Europe High-Yield Bond House: Barclays

IFR Awards 2021
5 min read
Eleanor Duncan

Dodging volatility

Banks were forced to pick their spots in a European high-yield market that saw plenty of volatility thanks to the ongoing pandemic. For its consistency, leadership on market-defining transactions, and sheer depth of distribution, Barclays is IFR's Europe High-Yield Bond House of the Year.

An ability to get market timing just right and knowing when to pull the trigger on a deal kept Barclays ahead of the game in 2021. The bank also excelled in demonstrating the breadth of its franchise away from its home currency. It had lead roles on leveraged buyouts, deals for pandemic-impacted credits and opportunistic transactions.

"Having gone into the pandemic with a significant M&A pipeline, we executed on that, and have continued to cement our position as a market leader around bringing heavily impacted Covid trades," said Susana Leith-Smith, head of EMEA leveraged finance.

In a year that saw an unprecedented amount of M&A, the bank was happy to extend risk, and was instrumental in steering a number of milestone transactions through an often rocky primary market, especially as Covid-19 cases surged towards the end of the year.

Deals where Barclays grabbed a global coordinator role included a €2.05bn high-yield bond backing telecoms Masmovil's purchase of Euskaltel, T-Mobile Netherland's €1.35bn bond financing backing its buyout by private equity houses Apax and Warburg Pincus, and power generator supplier Aggreko's €1.3bn-equivalent bond to back its takeover by TDR Capital and I Squared Capital.

The timing on the bond portion of T-Mobile Netherland's M&A financing was one deal which proved Barclays' ability to read the market. The bank took the decision to pull the trigger on the bond in December into a market knocked by soaring coronavirus cases and rates-inspired volatility. But after news hit that three doses of the Pfizer and BioNTech vaccine should be effective against the Omicron strain of Covid-19, and with the loan component already priced, the bank knew it had a window of opportunity.

"The market opened in the green, and we saw a little window," said Leith-Smith. "No one else was in the market, and every eyeball was on this deal. We felt confident enough to have conviction in timing the market."

Another deal that showed Barclays' read of the market was spot on was the Issa brothers-led £6.8bn buyout of UK supermarket group Asda in February. The deal, which saw the bank take the lead role on £2.75bn in high-yield bonds backing the transaction, ended up being the UK's biggest leveraged buyout in more than a decade.

"When we underwrote the transaction in October 2020, groceries were a no-go sector, and Barclays was party to a lot of risk," said Na Wei, managing director of leveraged finance.

"Our competitors on the M&A side underestimated our ability to deliver on financing and didn't anticipate the Issa brothers to be competitive in the auction. They were the dark horses for the whole process. We mobilised everyone in the bank to deliver this milestone transaction and were fully committed from the get-go."

The notes, which priced "meaningfully" inside the bank's caps, formed the biggest portion of a complex financing package for the acquisition of the grocery chain, which allowed the Issa brothers and their private equity partner, TDR Capital, to buy an almost £7bn asset with just £800m in equity.

"Asda was groundbreaking because it was one leveraged buyout commitment, but represented three transactions in one," said Wei. "We had a sale and leaseback bridge, an asset disposal bridge and a leveraged buyout for the opco. It needed the mother of all inventions because we needed to make it work, and there was very little to go on, on the equity side."

Barclays took the decision to execute the whole deal in sterling, including a £2.25bn senior secured bond – the largest European high-yield and sterling issuance of all time. After launching the two-part bond in one of the most bullish periods of the year, the deal priced with the tightest sub/senior differential ever seen for a new issue LBO.

Away from M&A, the bank also led the market around more opportunistic trades, including underwritten dividend recaps for companies including Apollo-owned Lottomatica, a cross-currency refinancing trade for Constellation Automotive Group and a £1.2bn-equivalent debut high-yield and PIK refinancing for Covid-impacted David Lloyd Leisure.

“Ultimately our job is to look at the variables around at any time and get the best result for our clients,” said Stephen Smith, head of leveraged finance syndicate.

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