin Phillips, but said much of its criticism applied to the Global Markets unit too. Phillips has run Global Banking for the past 12 years. “The division’s leadership has, year-on-year, utterly failed to create a successful strategy which would have even a chance of succeeding,” it said, adding that Phillips and the existing management team “should be immediately shown the door”. HSBC rejected the criticism. “We are proud of our Global Banking business and of what Robin and his senior leadership team have achieved over the past few years,” the bank said. It declined further comment. The memo said there was no effective route to provide upward feedback at the bank. “Hence this memo, which is whistleblowing on incompetence,” it said. Such public criticism of a bank executive from insiders or former staff is unusual – but can be effective. When former Morgan Stanley bankers took out a full-page advert in 2005 criticising CEO Phil Purcell for his reluctance to increase leverage and risk, he resigned soon after. DE ROUX GOES The memo emerged as HSBC lost one of its most senior bankers, de Roux, who has run the markets business since 2014. He has been with HSBC and a French predecessor bank for 28 years. De Roux plans to retire from the industry, according to a memo to staff sent by global banking and markets CEO Samir Assaf. De Roux will be replaced on an interim basis by Thierry Roland, head of GBM in Europe. A permanent successor will be announced following a formal recruitment process, Assaf said. FINANCE NOT M&A HSBC is under new top leadership, after Flint took over as CEO at the end of February, five months after Tucker came in as chairman. Global Banking contributed US$3.8bn of net operating income last year, flat on 2016 and 2015. Global Markets brought in US$6.7bn, also flat from a year before. HSBC ranks 10th in global investment banking fees this year, up from 12th in each of the past six years, according to Thomson Reuters data. It ranked 14th in 2005, the year before Phillips took the helm, and has hovered between 10th and 15th every year since. Critics say it has underperformed for a long time and has been unable to carry its strength in debt and financing and its global footprint across to areas such as ECM and M&A advisory. The bank has long said it plays to its core financing and transaction banking strengths and is not competing to be a bulge-bracket M&A adviser. Its improvement in overall fees is on the back of DCM, where it ranks seventh globally this year, the same as last year, up from 12th in 2005, the Thomson Reuters data show. It has continued to lag outside the top 20 firms for both M&A advisory and ECM. It ranks 38th in M&A this year and was 42nd last year, from 22nd in 2005. The anonymous memo said there had been multiple failings by HSBC and Phillips, who joined HSBC from Citigroup in 2003 and was appointe

Chinese biotech company WuXi AppTec has turned to Hong Kong for a share sale, four months after its Shanghai IPO was cut in size. Based on last Thursday’s closing price in Shanghai, the deal could raise up to US$2bn. WuXi AppTec’s decision to turn to Hong Kong so quickly for funds has raised doubts about whether China’s domestic capital markets can support the rapid growth of “new economy” companies, even after China stepped up efforts this year to attract listings from the sector. WuXi AppTec delisted from the NYSE in 2015 and was the first high-profile new economy company to go public in the A-share market after regulators unveiled reforms targeting technology listings in March. The China Securities Regulatory Commission fast-tracked its listing approval, allowing it to bypass the long queue of listing applications. But it only managed to raise Rmb2.25bn (US$328m) from the Shanghai float, less than half the Rmb5.74bn it had earlier said it needed to fund its projects. The reduced size was mainly due to the regulator’s unwritten valuation cap of 23 times historical earnings, a person close to the deal said at the time. As a result, the Shanghai IPO left billions of renminbi on the table. The stock priced at Rmb21.60, a 64.8% discount to the average valuation of listed peers in the scientific research and technology services industry at the time, and promptly rocketed to over Rmb130 in its first three weeks. WuXi AppTec is now aiming to raise much more from its Hong Kong listing. The company is planning to sell 10%-15% of its enlarged share capital in the Hong Kong listing. Based on its A-share market capitalisation of Rmb91bn last Thursday, the deal could raise US$1.3bn-$2bn; however, A-share listed companies tend to sell shares in Hong Kong at discounts of 30%-50% because of valuation differences in the two markets. Some bankers reckon WuXi AppTec’s example shows that the A-share markets are still not allowing