Reverse Yankee Bond House: Barclays

IFR Awards 2021
5 min read
Sudip Roy

Star-spangled Barclays
US issuers in the euro and sterling markets are becoming a much more common sight, often pushing the boundaries when they come. With its transatlantic focus Barclays has been at the forefront of this trend and is IFR’s Reverse Yankee Bond House of the Year.

With its deep presence in the US, UK and the Continent, Barclays is one of a handful of banks that can genuinely claim to provide funding options on both sides of the Atlantic.

For US issuers, the sterling and euro markets are becoming important avenues to explore. In the euro corporate market, for example, US borrowers accounted for €52bn of issuance in 2021 or just over 17% of overall supply. Only German issuers were more active.

Gone are the days when US corporates fund in euros or sterling solely because of the cross-currency basis swap, though that is still a consideration. The chance to grab a lower headline coupon in euros, diversify the investor base or implement net investment hedging strategies are as important, sometimes more so, than any possible pricing arbitrage.

Whatever the motive, for Barclays the fact that US issuers are now such an integral part of euro and sterling supply plays into one of the bank’s core strengths.

“We get huge value from the reverse Yankee flow we see from our US colleagues,” said Matthew Thomas, head of EMEA corporate debt capital markets at the bank.

That value is not just the fees, though clearly there is that. There were times last year when US issuers drove market trends, pointing the way forward for their European counterparts. “They continue to push the envelope,” said Marco Baldini, head of European bond syndicate.

One US issuer that did so last year was pharmaceutical company Eli Lilly, which targeted tenors rarely seen in the euro market through a €2.1bn-equivalent offering in September.

The deal, for which Barclays was a lead manager, included 30 and 40-year euro tranches, to go with a 12-year note. The 40-year bond was the longest euro corporate benchmark since 2007 and when sub-benchmarks are included, the longest euro corporate trade since 2011.

The overall deal was also the first instance of a corporate bringing 30 and 40-year euro tranches in the same transaction. Complementing the euro tranches was a £250m note due 2043.

Eli Lilly took the decision to bring such long-dated bonds to lock in the coupons available in the single currency. The coupon on the last 40-year dollar bond that Eli Lilly issued was 2.5%. On the 40-year euro it was 1.375%.

One measure of Barclays’ standing with the biggest US issuers is that it is repeatedly hired to lead manage their deals. That was the case with Thermo Fisher Scientific, which raised just over €8bn last year through two separate visits.

In November the company raised €2.8bn through a triple-tranche offering, which included its first sustainable bond, as part of its financing of its US$17.4bn acquisition of research firm PPD.

That followed a €5.25bn four-tranche offering in October, which Barclays also acted on.

Through both offerings Thermo Fisher targeted short, medium and long-dated tenors, from two years to 30. The October transaction was more directed to the long end.

Barclays was at the forefront on some of the year’s more esoteric reverse Yankee issuance. It was a lead on a hybrid transaction for Southern Company, which became the first US corporate to issue a conventional European hybrid.

Although there had been hybrid issuance from AT&T in the form of a preferred security, which was ranked on a par with its preferred stock, September’s €1.25bn 60-year non-call six deal from the gas and electric utility was the first to use a typical European unsecured and subordinated hybrid structure.

The rationale was relatively straightforward: as a big issuer already in its home market, euros conferred a pricing advantage after adjusting for the cross-currency swap.

The structure and its tax implications, as well as Southern’s high-quality ratings and scarcity value in the euro market, helped drive more than €3bn of orders.

Barclays also helped bring a new subset of US issuers to the European market. One was Blackstone Private Credit Fund, which raised €500m through the sale of a November 2026 note to become the first US business development company to issue in the euro market.

Barclays also led the way for US insurers issuing funding agreement-backed securities in Europe, with Athene Holding and New York Life raising funds in euro and sterling markets through these structures.

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