Capital Markets Adviser: Lazard

IFR Awards 2020
8 min read
Owen Wild, Christopher Spink

Protecting the weak
Never has advice been more valuable than when companies across many sectors saw their operations effectively cease in early 2020. To be trusted enough that clients will rely on your advice about critical financings despite never meeting in person is quite a thing. Lazard is IFR’s Capital Markets Adviser of the Year.

Capital Markets Adviser

Advising companies on how to raise capital during a once-in-a-century public health scare was never going to be straightforward.

Those taking on this task needed to assess the state of the potential issuer’s financial health before looking at all manner of instruments and what appetite there was from investors and underwriting banks to support the various options.

Lazard was able to draw on its wide expertise ranging from debt restructuring through to equity capital markets and strategic advisory. By fitting the right solution to each client and making sure deals were executed in line with plans, Lazard stood out from its competitors.

A fine example of this seamless service across asset classes was the work the firm carried out for Hammerson. Even before the pandemic-enforced restrictions, the UK shopping mall owner had been suffering as customers increasingly chose to shop online and some chains failed.

When sites were effectively shut, prompting tenants to stop paying rents to their landlords, everyone in the sector was hit and many needed to refinance debts or raise fresh equity, all at the same time. UK peer Intu failed to execute plans and instead went into administration.

That increased the pressure on others still waiting to approach investors. But Lazard was able to convince investors to support a £552m rights issue for Hammerson as well as simultaneously renegotiating some of its debt facilities, selling some assets and raising new debt.

“We were looking down the barrel,” said Nick Fowler, co-head of equity capital markets for EMEA at Lazard. “There was not capacity to raise all that was needed so we had to find a way through by finding a buyer for one of the company’s assets and renegotiate the debt.”

Compared with situations in the financial crisis of 2008 to 2009, when many companies had succeeded in carrying out reasonably simple rescue rights issues, these situations were more complex and intense, with the pandemic’s impact incredibly swift.

The series of actions carried out for Hammerson should ensure its debt covenants will not be tested for some time.

Some parts of the real estate sector were relatively unaffected by the restrictions, with warehouse owners even prospering as commercial property investors sought opportunities to benefit from the switch to online shopping.

Lazard advised Tritax Big Box on the first sterling green bond by a UK REIT, which raised £250m in November. The 13-year note attracted an order book of £2bn and the price tightened by 20bp from initial price talk, meaning the company achieved a skinny yield of just 1.632%.

Elsewhere, the debt team acted for Merlin Entertainments in May when it issued the first high-yield bond after the outbreak of the pandemic. Pulling in €500m of five-year senior secured notes at 7% was no mean feat considering the amusement park operator had been shut for two months.

Merlin was already highly leveraged after it was taken private in 2019 by a consortium of private equity investors for £5.9bn, leaving it with £3.1bn of acquisition finance. That did not seem to matter to investors. The high-yield deal was so successful an extra €100m of notes were issued.

Lazard’s inclusion of a novel “corona claw”, allowing the issuer to redeem up to 40% of the notes within 120 days of issue at a reduced premium if it managed to raise government loans, was an added extra that helped to potentially reduce the client’s costs.

“There was a question over whether state support was available to private-equity owned businesses so it made sense to build in this option,” said Tom Howard, head of debt advisory EMEA at Lazard.

On more distressed situations the firm advised 228-strong cinema chain Vue International, a new client, on amending covenants on €636m of debt, enabling it to also raise £94m fresh senior secured funds for four years at the same time.

“This was done very much under the radar during a tough time for cinemas,” said Howard. “It enabled the company to keep its capital structure intact.”

Other notable deals were acquisition financings that were completed despite the disruptions of the pandemic. Lazard helped Signify raise money to buy Cooper Light Solutions from Eaton, a deal originally agreed in 2019, and Aveva to buy OSIsoft in August. Aveva’s £2.8bn rights issue was the largest in the UK since 2015.

“We have been punching above our weight over the past year, supporting the strategy of companies with novel financing solutions,” said Howard.

While the ECM business involved significant work for companies on the backfoot there was much more than that. For companies in very different situations there were roles on the US$2.7bn IPO of Allegro (IFR’s EMEA IPO of the Year), the €10bn spin-off of Siemens Energy and the timely IPO of protective mask maker GVS in June that created a frenzy of buying.

Other examples included the Alliance family bailing out N Brown in a placing, open offer and move from the main market to AIM; and help to provide a package for buildings materials company SIG that featured a PIPE private placement.

“It is a unique market in terms of the broad spectrum [of situations] that institutions are putting their money towards and I feel that we have really covered the broad gamut in what we did,” said Fowler.

The acquisition of investor relations consultancy Makinson Cowell should assist in maintaining that breadth.

In the Americas, Lazard carried out a US$2bn liability management exercise for Transocean, the largest out-of-court exchange offer done for a US corporate in 2020, as well as a US$4.5bn exercise for retailer Macy’s which did file for bankruptcy protection.

The firm also advised Californian utility PG&E, which had filed for bankruptcy protection in early 2019 after facing huge claims for damage following wildfires across the state. PG&E raised US$9bn of new equity and equity-linked notes as it came out of Chapter 11 after settling the claims.

“No company has raised so much money to get out of bankruptcy,” said David Kurtz, global head of restructuring at Lazard. “There was nothing as intense as this. This was not just a balance sheet fix but a complete transformation of the business so it has a safety-first mantra. It was a privilege to be involved in this complex case.”*

Lazard also continued to be exceptionally busy in the sovereign arena. It advised Argentina and Ecuador on negotiations with creditors that saw them carry out mega-exchange offers of US$66bn and US$17bn, respectively.

The Argentina deal was concluded in five months, an extraordinary achievement given the problems involved in the country’s previous restructuring in 2005 that forced the country to spend a decade away from the capital markets.

“We are a firm that can help governments address large problems. We can help countries with a diversity of creditors overcome crises,” said Pierre Cailleteau, managing director, sovereign debt advisory at Lazard.

* Corrects David Kurtz's title.

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