Indian M&A lending springs to life

Golub Capital is lead arranger of a US$3.4bn unitranche facility that will refinance enterprise software company Hyland Software’s broadly syndicated debt. The unitranche facility comprises a US$3.25bn term loan that priced at 600bp over SOFR with an OID of 98.5, and a US$150m multi-currency revolver. Hyland Software turned to the private lender to refinance its existing broadly syndicated debt that included a first-lien loan, a second-lien loan and a revolving credit facility. Golub Capital is the administrative agent, lead left arranger and joint bookrunner on the transaction, among the largest unitranches this year. “We were able to offer an efficient execution at a competitive rate in support of the company's financing needs,” said Spyro Alexopoulos, co-head of direct lending at Golub Capital. Private lenders have been writing bigger cheques as market conditions have improved and borrowers look to the asset class for certainty of execution. This month, a group of twenty private lenders led by Oak Hill Advisors provided a record US$5.3bn debt package to refinance financial technology firm Finastra’s debt. The debt financing included a US$4.8bn six-year unitranche and a US$500m revolver. Hyland Software provides enterprise content management software to corporate clients. Thoma Bravo acquired the company in 2007. Freight logistics firm Forward Air widened pricing and made document changes on its senior secured US$1.125bn term loan B that will be used to fund the company’s acquisition of Omni Logistics. Pricing on the seven-year covenant-lite term loan B was raised to 450bp over SOFR with an OID of 96, from guidance of 375bp–400bp and an OID of 98. There is a 0.75% floor. The TLB was increased from US$925m and the bond size was cut by US$200m to US$725m. It has 101 soft call protection for 12 months, extended from six months. Amortisation is at 1% per annum. A number of changes were also made to the credit agreement, including an increase of incremental ratio test to a maximum first-lien net leverage ratio of 2.8 times from 3.2 times, the removal of the "no worse" prong for acquisition debt, the removal of fixed-charge coverage ratio covenant, removal of starter basket and modifications to restricted payments baskets. The facility features MFN protection of 50bp for the life of the loan, which is applicable to all pari passu term loans, from previous MFN protection of 50bp with a six month sunset subject to certain carveouts. Expected corporate and facility ratings are Ba3/BB–/BB–. Citigroup is the lead-left arranger and agent. Additional joint arrangers are Morgan Stanley, Goldman Sachs, JP Morgan, US Bank, PNC, Capital One, Citizens, Deutsche Bank and Toronto-Dominion.

Instacart followed the template for reopening the US IPO market: solidifying demand with cornerstone investors upfront, tightly placing stock with select investors on a tiny free-float and forcing other investors to fight for scraps. Everything seemed peachy but it all went wrong when the shares started trading. Given an opportunity to bank a profit, those investors with meagre allocations sold when the stock opened at a premium and continued selling right down to the offer price. Cornerstone investors took US$400m of the US$660m deal but are not subject to any lock-up. That includes shareholders Sequoia Capital and D1 Capital, which were averaging down by buying at US$30 per share, making up for previous private investments in the grocery delivery company at valuations of up to US$125 per share. Limiting the pain of a down round by giving pre-emption seems fair enough. Yet some suspect cornerstone investors were punting the stock in the aftermarket – pointing to traded volume of over 63m shares in the first three days versus just 8.7m placed publicly. The company’s shares fetched US$30.05 late on Friday morning, close to the US$30 IPO price but a lot of the selling (and buying) occurred at US$38–$40 on Tuesday’s debut – and someone is left holding that bag. Employees handed stock over the years are also looking to get out, with the first lock-up expiring when Instacart reports third-quarter results. That is conditional on the stock trading above US$36 – so is unlikely to happen now – but that overhang was always going to curtail returns for IPO investors. Having been locked out of the public equity markets for two years, venture capital firms and employees are keen to sell. Understandably. But asking public investors to cash them out was always unlikely to end well. The small float approach is a decent technique for building momentum in the IPO market, but a bigger float with smaller overhang would have suited Instacart’s situation better. Having public investors lose money is a surefire way to close a market that has yet to properly re-open. Fossil folly? The old narrative around sovereign green bonds is over. It ended abruptly on Wednesday when two major issuers both decided (for reasons of electoral logic if not responsible government) to “shoot their green bond markets in the knees”, as one analyst vividly put it. The decision of Sweden and the UK to resile from previous climate-friendly policies mean that investors can no longer blithely assume that any country issuing green bonds will continue on a committed and relatively well-defined path to reduce emissions. Previously, that assumption made the only real question picking the most impactful trajectories (plus minor differences in the quality of their frameworks and use of proceeds). Both countries say they remain on course for net-zero in 2050 (they will the end, if not the means). But in the nearer term, their populist move away from clear commitments will worsen their emissions profiles and make their green bonds less credible. That leaves buy-and-hold owners to choose between the rock of selling out at the wrong point in the rates cycle and the hard place of staying in a weakened exposure. Moreover, no amount of green selling by ESG investors will provide the bond vigilanteism that sovereign underperformers might expect in other contexts (see the UK’s short-lived Truss administration). Even with their green credentials faded, the bonds are still part of the sovereigns’ yield curves. Fall too far and non-ESG investors will treat them simply (and tellingly) as cheap paper to be snapped up. All of this will reinforce some investors’ preference that sovereigns issue sustainability-linked bonds. Unlike use of proceeds structures, SLBs directly punish backsliders – through a stepped-up coupon and the reputational damage of being seen to fail. After Wednesday, that may seem insurance worth

