Standing tall
In a record-breaking year that saw US high-yield bond issuance hit an all-time high, one bank was the go-to for strategically important financings and companies taking their debut steps in the bond market. For its consistency in executing the most challenging deals, Goldman Sachs is IFR’s North America High-Yield Bond House of the Year.
Nearly all the bulge-bracket banks enjoyed increases in deal volume in 2021, reflecting how buoyant markets lifted all boats.
Nonetheless Goldman Sachs’ underwriting activity managed to encapsulate two defining themes of the high-yield bond market: the deluge of first-time issuers and booming merger activity.
The bank advanced its own position in the high-yield bond market through its deep knowledge of the leveraged finance space, its willingness to stand tall for its clients and its reputation for structuring complex transactions. This was despite the bank lacking the bigger balance sheets of its competitors.
“We did more deals than we did last year, and every bank on the Street did more deals, but the difference is we took market share,” said Kevin Sterling, head of Americas leveraged finance at the bank.
The strong performance of its leveraged finance arm helped drive Goldman’s best year for its investment banking business. Revenues from debt capital markets underwriting came to US$3.5bn, a 31% increase on 2020.
Those rich rewards in part reflected its hard-won reputation as the go-to bank for private equity. Goldman was lead-left for 19 sponsor-related transactions in the high-yield bond market, notably including a transaction for medical equipment maker Medline Industries.
That deal captured the imagination in September as bankers scrambled to secure a role on the biggest club deal since the market’s pre-financial crisis heyday. Ultimately, the sponsors turned to Goldman to lead the senior unsecured note as part of the financing package for a US$34bn leveraged buyout, the third largest in history.
“The biggest takeaway is when you have sponsors who are willing to say 'I trust only Goldman to lead the most junior, riskiest piece of this deal for something that has a ton of headline risk',” said Chris Bonner, head of leveraged finance capital markets.
Though downsized from its original announced amount, Medline’s US$2.5bn senior unsecured offering drew the participation of 330 investors. Goldman managed to secure a yield of 5.25% for a security rated Caa1/B– by Moody’s and S&P, even as the average yield for similarly rated corporates had struggled to push below 6.5%.
In another example of Goldman’s sponsor-driven offering, Indian outsourcing company Hexaware Technologies secured a US$1.01bn five-year non-call two bond in October for its acquisition by The Carlyle Group. The 2026 bond printed at 5.375%.
The bank was lead-left bookrunner for 15 out of the 90 first-time issuers that hit the high-yield bond market in 2021, including deals for stadium hospitality group Legends and consumer finance firm Lendmark Financial Services.
Many of these debut borrowers wanted to take advantage of open debt markets but needed a trustworthy partner to ensure their inaugural bond deal went without a hitch.
That was the case with a US$2bn bond for crypto exchange Coinbase. The Goldman-led deal helped deliver the imprimatur of Wall Street on what was considered a risky and volatile space, a demonstration of how the industry had finally achieved mainstream recognition.
Coinbase landed US$1bn 3.375% seven-year non-call three and US$1bn 3.625% 10-year non-call five senior unsecured notes, after upsizing each tranche by US$250m.
And in another eye-catching offering led by Goldman, payments provider Square raised US$2bn in May split evenly between five-year and 10-year senior bullet notes, making it the biggest inaugural deal in the junk bond market. Square also achieved a coupon of 2.75% for the five-year portion, the tightest five-year yield achieved by a debut high-yield issuer.
“I think we’d all agree US$2bn for anybody who’s an inaugural issuer is a big amount of money,” said Bonner. “This business didn’t fit neatly with any analyst group or any of the portfolio managers we talked to. So it takes that extra bit of work.”
With Square, Goldman told the story of a fast-growing tech company with a hefty equity market capitalisation to an unfamiliar crowd of bond investors that had traditionally been wary of the asset-light business models in the tech industry.
But it also showed how the bank leveraged the strength of its investment banking franchise, which had a bookrunner role in Square’s public listing in 2015, to secure new mandates for its bond business.
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