Loan House and Americas Loan House: Goldman Sachs

IFR Awards 2018
8 min read
Michelle Sierra, Tessa Walsh

Despite gathering macroeconomic clouds and a sense of late-cycle deja vu, 2018 was a surprisingly good year for acquisition finance. A robust leveraged loan market globally saw private equity firms producing giant new-money carve-out loans, in addition to huge US investment-grade acquisitions in the first half of the year.

Leveraged loans delivered one of the only positive returns of any asset class in 2018, as investors sought protection against rising interest rates. Goldman’s intellectual capital gave them what they were looking for – a wide range of deals and smooth execution despite the push and pull of supply and demand dynamics throughout the year.

Private equity firms accounted for a larger chunk of borrowing in 2018 and the strength of Goldman’s sponsor business on both sides of the Atlantic put it consistently ahead with new and existing private equity clients. The bank was lead-left on deals for 45 different sponsors in 2018 – up 28% on 2017 – as the bank also continued to deliver leveraged corporate loans and grow investment-grade acquisition financing.

Goldman was able to defend and increase its market share by syndicating a range of difficult, complex and creative deals that needed thoughtful cross-product placement. The bank put its money to work with US$38bn of capital commitments in 79 deals in 2018, more than a third more than the US$28bn it committed the year before, using its M&A advisory prowess to push harder in leveraged loans.

“We are really integrated with our bankers. It is well known that we’re number one on M&A globally, but we also have the leading investment banking franchise, almost pound for pound, sector by sector,” said Christina Minnis, global head of acquisition finance and co-head of the Americas credit finance group.

This focused the bank’s existing skills on strategic and transformative acquisitions, particularly cross-product buyout loans for private equity firms of varying size, difficulty and complexity. In total, the bank was involved in US$304bn of financings for global financial sponsor M&A deals, up 36% on 2017 and cementing a leading global position in institutional leveraged loans as sponsors took a bigger share of lending overall.

“The franchise, five, seven years ago, was at a different spot from where it is today. [Goldman Sachs] today is the perennial underwriter on the Street across loans and bonds,” said Kevin Sterling, head of US leveraged finance capital markets.

LEVERAGED MARKET

Goldman had a very good year in the dominant US leveraged market and committed capital in seven of the 10 largest LBO financings in 2018, including KKR’s acquisition of IT solutions provider BMC Software, Blackstone’s acquisition of information firm Refinitiv, formerly Thomson Reuters’ F&R division (and publisher of IFR), and KKR’s acquisition of Envision Healthcare.

The bank was lead-left on 40 sponsor deals totalling US$33bn and seven second-lien deals totalling US$1.3bn of volume. Deals included a US$1.275bn 7.25-year Term Loan B for broadband communications provider Altice USA, which was part of a complex broader transaction to combine Altice USA’s Suddenlink (Cequel) and Optimum (Cablevision) businesses into a single credit.

Goldman’s merchant banking division gives the bank a big boost in leveraged financing. The unit, which is one of the biggest managers of capital globally and that includes Goldman Sachs Principal Investment Area, can buy junior debt through GS Bank, which gives comfort around the riskier part of the capital structure.

The bank was involved in some of the year’s biggest US investment-grade acquisition financings, with a lead arranging role on 10 bridge loans of more than US$1bn, including a US$20bn loan (with JP Morgan) backing information technology company IBM’s acquisition of US software company Red Hat.

Goldman committed US$66bn as lead arranger of bridge loans and served as lead arranger on US$111bn of bridges, which included a US$9bn loan backing packaged foods company Conagra Brands’ US$10.9bn cash and stock purchase of smaller rival Pinnacle Foods, which was the largest solely underwritten loan of 2018.

The firm has also been active in US middle-market lending, which is making an increasingly important contribution to the bottom line. Since 2012, a 27-strong team has brought debt deals of US$150m to US$500m in size, banking on the firm’s expertise with financial sponsors.

“I think often Goldman gets brushed with ‘we just bank big companies, we just bank big sponsors’. But if you take a look at our revenue now in the division, something like 50% of our revenues are coming from middle market,” Minnis said.

GLOBAL REACH

Goldman also had a good year in Europe, where the bank upped its profile and market share with positions on the key leveraged loans of the year and improved its investment-grade acquisition financing franchise.

The bank used its global reach to full effect, selling Asian and US deals in Europe and taking European companies to the US, and was also able to leverage the power of PIA, which has been as active in Europe as the US on a proportional basis.

“I feel like we’ve been more relevant to borrowers, we’ve been more actively engaged with investors and have probably had a better pipeline in terms of underwrite versus repricing deals,” said Dominic Ashcroft, co-head of leveraged finance capital markets in EMEA.

The bank had leading roles on the biggest trades of the year, including a €3.516bn-equivalent senior credit for forecourt operator and convenience store retailer EG Group in January, which financed the purchase of petrol stations from Esso in Italy and Germany and was one of the largest covenant-lite loans completed.

A €2.12bn leveraged corporate acquisition financing for Double B rated French technology consultancy Alteran in January highlighted Goldman’s ability to give differentiated advice. The deal backed the company’s acquisition of US digital design and engineering services firm Aricent.

A €1.8bn-equivalent refinancing for UK ice cream and frozen food business Froneri, also in January, defined the depth of the European euro market and showed what was possible as the sponsor community aimed for ever-larger deals. The €1.2bn term loan was flexed to 262.5bp over Euribor from 300bp.

“That put a shot of adrenalin into the idea of the underwriting ability of a lot of the European-present banks and in their confidence to be able to do large euro transactions,” said Michael Marsh, head of EMEA leveraged finance.

On the investment-grade side, the bank shared a fully underwritten €6.1bn bridge loan backing Unibail-Rodamco’s US$24.7bn acquisition of Westfield with Deutsche Bank, which covered the cash portion of the offer and refinanced existing debt and created a global property leader with €61bn of property assets in 27 cities.

Goldman played on more Asian leveraged loans, as the region’s private equity market gained size and sophistication. The bank underwrote Asia’s biggest private equity buyout in July with Citigroup. Goldman was lead financial adviser and original MLAB on US$4.1bn of senior facilities backing the buyout of Singapore-listed Global Logistics Properties, which is IFR’s Asia-Pacific Loan of the year.

The bank also picked up a sole mandate and bookrunning role by underwriting US$450m of senior loans for China-headquartered nutrition and wellness firm H&H International in September and also brought a A$200m senior secured deal for debut Australian issuer NewCold Advanced Cold Logistics.

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Loan House and Americas Loan House: Goldman Sachs