Citigroup’s Canary Wharf tower is currently a building site, a belt of scaffolding hanging round its waist, as the US lender renovates the floors that house its traders and other bankers. Andrew Morton, Citi's head of markets, has been facing a similar task: to revamp the bank’s trading unit to make it more profitable, while strengthening the pillars that have made it Citi’s main revenue generator and one of the world’s largest markets businesses. “We’d rather have better returns than win in some [revenue] ranking contest,” Morton told IFR. “We’re in a different position to other firms. We have tried very hard to be efficient with our capital footprint to reflect Citi’s overall goals.” Morton keeps a low profile considering his reputation as one of the most successful traders of his generation. But he has been thrust into the limelight following chief executive Jane Fraser's decision to strip away a layer of senior management in a move that coincided with (or perhaps resulted in) the retirement of investment bank head Paco Ybarra. That put Morton just one rung below the top job, reporting directly to Fraser, as she looks to get a firmer grip on the bank’s sprawling operations and boost Citi’s sagging share price. Citi is the third-largest bank in sales and trading, its revenues providing a substantial layer of ballast to the wider firm that has helped offset recent declines in businesses such as investment banking. Global markets, where Citi helps its corporate and institutional clients trade everything from US Treasury bonds to commodities, stock options and emerging market currencies, has grown 22% in the past four years to account for a quarter of the bank’s US$41bn first-half revenues – more than any other division. But the growth of recent years hasn't been enough to dispel concerns over the large sums of capital Citi’s trading desks consume and the consequent drag on shareholder returns. Increasing the profitability of the markets division was an important part of the new strategy that senior management announced 18 months ago – and the bank has lost no time in reshaping the business. “The capital that’s attached to markets businesses is very high,” said Morton. “We have a scale business that brings in a lot of revenue. That’s why we don’t need to take outsized risks. [But] we do have to manage the costs and the capital.” Citi has taken a two-pronged approach to reinvigorating its markets unit: shrinking low-returning activities – for example, trading bank loans or FX forwards – while investing in areas it thinks offer better returns. That includes fleshing out its stock-trading division to bring greater balance to a markets business that has long been defined by its prowess in trading bonds and currencies. Citi's fixed-income unit is second only to JP Morgan’s in terms of heft, with its position in macro products linked to interest rates and currencies coming to the fore when dramatic shifts in central bank policy have dominated markets. But the bank remains a relative minnow in equities next to its Wall Street rivals even after expanding considerably in recent years, something that limits its ability to capture a revenue upswing in those markets. “You have to be able to reinvest,” said Morton, reeling off a string of priorities including physical commodities trading and financing, European government bonds and equity prime brokerage. “But to do all that we have to downsize somewhere else. We view it as a churn: winding down any business that is not as return accretive, or not as important to clients any more.” From maths to markets Morton’s path to becoming Citi’s top trader started in academia, where he helped develop a widely used mathematical framework for valuing derivatives. He joined Lehman Brothers in the 1990s as a q

Slovenska sporitelna has mandated banks for a debut green senior preferred transaction. The deal will be a €300m no-grow five-year non-call four issuance. Its parent, Erste Group, is sole green structuring adviser and a bookrunner, along with Commerzbank, DZ Bank, JP Morgan and UniCredit. The notes are expected to be rated A2 by Moody’s. The bank is the largest in Slovakia by various metrics including total assets, total loans and total deposits.