Chinese tech issuers to raise capital effectively. “The valuation cap in the domestic market limits the fundraising size of these IPOs. For funds-hungry tech companies, an offshore IPO may work better,” said a Hong Kong-based banker. CHINA PUSH Other bankers, however, dismissed talk that a far larger overseas listing would derail China’s bid to attract more domestic listings from the technology sector, coming after smartphone maker Xiaomi abandoned plans in June to sell the first China depositary receipts. Domestic bankers believe some tech issuers would still prefer an A-share listing as it offers a higher valuation. “The A-share market generally offers higher valuations for companies. A-share IPOs also generally trade better in the aftermarket than the Hong Kong ones,” said a Beijing-based banker. “The significant jump in WuXi AppTec’s A-share price has paved the way for a sizeable Hong Kong listing.” The company’s shares closed at Rmb87.48 last Thursday, more than four times the IPO price, for a 2019 P/E of about 57. In contrast, tech listings in Hong Kong in the past year have mostly traded below water. Ping An Healthcare and Technology, an online healthcare and medical company, saw its shares trade at HK$44.25 last Wednesday, 19% below its IPO price. WuXi AppTec is a global contract research firm for the pharmaceutical, biotechnology, and medical device industries. It provides an integrated portfolio of services throughout the drug research and development process. The company posted a net profit of Rmb1.3bn in the first half of 2018, up 67% year-on-year. Goldman Sachs, Huatai Financial and Morgan Stanley are joint sponsors for the Hong Kong float. Proceeds will be used for pharmaceutical and biotech projects, mergers and acquisitions, loan repayment and working capital.

UK mortgage lender Together managed to accelerate its refinancing deal despite fears about the future of the UK property market - although it came against a backdrop of a sterling high-yield market that has embraced risk in September. Investor meetings for the £350m five-year non-call two senior payment-in-kind toggle notes were cut short by a day and pricing of 8.875% cash-pay yield came inside 9%-9.25% price talk. “It’s a good outcome for something that’s essentially a dividend recapitalisation with a refinancing element,” said a banker away from the deal. Together’s bond transaction was part of an any-and-all tender offer taking out its outstanding £220m 10.50% 2021 PIK notes. Of the proceeds, £100m will repay vendor notes to Together’s shareholders, while another £17.5m will be a dividend payment. Together is one of three trades that brought the sterling high-yield market back to life in September, following a four-month hiatus. The deals, which priced in the space of two weeks, equate to 28% of the year’s sterling high-yield volumes, according to IFR data. Together was joined by British transmission provider Arqiva, which priced a £600m five-year non-call two senior secured offering at 6.25% on September 14, while EI Group, the country’s largest pub operator, priced a £150m 5.5-year non-call two note at 7.50% three days earlier. As with Together’s PIK toggle, those two other bonds are also subordinated in the companies’ capital structures, with Arqiva’s bond subordinated to a whole business securitisation group, while EI Group’s notes are not secured on property. “It’s a demonstration that there is some money that’s willing to reach for more risk for more return in this market,” the banker added. HOUSING MARKET WOES Together’s deal overcame concerns around the state of the UK property market in the event of a no-deal Brexit, which has flared up in recent days. “Do you want to be in a business providing non-performing mortgages when Mark Carney says house prices can fall?” a fund manager asked early in the bond’s marketing. The day before Together’s deal was announced, the Bank of England Governor told ministers that the UK’s property market would crash and mortgage rates would spiral higher in the event of a no-deal Brexit, predicting that house prices would fall 35% over the next three years. Together is a mortgage lender that focuses on borrowers under-served by High Street banks, providing auction finance and bridging finance for time-sensitive buyers, as well as first charge and second charge loans. This means it would be more sensitive to a downturn in the property market. Together itself cited a deterioration in the UK economic environment and the impact of Brexit as the top two risks facing its business in the notes’ prospectus. While the company managed to price inside the 10.50% coupon on the PIK being refinanced, only retailer Matalan has paid a higher coupon in the European high-yield market this year - 9.50% for its £130m second-lien offering