Simply the best
BNP Paribas might be mostly a euro powerhouse but in 2020 it demonstrated it was very much a player in many other sectors of the bond markets. In a remarkable year for debt capital markets, the French bank showed that balance sheet can be married with creativity, that quality of service can extend from Triple A to Triple C and that being best doesn’t mean just being global. BNP Paribas is IFR’s Bond House, Euro Bond House and Europe Investment-Grade Corporate House of the Year.
The best bond house in 2020 wasn’t the one that was present in the most markets or is a top-tier player in every currency. It was the one that excelled in servicing its clients in their hour of need, that used all the tools at its disposal to overcome the year’s many challenges, that knew when to say “no” as well as “yes”, that understood its limitations but made the most of its strengths.
BNP Paribas was that bond house. Is it a global powerhouse? No. It is ranked outside the top 10 in the US dollar market and outside the top five in the global emerging markets league tables.
But any bond business is beholden to a bank’s broader strategy and while BNPP has ambitions to make more progress in those areas, there’s no hiding the fact that its debt capital markets franchise is predominantly euro-based – and indeed the bank has also won IFR’s Euro Bond House award as well as Europe Investment-Grade Corporate House.
The simple fact is that the French bank excelled in every department in which it is a leading player – SSAR, European investment-grade corporates, European financials, European high-yield, ESG and the euro component of emerging markets supply.
Far from limiting what BNPP should be recognised for, this excellence should be rewarded in the broadest possible terms. This was the bank that was on many of the year’s most defining deals – BP’s record-breaking hybrid; the EU’s debut issuance under its Support to mitigate Unemployment Risks in an Emergency programme; Allianz’s debut Restricted Tier 1; and Rolls-Royce’s rescue financing, to name a few.
Frederic Zorzi, global head of primary markets, says three traits helped the bank to meet the year’s unique challenges – stamina, the ability to innovate and experience.
He uses the analogy of mountaineering, with his bankers cast as Sherpas, to describe how the bank helped address their clients’ needs after the Covid-19 outbreak.
“A lot of us had gone through a crisis before. We knew it wouldn’t be a 100-metre sprint but a long climb,” he said. “It’s been a hard climb to help our clients to the summit.”
One criticism thrown at BNPP is that it’s a flow house; that it’s a big lender, which leads to hundreds of bond deals, but few that stand out from the pack.
BNPP bankers don’t shy away from the fact that they have a big balance sheet at their disposal. Indeed, last year many of their clients were grateful that they did. In the March-to-May period, for example, the bank extended more than 25 liquidity lines to leveraged borrowers.
Without those lifelines who knows how much more damaging the economic fallout from the pandemic would have been, especially in the early stages of the crisis.
Get up and dance
Banks’ balance sheets mattered. Then, once the volatility subsided thanks to quick and decisive action taken by the world’s central banks and government fiscal packages, issuers returned to the capital markets.
And no bank was as active in the euro market in that defining period between March 1 and June 30 than BNPP when it was bookrunner on nearly €65bn of issuance.
“We didn’t take credit risk, we took syndication risk,” said Mark Lynagh, head of the corporate debt platform for EMEA. “We were offering sensibly priced liquidity and then selling it to the market.”
Rupert Lewis, head of European syndicate, put it more colourfully. “Balance sheet is a ticket to the dance, but you’ve got to show your moves when you get there.”
Even the best-rated credits, such as Unilever, required careful hand-holding through the markets in the initial stages of the crisis.
And then there were the deals that BNPP led for Aeroports de Paris and Airbus in that late March/early April period that showed that investors were willing to engage with issuers from more troubled sectors.
Beyond these, two trades particularly spell out how the bank is engaged in more than just run-of-the-mill deals – one in the investment-grade market, the other in high-yield.
The first was a hybrid offering by BP, which at US$11.9bn-equivalent is the biggest corporate subordinated bond offering in history.
The transaction was split between euros, US dollars and sterling – specifically €4.75bn, US$5bn and £1.25bn tranches.
Like all oil companies, BP was suddenly faced with the twin threats of the pandemic and the collapse in oil prices. First, the company ensured it had sufficient liquidity at its disposal. Then it set about protecting its balance sheet. BNPP was there for BP throughout.
In March, it was sole underwriter on the company’s US$10bn two-year credit facility, which was the first multi-billion liquidity facility raised following the global outbreak of Covid-19. It was subsequently syndicated with a total of 19 banks signing into the financing alongside BNPP.