Senior preferred trades from Banca Popolare di Sondrio and Hamburg Commercial Bank on Tuesday showed the market is still receptive to smaller credits, although demand was more modest. The deals progressed almost in lockstep, with both of the €500m offerings launched 15bp inside IPTs on the back of peak demand of €750m-plus. German lender Hamburg Commercial Bank landed its March 2027 senior preferred at 145bp over mid-swaps, down from IPTs of the 160bp area, through CaixaBank, Commerzbank, Deutsche Bank, Goldman Sachs Bank Europe SE, Jefferies and UBS. The final book stood above €600m. The deal is HCOB's second benchmark senior preferred issuance of the year, following a €750m two-year transaction priced in March. Italy's Banca Popolare di Sondrio was offering a five-year non-call four green senior preferred that was its first benchmark senior unsecured issuance since July 2021. Leads Banca Popolare di Sondrio, BNP Paribas, Citigroup, Deutsche Bank, IMI-Intesa Sanpaolo, Santander and UniCredit opened books for the no-grow trade with IPTs of the mid-swaps plus 225bp area, before setting the spread at 210bp. The final book stood above €670m (including €35m of leads' interest). Earlier in the week, fellow Italian lender Credito Emiliano gathered a larger book for a €500m 6.5-year non-call 5.5 social senior preferred bond. BNP Paribas, Bank of America, Credit Agricole, Deutsche Bank and Santander initiated price talks at the mid-swaps plus 185bp area for the no-grow trade. The book peaked at €1.25bn enabling the leads to fix pricing at 160bp, and later closed at around €1bn. The new notes were launched in conjunction with a tender offer exercise for Credem's outstanding €500m 1.5% October 2025 SNP. Another rare issuer, Denmark's Spar Nord Bank, held investor calls last week ahead of a debut four-year non-call three senior preferred with an expected size of €300m. Pricing is expected this week. Hamburger Sparkasse, meanwhile, has lined up a series of investor calls running until next Friday to market its first senior preferred benchmark, a €500m long five-year.

The majority of institutional investors expect nature-related investments to become an asset class in their own right, according to a global survey of more than 550 firms in six countries (Australia, France, Japan, Singapore, the UK and the US). Pollination, an advisory and investment firm that chairs the Sustainable Markets Initiative’s Natural Capital Investment Alliance Task Force, commissioned the survey and used it for a new report: “Nature Finance Focus: Tracking global trends in nature investment”. The responses indicate that “a significant population of institutional investors are actively working on nature and investing in nature opportunities”, the report said. Three-quarters of respondents expect nature-related investments to evolve “entirely or partially” into an asset class, with the remainder seeing it as a theme across existing asset classes. Sixty percent of respondents were from entities with US$100bn or more of assets under management. The average AuM was US$195bn, with the range from below US$10bn to above US$500bn – though most manage at least US$30bn. Pollination said larger institutions are especially likely to view nature as an asset class. In contrast, however, only 18% consider nature both a source of investment risk and opportunity. A higher proportion view it more as a risk than as an opportunity – 46% versus 37%, respectively. One striking finding from the survey was US investors’ strong appetite for nature-related investment despite the country’s anti-ESG sentiment. US investors were more likely to integrate nature into their investment risk framework than any other jurisdiction except for Singapore, and were the second most likely to make it part of their investment strategy and to engage with investee companies on the topic (with 47%, 41% and 39% respectively doing so). “It’s held above politics,” said John Morton, head of US at Pollination. “We are observing a great deal of interest from clients to make long-term and formalised investments in nature-positive assets, not just one-off deals.” The new Taskforce on Nature-related Financial Disclosures guidelines could help address concerns over data inconsistencies when measuring biodiversity impact, Morton added. He anticipates more companies participating in the voluntary disclosure framework in the coming years. “There could be a snowballing effect once the largest companies take part,” he said.

The disappointing trading patterns following a trio of IPOs in the US has quelled the optimism that greeted the nascent reopening of the new issue market, despite Schott Pharma's up to €859m Frankfurt float gaining immediate coverage throughout the range. "We have seen covered messages on everything that has launched so far and yet many haven’t worked," said a German banker. "Even with Schott’s coverage throughout, does that mean anything? Quite possibly that is only 5%–10% long-only interest at the top and the rest is fast money, so where do you price it?” A French banker agreed that the message isn't always clear, but despite that, his preference is to alert the market to being covered as soon as possible. A senior banker at a US bank concurred on putting out covered messaging as soon as possible. "It would take a very brave banker to pass that up," he said. The US banker also noted that a number of investors made money on the US deals, cashing in on the initial pop. “In a year like this, you take that move higher and move on with a nice little profit," he said. The German banker said much of the upcoming pipeline is driven by private equity and recent PE-backed companies haven’t performed "such as TeamViewer or more recently Ionos, where private equity still holds significant stakes but are stuck due to the share price". Other bankers said that they are working on PE sellers so they appreciate that there isn't much point maximising value at the IPO if they then can't sell their remaining stake. Another real concern for banks is the overall level of fees – due to fierce competition for mandates – and the large proportion allocated to the incentive element. "If you are not achieving results, then incentive fees are rarely being paid. You are then looking at something like a 1.5% base fee, potentially being carved into by cornerstones," said the German banker. "It's not much money for a lot of work and when you combine that with the negativity and caution, it very quickly ends up with no IPOs again."