in January, which is rated Caa2/CCC. Together’s offering is rated B+/B (S&P/Fitch), while the issuer is rated BB-/BB. The only other public PIK toggle in the European market this year, a €515m five-year non-call two offering (B+/BB-, S&P/Fitch) from Portuguese internet banking firm WiZink, priced at 6.50% and was bid around 6.69% while Together was being marketed, according to Tradeweb data. The PIK being refinanced was issued in 2016 and helped the company’s founder, Henry Moser, buy out Equistone and Standard Life’s minority stakes in the business. Credit Suisse (B&D) and Citigroup were global coordinators, with Barclays and JP Morgan as joint bookrunners. BACK TO LIFE The pick-up in sterling market activity led some to question whether issuers are becoming worried about the repercussions of an unfavourable Brexit. Arqiva, for example, refinanced a £600m 9.50% 2020 note, paying a call premium of 104.75 rather than waiting for the premium step-down in March 2

The brakes are well and truly off in European ECM, with Knorr-Bremse launching one of a handful of large IPOs on Monday. Knorr-Bremse, which makes brakes and safety systems for rail and commercial vehicles, began pre-marketing for a €3bn-€4bn Frankfurt IPO, with Spanish oil company Cepsa launching a €2bn-plus Madrid float and Swiss packaging business SIG Combibloc beginning roadshows for an up to US$1.66bn listing the same day. Knorr-Bremse said it was the global market leader in air disc brakes for original equipment trucks and buses in 2017, with a market share of 52%. It also estimates a global market share of approximately 50% in braking systems for rail vehicles and of 42% in pneumatic braking systems for commercial vehicles in 2017. The IPO is all-secondary, with selling coming from owner Heinz Hermann Thiele, who will maintain a majority stake post-money. Sizing and free-float were not outlined, but bankers involved said the deal would likely total in the region of €3bn-€4bn for about 30% of the company. The key peers are Wabco and Wabtec, which trade at an EV/Ebitda for 2019 of 10 and 13.5, respectively. In the fiscal year 2017, Knorr-Bremse reported consolidated revenues of €6.15bn, Ebitda of €1.11bn (a margin of 18.1%) and Ebit of €904m (a margin of 14.7%). In the first half of 2018, revenues totalled €3.32bn, up 11.6% from the six months to June 30 2017. Ebitda rose to €582.2m, up 12.4% for a margin of 17.5%, 10bp higher than during the same period a year earlier. Ebit was €472.3m, up from €423.1m in the first six months of 2017. Knorr-Bremse is targeting a medium-term organic CAGR of 4.5%-5.5%. A two-plus-two schedule is anticipated, with bookbuilding starting around October 1 and wrapping up around October 12. Deutsche Bank, JP Morgan and Morgan Stanley are joint global coordinators and joint bookrunners on Knorr-Bremse with Berenberg, Commerzbank, UBS and UniCredit/Kepler Cheuvreux.

Christian Meissner is leaving Bank of America Merrill Lynch as head of corporate and investment banking and will be replaced by senior Asia banker Matthew Koder. Meissner has run CIB since July 2010 and will step down at the end of the year, according to a staff memo from chief operating officer Tom Montag. Koder is president of BAML in Asia-Pacific. He will relocate to New York for the new role, the memo said. Meissner was previously co-CEO of Lehman Brothers in Europe for four years until its collapse, and before that a partner at Goldman Sachs. Montag’s memo said it was Meissner’s decision to leave. “Christian joined the bank in 2010 during a tumultuous period in the markets. His drive and determination during that period and since then have been critical to the development of our business,” Montag said. Koder joined BAML in 2011 as head of Asia-Pacific corporate and investment banking and became APAC president a year later. He was a high profile and expensive hire from UBS, where he oversaw ECM, and was tasked with shaking up BAML in the region, where it was underperforming and lacking a clear strategy. Observers suggest he has done that in part by simplifying an overly complicated structure. “He’s done a fantastic job. It’s been an almost US$1bn turnaround in pre-tax earnings in the region. It was loss-making and now it’s making money,” said one insider. Koder, a fast-talking Australian who started out at Goldman Sachs in the mid-1990s, has held senior roles in Hong Kong, Sydney, London and New York during his career. The insider said Koder was quick to identify the need for a change in values when he joined BAML. In his first year he personally spoke to nearly every BAML employee in the region in a series of 90-minute presentations of 40 people at a time. “He’s the real deal; an impressive guy,” the insider said. The memo said Koder’s successor in APAC will be announced