Deals of the Year 2013 – Americas

Bonds: corporates

Winner: Mondelez/Kraft Foods Group’s spin-off bond exchange and offering plus debut commercial paper programme, US
Bookrunners: RBS, Barclays, Goldman Sachs, JPMorgan, Citi
Highly commended: Reynolds $3.25bn high-yield notes; Codelco $2bn dual-tranche bond
When US-based food manufacturer Kraft decided to split the company into two – a snacks business renamed Mondelez and a business catering for the North American groceries market – it had to deal with the complex task of injecting $9.6bn of debt into the latter, while also managing to meet existing debt maturities and without adding to the overall group’s debt, beyond targeted credit rating thresholds.

The deal was formed by three bond components which had to be executed at precise times and in a defined sequence to get the intended results. These were a $6bn unsecured note offering for the North American grocery business, subsequently named Kraft Foods Group (KFGI), and $3.6bn exchange offering of pre-split Kraft (KFT) notes into KFGI notes, as well as $800m floating rate unsecured notes for KFT, which featured an unprecedented structure and which Kraft Foods Group’s treasurer, Darin Aprati, described as “the final piece of a very complicated puzzle.”

The $800m floating rate notes had to be placed to help meet existing debt maturities. Using a typical primary market US dollar bond would have raised heavy regulatory requirements due to the planned spin-off. RBS devised a new structure that allowed KFT to access the primary unsecured markets by issuing common bonds to both US and international investors with mandatory redemption before the businesses were split into separate entities.

The success of the $6bn offer drew praise from the judges, considering it raised financing for a new entity with no proven management track record at a time of volatility in the market. Further, the execution of the exchange offer avoided raising KFT’s leverage levels, which would have otherwise likely affected the credit-worthiness of the company.

Bonds: SSA
Winner: Federative Republic of Brazil’s 3.15bn reais 8.5% notes due 2024 and tender offer
Lead managers and bookrunners:
HSBC, Goldman Sachs
Highly commended: Highly commended: United Mexican States Y80bn samurai bond
Despite international investors’ concerns on local capital controls and foreign exchange volatility, Brazil successfully raised 3.15bn reais ($1.69bn) last year and at the lowest ever yield and coupon, 8.6% and 8.5%, respectively.

Interest in the issue was so high that the initial pricing was tightened by 15 basis points, meaning the price guidance of 8.75%, which the bookrunners used to carefully test the waters, was revised down to 8.6%. The order book was 2.8 times oversubscribed, and rather than further tightening the pricing, the issuer preferred to expand liquidity in the market and increased the issue size from the original 2bn reais. As a result, the issue has significantly improved the sovereign’s credit curve as well as providing a new reference point for Brazilian issuers.

To facilitate investors’ shift from shorter-dated global reais notes, more than half of the 10-year bond’s proceeds were used to repurchase 1.33bn reais of existing notes due in 2016 and 2022, which carry a 12.5% coupon, through a subsequent one-day tender offer. The direct link to the new issue increased demand and helped lower its pricing. The use of the tender offer – as opposed to a traditional exchange offer, which would need to be open for at least four working days – allowed the sovereign to reduce its market exposure.

Investors who bought the new issue were given preference in the tender offer, while holders who opted out of the new deal could cash in the existing bonds. This was the sovereign’s first benchmark global reais issue since 2007, its first liability management transaction since 2006 and the largest global reais transaction to date in its US dollar equivalent value.

Equities
Winner: BTG Pactual $1.9bn initial public offering, Brazil
Bookrunners: Bradesco BBI, BTG Pactual, JPMorgan, Goldman Sachs, Citi, BB Investimentos
Highly commended: Santander Mexico $4.1bn IPO; Cemex $1.15bn IPO
One of the largest and most talked about Latin American listings last year, BTG Pactual’s $1.9bn initial public offering (IPO) marks a new stage for the Brazil’s largest independent investment bank.

Investors flooded the orderbook, which was six times oversubscribed and showed very little price sensitivity. This came as little surprise given the growing success of the bank and the thorough roadshow it undertook, in which four management teams travelled to more than 20 cities across the world and conducted 165 one-on-one meetings and 19 group events.

As well as the size of this IPO, the quality of the orders was also of note. Of the 150 accounts that were allocated, the five largest received 35% of the book, and the 10 largest represented 45% of the total.

Interest in the deal was so firm that it was barely affected by the insider trading penalty issued to the bank’s founder, Andre Esteves, for trades he had done in an Italian company five years earlier, and which was made public the day after the IPO prospectus was filed.

Interest from investors was also apparent in the deal’s pricing. Despite the general adverse market conditions at the time of launch – when local and international investment banks’ stocks were falling – BTG Pactual’s IPO was priced at a premium compared to other local banks’ valuations.

BTG Pactual did not let those investors down. The bank reported a 69% increase in net profit for 2012, on the back of higher asset management fees and strong performance in principal investments and trading.

The listing gave the bank enough capital to strengthen its core Tier 1 ratio and beefed up its potential to expand the business beyond Brazil and become a dominant force in Latin America. Earlier last year, BTG Pactual merged with Celfin to extend its reach into the growth markets of Chile, Colombia and Peru.

FIG capital markets
Winner: Royal Bank of Canada $2.5bn SEC-registered covered bonds

Sole arranger and structuring advisor: RBC Capital Markets
Bookrunners: RBC Capital Markets, Morgan Stanley, RBS, TD Securities

Highly commended: American International Group $5.75bn follow-on offering
In a ground-breaking deal, Royal Bank of Canada became the first bank ever to issue a Securities and Exchange Commission (SEC)-registered US dollar covered bond. The SEC registration had the benefits of expanding the investor base and ensuring the broadest possible distribution of US dollar debt.