Standard Chartered has launched a sustainable trade loan for its financial institution clients globally that aims to support trade flows funding sustainable development. The new product will be targeted primarily at the renewable energy sector and will bolster the bank's sustainable trade finance initiative designed to boost clients' sustainability and build more resilient supply chains across Asia, Africa and the Middle East, Europe and the Americas. The initiative was launched in March 2021. Sustainable trade loans will be issued under Standard Chartered's green and sustainable product framework and will provide short-term trade financing to financial institutions that are then lending to sustainable end users with trade flows that support investment and spending with a positive ESG impact. Eligible activities focus on renewable energy generation, manufacturing components for renewable energy technology and the construction, maintenance and expansion of distribution networks. That includes installing wind turbines, purchasing solar panels, and selling renewable energy battery storage systems. “We know that many financial institutions and their clients want to play a greater role in driving sustainable outcomes by directing capital to where it matters most in their markets,” said Samuel Matthew, global head of flow and financial institutions trade at Standard Chartered. Supporting sustainable trade loans to developing countries could help to close a financing gap estimated at US$3.9trn in 2020 by the OECD and provide another way of moving money from the global north to south. Research by the bank shows that approximately 70% of large corporates and mid-sized companies are still finding obtaining funding or finance for ESG and sustainability-related expenses and investments difficult. Providing much-needed liquidity will help Standard Chartered's FI clients to meet their net-zero targets as part of their broader sustainability agenda and will also count towards the bank's own ESG targets. Standard Chartered has committed to reaching net-zero carbon emissions in its own operations by 2025, and in its financing activity by 2050, which includes a commitment to mobilise US$300bn in green and transition financing to help clients decarbonise. Sustainable trade loans sit in the bank's transaction banking division and are separate from its syndicated lending business.

Italian gas infrastructure company Snam raised €500m on Thursday from what is believed to be the world’s first exchangeable transition bond, issuing five-year paper exchangeable into distribution company Italgas. Proceeds from the EU Taxonomy-aligned transition bonds will support projects under the company’s sustainable finance framework. Snam carved out the majority of Italgas in June 2016, with a 13.5% residual stake a legacy of that transaction. The 83.3m shares underlying the bonds represent 10.3% of Italgas. An offering of €500m five-year bonds launched around the London close on Thursday following a day of pre-sounding that completed with coverage on indications. The bonds were offered with a 2.75%–3.25% coupon and 20%–25% premium over the reference share price set from a delta placing expected at launch to total €75m. Coverage on the bond and delta placing came after more than half an hour, with guidance after 6:30pm in London that pricing would come at the best ends for investors at a 3.25% coupon, up 20%. Orders below €5 in the delta placing risked missing out and books were due to close just after 7pm. A 20% premium represents a conversion price of €6, with Italgas shares trading above that level for two days in April and in May 2022. Pricing at €5 is a 2.7% discount to Thursday’s €5.14 close and shares ended at €5.06 on Friday. The delta placing was eventually sized at €63.6m, with 12.7m shares involved. The bonds come with a call from October 2026 at a 130% trigger and dividend protection from 2024 onwards at €0.33 to €0.386. The company’s most recent dividend was at €0.317, with previous dividends below €0.30. The company has ratings of Baa2/BBB+/BBB+ with a credit assumption of 80bp derived from straight bonds trading around that level with no pushback. Borrow was available at 50bp. Implied vol was 17% on pricing from 17%–22% guidance, versus historic vol over 90 days of 17% and 250 days of 22%. The bond floor was 96 on pricing and the bonds were trading around par on Friday. “There really was not much left on the table,” said the banker. He said that the cost of financing was roughly 100bp cheaper than issuing a straight bond, a figure Snam’s chief financial officer reiterated to Reuters on Friday. “We launched against a difficult tape, but the client wanted to go with a Thursday launch and I think we achieved a fantastic outcome,” the banker said. “We came to market with aggressive terms and when you combine the 20% premium with the dividend protection it’s closer to a punchy 66% premium over five years while at the same time the coupon allows Snam to achieve savings.” A second banker said the higher premium from the combined dividend of the underlying and initial premium was less appealing to long-only accounts, as had been expected, which is one of the reasons why the deal launched post-close. “It is cleaner for hedge funds and we were doing the short for them, so we knew that while some outrights would participate, others would not like the high dividend of the underlying,” he said. The second banker said a book of more than 70 lines was skewed to hedge funds, but noted those taking outright positions meant the size of the delta shrank. Snam shares closed down 1.6% on Friday at €4.638. BNP Paribas and JP Morgan were structuring banks, and joint bookrunners with Barclays, Bank of America and UniCredit/Kepler Cheuvreux.