shortly. Observers suggest the bench of possible successors in Asia is not especially strong, and expect his replacement to come from elsewhere in the company. SLIPPING Meissner’s relationship with BAML bosses deteriorated from recriminations after the bank suffered a US$292m loss from margin loans to South African retailer Steinhoff and its former chairman Christo Wiese, sources have previously told IFR. In the intense finger-pointing exercise that followed, Meissner took a significant share of the blame. Other major banks took a hit from Steinhoff in the fourth quarter of 2017 too, but BAML’s was one of the biggest. Tensions have also increased as BAML has slipped down the investment banking fee rankings. It ranks fourth for fees so far this year, from third for the previous three years and second each year from 2009 to 2014, according to Thomson Reuters data (see chart). It ranks seventh this year for M&A advisory fees, after hovering between third and seventh each year for the past decade. The bank’s relative performance in US M&A, where it has missed out on some significant deals, has been particularly notable. Chief executive Brian Moynihan weighed on the art of missing deals after the second quarter. “We know we can do a better job. The team’s working on it … they’re after it,” he told analysts on the Q2 results call. “Sometimes you get the right side of the deal. Sometimes you get the wrong side of a deal. Sometimes you’re not in a deal.” The bank barely shows up in the top 10 transactions this year, missing out on deals such as Shire/Takeda, Express Scripts/Cigna and Sprint/T-Mobile. Part of “working on it” means bringing in a fresh set of eyes, said one bank analyst, who said the weakness was likely to continue in the third quarter. “They have to show that they are not just sitting on their thumbs especially after the CEO called them out, the analyst said. In ECM BAML slipped to fifth this year and in 2017, down from fourth from 2013 to 2016 and from the top three each year between 2005 and 2012. In DCM, on the other hand, it has held se

Cassa Depositi e Prestiti brought last week the first transaction from an Italian government agency since the country was engulfed in political turmoil, the latest step in the Italian credit recovery. Books for the €500m five-year reached €1bn, a strong outcome for a deal that was the first test of investor appetite for a credit closely linked to the sovereign. “Since the end of August, the market has had a more constructive tone and we’ve had a decent rally in BPTs,” a lead said. “Clients who had been underweight Italy are repositioning and they’re either neutral or more accommodative.” The spread between 10-year Bunds and BTPs has tightened to 233bp, down from 288bp at the end of August, as fears around Italy’s upcoming budget ease. The yield on Italy’s 10-year bond has dropped to 2.81%, down from the 3.22% mark it hit at the end of August. “The Italian situation seems to be moving towards a market friendly outcome, and it’s attractive particularly if you look at it compared to other peripheral markets,” said Scott Thiel, deputy chief investment officer of fixed income at BlackRock. Leads Banca IMI, BNP Paribas, Credit Agricole, Goldman Sachs, MPS, Santander and UniCredit started marketing the no-grow debut Sustainability bond (Baa2/BBB/BBB) at 30bp-35bp over the BTP October 2023 swap spread. Talk was later revised to 25bp-30bp, before leads fixed at the tight end of that range. “It wasn’t generously priced,” another lead manager said. “The market was good enough so that we could push a tight print for an Italian issuer. The sustainability angle helped although it wasn’t really a game changer.” CDP issued a debut €500m social bond in November 2017, a transaction that followed a roadshow, a strategy which it eschewed this time. “It’s a well-known name so they didn’t do a roadshow,” a third lead said. “Also, here, it’s more about seizing the window of opportunity.” IN THE SPOTLIGHT The deal follows the recent pick-up in issuance from Italian corporate and financial institutions that have accessed the euro and US dollar markets. “We’ve seen the transition from corporates, FIG and high-yield to SSA and the feedback has been constructive,” the first lead said. The transaction was the first time that CDP was accessing the market since January this year when it printed a €750m February 2026. The agency’s spreads widened significantly after it was mentioned prominently in an agreement between the two ruling parties that was leaked to media. Referring to CDP as a “superstar”, the document proposed increasing its annual borrowing to €70bn. The €750m 1.875% February 2026s, which priced at swaps plus 103bp, touched 277bp on the bid side at the end of May. “CDP owns an awful lot of BTPs so it’s not really a