Steady hands
US corporate bond issuers faced a lot of adversity in 2023 as months of rapidly rising rates finally took their toll. Banks failed, volatility persisted and – at times – capital was scarce. For helping issuers across the credit spectrum deftly handle the end of the easy money era, Citigroup is IFR’s US Bond House.
The key events for US bond underwriters in 2023 were the spate of interest rate hikes, bank failures in March – including Credit Suisse and Silicon Valley Bank – and the reopening of the high-yield market after an extremely dismal 2022.
Dealmaking picked up across the board, for the most part. Overall investment-grade corporate bond issuance in the US climbed less than 1% to US$1.23trn, according to LSEG data. The high-yield market for new offerings rebounded significantly. The data show US volumes rose 67% to US$169bn in 2023 – though that is mostly a sign of just how bad the previous year was.
Citigroup was able to take advantage of the rapidly changing conditions, and the opportunities that came with them, to provide clients with best-in-class advice. That is why the New York-based lender was able to maintain its position at the top end of the league tables. In LSEG’s US investment-grade table, Citigroup held the third spot, where it has been comfortably for several years. It was ranked fourth on the table for high-yield corporate bonds, in line with its 2022 status.
“I think the overarching themes in calendar year 2023 were obviously rates, and the vigilance of the [US Federal Reserve] to try to stem the inflationary tide and the implications that had on financing markets,” said Peter Aherne, co-head of North America debt capital markets. “As you might imagine, these were markets that many observers had never seen before.”
That’s one reason why it took market participants time to realise that “money's not free anymore” and act accordingly, he said.
Despite the dramatic rise of the cost of capital, Citigroup brought to market several big-ticket bonds that backed mergers and acquisitions – a segment of the new issue market that is heavily affected when money is no longer “free”.
The dealmaker was one of the active bookrunners on the year’s biggest bond offering: Pfizer’s US$31bn trade that funded its planned acquisition of Seagen. The May deal, which was also the fourth-biggest US investment-grade bond offering ever, comprised eight tranches with tenors from two to 40 years.
The biggest challenge was not the size nor the obvious complexity of the financing package. On May 16, when the bond offering eventually priced, the regulator sued to block rival drugmaker Amgen's acquisition of Horizon Therapeutics. This had sweeping implications for Pfizer, its financing and the industry at large.
This was where being nimble paid off. Pfizer and its underwriters had to turn on a dime and sweeten the bond terms – changing the special mandatory redemption language and offering discounts – to get investors comfortable with the risk of the US$43bn Seagen acquisition falling through.
“The market obviously accepted that we did get thrown a curveball after marketing to more than 185 investors,” Aherne said.
Citigroup was also lead-left bookrunner on Amgen’s US$24bn eight-part bonds that backed the contested (and eventually completed) Horizon purchase and an active bookrunner on Merck’s US$6bn six-part offering to fund its purchase of Prometheus Biosciences.
Citigroup’s strategic financing prowess went beyond M&A. In November, it was an active lead on a US$6bn fundraising for aerospace defence company RTX, formerly Raytheon. Funds were earmarked to take out a bridge loan used for a US$10bn accelerated share repurchase programme put in place after RTX’s stock plummeted as much as 31%.
Bond investors do not generally like funding accelerated share repurchases when rates are rising. Citigroup helped find a way to get it done.
The bank’s M&A talents extended to the high-yield market, too. It was a bookrunner on two acquisition-related deals for Civitas Resources, for example. The Denver-headquartered oil and gas producer printed a US$2.7bn bond in June and another US$1bn deal in October. Importantly, both bonds priced less than a week after the acquisitions they ultimately funded were announced, obviating any of the market risk that had got banks into trouble in 2022.
Citigroup also worked on key high-yield bonds for Transocean, Vistra and Ball Corp. The firm was also lead-left on the US$2.6bn offering of 10.5% senior secured notes for REIT Uniti Group in February, a deal that helped reopen the high-yield market and one that proved crucial for the issuer.
“This is one where we were able to sneak in during a good period in the market, as well as a period where investors were more receptive to some of the challenges underlying that sector and get US$2.6bn, clean up their balance sheet and give them the time to run their business and execute their strategy,” said John McAuley, co-head of North America debt capital markets.
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