Lacklustre aftermarket performances from recent debutantes Arm, Instacart and Klaviyo have cast a renewed pall over the US ECM market, dousing expectations for continued issuance through the end of this year. Despite drawing strong demand and engineering early pops, all three of this month's trophy IPOs have pulled back hard in the aftermarket or shortly after they went public. Two of them (Arm and Instacart) broke issue at one stage and all were clinging to only modest gains early on Friday. Amid rising rates and pressure on stock prices for a second straight month, the US ECM backdrop has again become muddled, though bankers still hope to push ahead with the US$1bn-plus NYSE IPO of sponsor-backed German sandal maker Birkenstock in the next few weeks. What other names can forge ahead is less clear, though earnings blackouts ahead of the quarter-end are also poised to curb secondary issuance in the next few weeks. Bankers had previously pencilled in companies such as Rubrik, Turo, Navan, Reddit and StubHub as late-year IPO prospects, though many had already warned that more free-flowing issuance was not likely until next year. The IPOs of Instacart and Klaviyo contributed a combined US$1.2bn of IPO proceeds in the past week (Arm priced in the previous week), while US follow-ons added another US$600m of proceeds. One more pronounced trend in recent weeks has been the return of energy sector issuance alongside the strength in oil prices, the latest example Permian Resources' US$280.6m secondary stock sale late on Tuesday.

Private equity suitors are circling security technology firm Prosero Security, with direct lenders likely to provide the buyout financing for a sale where Citigroup has taken on the sellside adviser role. While the M&A process for the Sweden-headquartered company is still in the early stages, the financing size could be as much as €500m, a source said, adding that there are around eight private equity firms looking at the assets, with Prosero's owners hoping to sell at a high price-to-earnings multiple of between 15 and 20 times. The company is said to have earnings of around €50m, while its total turnover amounts to more than SKr4bn (€337m). Prosero was formed in 2017 through the merger of eight security companies from Sweden and Norway, backed by Swedish investor Valedo Partners. Prosero has acquired multiple businesses since its formation, and in September announced the acquisition of Danish security company SIKOM Danmark. Banks have shown increasing willingness to underwrite deals, while the syndicated market can offer cheaper pricing than private credit – loans prices in the secondary market have pushed into the high 90s. But bankers said that a business like Prosero, with a stable income stream, offers a profile and sector favoured by direct lenders. That means direct lenders are likely to offer high leverage in their financing packages. “If you are a tech company and the bank market puts five times leverage on and the direct lenders put six times on then you probably look more at the direct lenders,” said a leveraged loans banker.

Norway’s Var Energi has seen its tight free-float increase following an upsized NKr4.56bn (US$423.7m) sell-down by shareholder HitecVision. Thursday's sale represents 6.3% of the company and increases the free-float to 22%. A wall-crossing exercise meant the deal was covered on indications with formal coverage coming around 20 minutes after launch after the close. High levels of demand allowed an increase from a launch size of 5.7% of the company. Pricing came at NKr29, a 9.4% discount to the NKr32 close. According to a banker involved the offer was hugely oversubscribed with a book of 560 lines leaving the deal more than five times covered. Of these around 300 were zeroed. "The local community was very supportive with the top three all big Nordic institutional investors," said the banker. “The whole Nordic community was very firm on price though, the internationals were willing to pay a tighter range.” Allocations saw around half go to long-onlys, family offices and sovereign wealth funds. The top 10 took around half and the top 20 more than two-thirds. As indicated before launch Var Energi CEO Nick Walker subscribed for US$1m of stock. The sell-down is the second by HitecVision, having sold in June last year as part of a NKr5.02bn ABB following Var Energi’s IPO earlier in February. HitecVision is left with a 14.4% stake and has agreed to a 90-day lock-up. Majority shareholder Eni reassured buyers of the ABB by stating it has no plans to sell shares in the foreseeable future. Barclays, DNB, Morgan Stanley and SpareBank 1 were joint global coordinators, and joint bookrunners with ABG Sundal Collier, Carnegie, Jefferies and Pareto Securities. Arctic Securities, Nordea and SEB were co-lead managers. Shares remained above issue on Friday, closing down 6.8% at NKr29.81.