surprise that their spreads have widened. They basically follow Italy. That was always going to be the case,” the second lead said. It retraced some losses over the summer, only to hit an all-time wide of plus 279bp in late August on reports CDP may have to buy a controlling stake in Autostrade per l’Italia after the collapse of a bridge managed by the motorway operator. Bonds were back inside 200bp last Tuesday afternoon, 8bp tighter on the day. The latest deal has surfaced ahead of Italian budget discussions, which many in the market believe could trigger more volatility. While CDP has emerged, the sovereign remains conspicuous by its absence from the syndicated market and has not been seen since a €9bn September 2038 note priced in early January on over €31bn of demand. Many expect the sovereign to wait until the budget discussions have ended before returning. Furthermore the market has yet to hear from S&P, which will opine on Italy’s BBB rating on October 26. Moody’s has delayed its decision on whether to cut its Baa2 rating until the end of October. “If the government submits something decent, then there’s no reason why Italy can’t do a deal,” the second lead said. “There’s still a big risk premium attached to Italian debt,

Ticketing and event technology platform Eventbrite delivered an impressive NYSE debut Thursday, surging as much as 70% amid overflowing investor demand for its US$230m IPO. Bookrunners Goldman Sachs, JP Morgan, Allen & Co and RBC earlier drew demand for 30 times the 10m shares offered before pricing the deal at US$23 each, the top of the upwardly revised US$21-$23 marketing range. Shares of Eventbrite opened up 56.5% to US$36 and traded as high as US$39.30 before closing their debut session at US$36.50 for a day-one gain of 58.7%, joining a string of robust debuts by US tech companies this year. The writing was on the wall earlier in the week when Eventbrite accelerated pricing by one day (to Wednesday night instead of Thursday) and then upped the marketing range from US$19-$21 at launch. At the IPO price, the company was valued (on an enterprise value basis) at 5.4 times 2019 forecast sales and 40 times forecast Ebitda for the same year. Using the former metric, Eventbrite was coming at an attractive discount to comps including HubSpot at more than nine times sales. Though a premium to event producer Live Nation Entertainment, which trades at one times forward EV/sales, Eventbrite is growing its revenues much faster (20%-30% versus single-digits for Live Nation). The purchase of additional shares in the IPO by some of Eventbrite’s largest existing shareholders including T. Rowe Price and Tiger Management also contributed to tight allocations and a scarcity of stock in the aftermarket. Founded in 2006 by Julia Hartz, Kevin Hartz and Renaud Visage, Eventbrite helped 700,000 event “creators” issue 203m tickets and generated US$201.6m of revenue last year, mostly by charging creators on a per-ticket basis. Investors liked the potential of Eventbrite to consolidate the fragmented event management market and broaden its platform by adding new capabilities and revenue streams. “Part of the dream is it becomes a broader platform over time, for example adding services that manage sponsorship opportunities and food vendors,” another banker close to the deal said. Next up for the US tech IPO market is the coming week’s US$148m IPO of online survey software company SurveyMonkey, which plans to price the sale of 13.5m shares at US$9-$11 post-close Tuesday. Like a number of tech unicorn IPOs in recent years (but unlike Eventbrite), SurveyMonkey will be seeking a valuation at a significant discount to its last private funding round.

A second huge buyout financing successfully limboed across the line last week as the US$7.6bn loan and bond deal backing the €10.1bn acquisition of Akzo Nobel’s speciality chemicals business mirrored the success of the US$13.5bn debt financing for Refinitiv, Thomson Reuters’ Financial and Risk division. Despite inevitable comparisons to the larger deal, Akzo’s US$6.44bn loan and US$1.2bn-equivalent bond issues were highly successful in their own right. The carve-out was seen as more of a classic buyout story and drew more of a global book than Refinitiv’s, which came from a predominantly US investor base. “Europe likes Akzo and found the deal a bit easier than Refinitiv. It’s a classic cyclical business rather than a cost-savings story,” a senior London-based loan investor said. “Akzo is more global; it’s an easier story to understand.” In a replay of Refinitiv’s result, Akzo’s dollar loans were increased and the high-yield bonds were reduced, while the size of the euro loan and bond remained unchanged. Pricing was also tightened, bringing cost savings for sponsors Carlyle and Singaporean