Next, the bank was one of the leads on BP’s €3.25bn triple-tranche bond deal at the beginning of April.
Then, once volatility had subsided sufficiently for more strategic transactions, it was one of the global coordinators on the hybrid.
“We had underwritten a big facility for them; we had understood their challenge. We had backstopped the liquidity and then de-risked that and then thought about the capital structure to build a stronger, stable future,” said Giulio Baratta, head of investment-grade finance.
Although it wasn’t the first corporate hybrid after the outbreak, it was by far the most ambitious. “Just the scale, the coordination required – it was not a low-stress process,” said Lewis.
Nor was the financing for Rolls-Royce. The aero engine manufacturer embarked on a £5bn rescue capitalisation in the fourth quarter across asset classes.
BNPP was a bookrunner and underwriter of a £1bn two-year term loan, the biggest underwriter on the rights issue and a global coordinator on the bond.
The latter was a £2bn-equivalent deal across sterling, euros and US dollars.
Not only was the bond upsized from its initial £1bn target but all three tranches priced 50bp inside price talk. The deal’s success made the other components of the financing easier.
“What they needed was certainty and we provided that,” said Lynagh. “We provided liquidity and capital.”
One reason why BNPP is such a good partner for a fallen angel such as Rolls-Royce is its ability to understand the dynamics of both the investment-grade and high-yield markets.
“A number of high-yield issuers this year were previously investment-grade and we’re set up for that,” said Lynagh.
That helped Rolls-Royce issue from its existing documentation package without making many concessions.
“They were able to issue with investment-grade documents and not create a second layer of capital,” said Lynagh. “That was important.”
Strong in high-yield
BNPP executed the deal in the same week as it did two other European high-yield transactions – for Terreos and CMA.
That speaks to the strength of the high-yield business. A few years ago, few would have placed BNPP in the top tier of high-yield underwriters – even in Europe. But now it’s as competitive as any other European high-yield franchise and, in volume terms, topped the Refinitiv league table in 2020.
“We feel this year in particular our strengths came to light,” said Arnaud Tresca, head of high-yield capital markets. “We’ve run a very diverse set of transactions.”
Whether it’s been clients seeking liquidity, acquisition financing or a de-risking of capital structures, the bank has been front and centre of the high-yield bond market and the leveraged loan market.
As Stanford Hartman, head of high-yield and leveraged loan syndicate at the bank, said: “To be a leading high-yield business you need to understand the dynamics of the leveraged loan market too.”
The Masmovil trade is a good example. The Spanish telecoms company was the subject of a €2.96bn take-private buyout by a trio of funds in the first underwritten financing to be announced globally after Covid-19 roiled markets.
The €3.5bn financing package was underwritten at the end of March but the takeout had to wait for markets to settle down. A term loan B was done in June and then increased in August to an overall size of €2.2bn with a secured bond financing in September. The seven-year non-call three note was subsequently tapped in November just ahead of the US election to take its size to €800m.
Another landmark deal BNPP worked on was for Altice, one of the most highly-regarded clients in the European high-yield market. BNPP was sole underwriter on a €3bn financing package for the take-private of Altice Europe. It then acted as lead-left on the €500m eight-year non-call three leg of a dual-currency bond offering that also included a US$475m eight-year non-call three tranche.
Not just corporates
The French bank’s dominance in the investment-grade market and leading position in high-yield are, however, only part of its bond story for 2020. It is much more than just a corporate house – it is also one of the leading banks in the SSAR and financials sectors.
In the SSAR market, in volume terms it’s a top-three bookrunner in G3 currencies and number one in euros – and last year the single currency accounted for about two-thirds of overall issuance.
Euro volumes were up more than 90% in 2020 compared with a year earlier, with overall SSAR supply increasing by more than 65% as sovereigns, supranationals and agencies took up the task of mitigating the economic fallout of the pandemic.
And because of the virus, a significant portion of the supply was combined with ESG, especially social bonds.
In this context, one deal was more sought after than any other in the SSAR market – the EU’s first under its SURE programme.
“Being on the first deal made a huge difference for the franchise,” said Jamie Stirling, global head of SSA debt capital markets.
The €17bn dual-tranche offering in October – split between €10bn of 10-year and €7bn of 20-year social bonds – was the first of three the EU issued last year as it made headway into funding the €100bn SURE programme.
While the deal was criticised for being cheap by some observers its importance to the EU cannot be underestimated, as it ramps up funding not just for its SURE programme but eventually for its Next Generation Recovery Fund.
Second only to the EU in terms of must-win mandates was Germany’s first conventional euro syndication that came in May. Again, BNPP was selected as a bookrunner. Investors ignored the previous day's Constitutional Court ruling on Bundesbank participation in QE to rain orders on the new 15-year issue.
The €7.5bn transaction saw more than €35.5bn of orders and firmly established the Finanzagentur in the syndicated primary market. The deal was priced at 22bp over the February 2030 Bund to yield –0.303%.
“We burst through a number of metrics investors had shied away from, such as the low yield and unpalatable asset swap levels,” said Nathaniel Timbrell-Whittle, head of SSA syndicate.
BNPP was then chosen as a lead on the sovereign’s second trade – a €6bn tap of its August 2050s, becoming the only bank to be on the first two deals.
Its SSAR story wasn’t just about euros. In the US dollar market, the bank was a lead for several big hitters, including the European Investment Bank, KfW, Asian Development Bank and Canada. Many of these were trickier, longer-dated trades.
“We’ve been mandated on the harder trades,” said Timbrell-Whittle, highlighting as examples the number of deals it executed in the 10-year US dollar sector.
The bank also made its mark in the sterling market when in May it helped the UK’s DMO sell a £12bn October 2030 Gilt in its biggest syndicated fundraising. About 25% of the bonds went to foreign investors with the order book hitting £82bn, including £14.75bn from leads.
“We provided the breadth of distribution that the domestic banks couldn’t,” said Stirling.
The deal formed a key part of the DMO’s issuance in that crucial April-to-July period when it had a funding target of £225bn to support the government’s response to Covid-19.
In the FIG market, the standout European trade was the Allianz dual-currency RT1, the insurer’s debut in the format. While insurers had issued RT1 since 2017 to meet Solvency II standards, German firms had been absent due to a lack of certainty around the tax treatment of the product.
With the German Federal Ministry of Finance providing clarification in October all eyes were on when Allianz would hit the market and what reception it would get. People didn’t have long to wait with Allianz launching a deal in November.
Given its importance to the asset class, the offering required more than a standard bookbuilding approach.
“Real price discovery had to be done,” said Damian Saunders, FIG syndicate manager. “It required engagement with investors.”
That effort paid off as both notes set record low coupons for the product. A €1.25bn perpetual non-call April 2031 note was priced at 2.625% and a US$1.25bn perp non-call April 2026 at 3.50%.
“We priced through the psychological 3% barrier,” said Saunders about the euro tranche. “That was a bellwether moment in that it broke through a number of thresholds.”
The Allianz deal was one of several in the subordinated debt market, with bank AT1 the biggest FIG primary market theme of 2020. Again, BNPP was at the forefront. Its roster of transactions in the AT1 market included Nykredit, Commerzbank, Intesa Sanpaolo, BBVA, which was the first green AT1, Bank of Ireland and Santander.
Perhaps most impressive, though, was its AT1 portfolio for Italian banks. In January and February, it led deals for UBI Banca, Banco BPM, UniCredit and Intesa Sanpaolo.
UBI’s deal was a debut, while BNPP advised Intesa to pre-finance a call a full year in advance to take advantage of great conditions at the time. It’s that advice that makes the bank stand out.
Sometimes that advice has been contrarian, especially for a business whose raison d’etre is to sell new bonds, not stop them. But during the immediate onset of the Covid-19 crisis, in late March and early April, the bank felt the best advice to its clients was not to issue.
“We took a very different approach and saved our clients money by holding off,” said Christopher Bond, head of FIG debt capital markets in EMEA.
Banks were paying concessions of 60bp–100bp in the US dollar and euro markets. But the BNPP team was convinced that pricing conditions would improve, that this was not a banking liquidity crisis, and that patience was required.
It wasn’t easy but the view proved correct. When BNPP brought its first non-secured FIG transaction to the market after the onset of Covid-19, for its own treasury on April 14, it priced the €1.25bn nine-year non-call eight non-preferred senior bond with just a 5bp premium.
That outcome wasn’t down to luck, but regular communication with its client, teamwork and a deliberate approach to pricing.
It was down to experience, knowledge and understanding. It was down to the reasons why BNP Paribas was the best bond house of 2020.
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