sovereign wealth fund GIC. The US$4.34bn seven-year Term Loan B (increased from US$3.9bn) broke at 100.375-100.75 on Thursday and the €1.79bn seven-year Term Loan B broke at 100.5-101, giving investors who bought the deal at a discount another swift and profitable bump. Akzo cut pricing on the loan twice during syndication. Pricing on the US$4.34bn Term Loan B was finalised at 325bp over Libor with a 0% floor, tighter than earlier guidance of 350bp-375bp and a 400bp-425bp range at launch. The US loan was sold at 99.5 cents on the dollar, versus updated guidance of 99.75 (the lower OID was offset by the lower yield), and has soft call protection of 101 for six months. Pricing on the €1.79bn seven-year Term Loan B finalised at 375bp from guidance of 375bp-400bp over Euribor, down from 425bp at launch. There is a 0% floor and the loan was sold at par from early Wednesday guidance of 99.75. Both loans also include a 25bp pricing step-down at 4.25 times first-lien net leverage. The discount on both tranches was originally 99-99.5. The bonds, which had eight-year non-call three senior unsecured structures, also priced on Thursday with lower yields than first envisaged. The US$600m tranche (originally US$900m) priced at par to yield 8% on Thursday, at the tight end of talk of 8%-8.25% earlier this week, down from original marketing levels of around 9%. Final terms on the €485m tranche were announced earlier on Thursday at a yield of 6.5% compared with price talk of 6.75% area. That tranche was first marketed at up to 7%. When initial price talk was launched for the bonds, the US dollar tranche was significantly wider than the cap that banks had agreed with the sponsor when the debt was underwritten earlier this year, which would have eaten into the lead banks’ income. However, the reduction on the dollar bond’s coupon allowed the banks to issue at around the cap level. “If it had priced at 9%, that would have created a loss for banks on the bond,” said a banker close to the deal, adding that the money made on the loans would have offset any losses from the bond. Barclays, HSBC and JP Morgan were joint global coordinators on the loan and on the bonds. AGGRESSIVE TERMS Analysts at Moody’s and research firm Covenant Review warned earlier in September that the Akzo deal contains off-market complex terms that could allow the company to pay dividends using asset sales proceeds, even when in default. However, the terms, which were part of the underwriting agreement between the lead banks and sponsors from March, were not changed due to the high level of investor demand for the deal, despite the complexities of analysing five businesses at different points in the cycle. Pro forma leverage is estimated at 6.5 times by Moody’s, which expects leverage to fall in the next 18 months as the company launches new products and increases capacity after a cost-reducti

Chris Whitman, head of the financial resource management (FIRM) unit at Deutsche Bank, is leaving, according to market sources, the latest senior manager to head for the exit after Christian Sewing became chief executive in April. Whitman, a 23-year stalwart of Deutsche’s capital markets businesses, was appointed to the executive committee of the corporate and investment Bank as “capital czar” in June 2017 following a reorganisation in the division under former CEO John Cryan. Whitman was one of the first in a swathe of Merrill Lynch fixed income bankers who joined under Edson Mitchell. Whitman started in New York as head of debt capital markets for North America. His departure could be seen as a setback for Deutsche’s long struggle to increase low returns on capital and an indication of the tension between maintaining the bank’s footprint in various businesses and its use of capital. It may also reflect Sewing’s push to have a more streamlined senior management structure. SEWING RETREAT In May Sewing announced a retreat from US rates and global equities trading and a cutback on the number of business co-heads, including the removal of CIB co-head Marcus Schenck, leaving Garth Richie in sole charge. Whitman was given the task of improving the allocation of scarce capital across CIB, on the back of a short stint running the CIB’s relationship loan book – credit portfolio strategies group – from 2016. He had previous experience managing one of the bank’s functions during difficult times, when he guided group treasury from early 2007 for two years, raising US$100bn of long-term funding when the financial crisis took hold. He was then global co-head of equity capital markets for nearly three years before crossing back to fixed income as head of global risk syndicate. Deutsche’s capital allocation function will now be led by FICC managers, insiders said. A Deutsche Bank spokesperson declined to comment.

A trio of Japanese borrowers entered the European corporate bond market last week, as companies across the globe look to diversify their funding bases. All three companies - Japan Tobacco, Toyota Motor Finance (Netherlands) and Nidec - were debut issuers in euros. Toyota Finance has issued euro transactions from its Toyota Motor Credit Corporation entity before - but never from its Dutch funding unit. Investors poured into the deals. The market is broadly receptive to new issues, and investors have a particular appetite for rare and debut issuers, bankers said. “Names that are not affected by QE discontinuing are in favour at the moment,” one lead on the Japan Tobacco trade said. “Investors don’t expect to see much volatility in those names. Also non-eurozone borrowers tend to pay more of a premium to their underlying credit quality, which is why they get a good reception,” he said. Investors put health warnings to one side and piled into Japan Tobacco International’s debut euro and sterling trades on Wednesday. The company also issued a dollar bond the same day. Japan Tobacco, the world’s third-biggest cigarette maker, completed a rare triple-currency to raise US$2.2bn-equivalent and diversify its funding sources. On the euro and sterling side, investors placed €4.7bn-equivalent of orders for the €1bn-equivalent trade (both legs combined). Bond buyers in those markets said they liked the “tobacco premium”, saying the deal looked cheap compared with other similarly-rated names. “We had very constructive feedback and decent reception,” the banker said. “It’s a very rare deal from a rare credit.” The company (Aa3/AA-) approached the market with a 15-year sterling benchmark at IPTs of 130bp-135bp over Gilts. Subsequent demand of £1.6bn allowed leads to tighten pricing by 20bp to launch the £400m tranche at 110bp over. Orders dropped off to £1.3bn after the tightening. On the euro side, Japan Tobacco plumped for a seven-year tenor with initial pricing of 80bp-85bp over mid-swaps. Orders of €2.9bn saw pricing on that tranche also sliced by 20bp to launch at plus 60bp for €550m. Funding in euros and sterling makes sense for the issuer, which has sizeable cashflows in both markets, a lead said. Japan Tobacco has a UK-based business: Benson & Hedges cigarette-maker Gallaher, which it bought in 2007. It saw the sterling tranche as a chance to extend its maturities - matching investor demand for longer-dated assets in the UK market, the lead said. The US$1.025bn Reg S dollar tranche comprised a US$525m five-year at Treasuries plus 65bp and a US$500m 10-year at plus 90bp - inside earlier guidance of 90bp area and 110bp area, respectively. Final pricing looked flat to JT’s curve at five years and only 1bp or 2bp wide at 10 years. Books were over US$1.5bn for the five-year and US$1.4bn for the 10-year. Japan Tobacco is looking to diversify its funding base after the past year saw it go on something of an M&A spree. The company is looking to shore up its core tobacco business in the face of challenges including wider secular decline, a shrinking home market and tighter regulations across the globe. Acquisition targets have largely been in emerging markets: Japan Tobacco has bought companies this year in Indonesia, the Philippines and Russia. The purchases are in line with wider consolidation in the sector, following similar moves by competitors including British American Tobacco, which bought US rival Reynolds American last year. SOLID REFERENCE POINT A day earlier, Toyota revved up with an inaugural benchmark euro transaction from its Netherlands funding unit on Wednesday. The Japanese automaker (Aa3/AA-) plans to become a more regular issuer in the capital markets via its Dutch finance arm, a lead manager said. To that end, it chose a five-year maturity to appeal to the broadest possible investor base and create a solid reference point for future deals, he said. The tactic paid off: investors placed over €2bn in orders for the bon

Independent investment bank Jefferies saw its profits in the third quarter drop 28% from a year ago to US$60m, largely due to higher underwriting and business development costs. Revenue in the June-August quarter dipped 3% from a year ago. The bank reported US$21m in underwriting costs in the quarter and a 70% increase in business development costs. Revenue from investment banking in the quarter fell 5%, dragged down by a 26% slump in revenue from debt underwriting to US$139m. The decline swamped a positive quarter in equity underwriting, where revenue rose 62% to US$139m. “Our investment banking results reflect lower leverage finance transaction levels during the period,” said Jefferies chief executive Rich Handler. In equity capital markets the bank increased its market share and improved market rankings. “Our fourth-quarter investment banking backlog is higher than that of any recent periods, and reflects the investments we have made to broaden and deepen our team and capabilities,” Handler said. Revenue from M&A advisory, which were “more muted during the period”, fell nearly 8% to US$188m. Jefferies reports results a month before its larger rivals, offering a peek at broader market trends. If that is true, the run in equities trading should continue while fixed income, currencies and commodities trading will be flat. Jefferies’ equity trading revenue was up 5% from a year ago to US$170m. Its FICC revenue was flat at US$140m with light trading volumes, particularly in international rates. The bank said its emerging markets business continued to perform well despite a challenging environment. Overall sales and trading revenues grew to US$310m. Handler said the usual summer slowdown appeared to impact on activity levels in both the primary and secondary debt markets. Earlier this month JP Morgan and Citigroup offered a dreary outlook for the third quarter. JP Morgan predicted markets revenues in the third quarter would be down “about mid-single digits” and Citi said it was expecting total fixed income and equity trading revenues to be flat to slightly higher.