From an investor’s point of view, the registration provided further levels of disclosure, both at issuer level as well as at the cover pool level. It also maximised liquidity as the bonds are Trace (the Trade Reporting and Compliance Engine)-eligible and index-eligible – unlike covered bonds issued in the 144A format, which are traditionally used for international issuers.

This eligibility was a key element in attracting demand from buyers into US dollar covered bonds, and helped to achieve significantly larger funding levels.

The deal was very well received, with orders coming in from as many as 170 accounts from a number of regions, and it appealed to both rates buyers and credit buyers. The orderbook quickly reached $5bn, and given the size and the quality of the orders, Royal Bank of Canada was able to launch the bonds at the tight end of the price guidance, at midswaps plus 35 basis points, down from the initial price guidance of midswaps plus 37 basis points.

The deal is an important pricing reference for other Canadian banks, which may consider abandoning the traditional covered bonds route and go for a SEC-registration instead, which would result in lower launch spreads. It also marks just how interested US investors are in this kind of product, and gives inexperienced investors the chance to purchase AAA rated debt securities issued by banks which carry the added protection of being backed by cash flows from mortgages.

Infrastructure and project finance
Winner: Concessionária Auto Raposo Tavares 750m reais project debentures, Brazil
Bookrunners: Bradesco BBI, Banco Votorantim, BB Investimentos, HSBC

Highly commended: Ohio State University car parks QIC and LAZ Parking’s $483m project; Sabine Pass LNG $3.6bn project
Few countries’ infrastructure has received as much global attention as Brazil’s in the run up to it hosting football’s World Cup in 2014 and the Olympic Games in 2016.

Many doubts have been raised over whether the stadia and airports will be ready to welcome the expected spectators, and, more generally, on whether Brazil will manage to bring its creaking infrastructure – not just the parts affected by these sports events – up to speed with its economic development.

Brazil’s infrastructure funding needs are estimated to be $100bn annually for the next few years. Project debentures, or project bonds issued in the local market, in reais were introduced in the Brazilian financial markets’ legislation to help create additional financing sources.

The 750m reais ($371.5m) project debenture put together for Concessionária Auto Raposo Taveres (Cart) is a good example of capital markets financing supplementing state development bank BNDES’s traditionally advantageous loans. The issuer is a special purpose entity that operates 444 kilometres of a 30-year concession road, and it is controlled by Invepar, one of the largest Brazilian infrastructure groups.

The 12-year notes helped to maintain a better leverage profile for the issuer at the lowest possible price, while also taking advantage of certain tax breaks. While the yield was initially set to be 8% above the Brazilian inflation index (IPCA) for both of the debenture’s tranches, the final yield was brought down to IPCA+5.8% for the first tranche of 380m reais, and IPCA+6.05% for the second tranche of 370m reias.

The Cart deal has another notable feature as it is the first in Brazil to have brought a tax break-eligible project debenture to foreign investors, which ended up representing 200m reais of the offer. Interest in the project debenture was so high that the total demand for the deal was three times higher the final size of the offer.

Loans
Winner: Thoma Bravo $525m acquisition finance for Blue Coat Systems, US
Lead arranger: Jefferies

Highly commended: Cooxupe $225m export finance facility; Cencosud $2.5bn acquisition finance
Raising money to purchase a company with an ailing sales record is not an easy task. Thanks to a good knowledge of the sector and a well-tailored approached, Jefferies successfully raised a total of $525m for the acquisition of security software company Blue Coat Systems by Thoma Bravo, a private equity firm specialising in software and business services investments. Once executed, the deal significantly increased share price value after the target’s poor performance in the previous 52 weeks.

The financing package included a $50m revolving credit facility, a $360m first-lien term loan and a $115m second-lien term loan. In particular, the revolving credit facility allowed Blue Coat to unlock cash trapped overseas soon after the deal was closed thanks to a proprietary tax strategy.

Jefferies worked closely to the client to structure the appropriate pricing and leverage for the deal so that the highest level of interest and the right type of investor would be attracted to it. It also made sure the target’s management team was involved in the process so that the story of the company could be fully explained to potential investors, as well as its anticipated turnaround plan.

This dedicated approach paid off. The loan size could be doubled even before the deal’s official launch, and then doubled again before the official commitment deadline.

This reduced Thoma Bravo’s equity involvement by $60m, which was equal to more than 10% of what was originally anticipated, which allowed for a significant increase of the sponsor’s returns profile. Furthermore, Jefferies was able to arrange a new $525m credit facility to refinance the original deal. The financing package was integral to the success of the acquisition, which allowed Blue Coat to focus on operational improvements away from activist hedge funds.

M&A
Winner: Guggenheim Baseball Management $2.15bn takeover of LA Dodgers, US

Financial advisor to LA Dodgers: Blackstone
Financial advisor to Frank McCourt: Moelis
Financial advisor to Guggenheim Baseball Management: Guggenheim Partners
Highly commended: Express Scripts $34bn acquisition of Medco Health Solutions; Strategic investors 600m reais acquisition and 817m reais part-sale of Tecondi complex
Few purchases grab headlines in the way that a megabucks sports deal does – especially if it turns a bankruptcy case into a lucrative business proposition.

Due to cash-flow difficulties, baseball team the LA Dodgers was forced to file for Chapter 11 bankruptcy in 2011, and the club’s owner, Frank McCourt, was asked to sell the club. At the time, most observers would have placed the deal value at less than half the final consideration.

However, this was no ordinary sale. Within the settlement agreement under which the sale would have to be executed, the Dodgers and its advisers negotiated certain terms which would allow more flexibility and leave Mr McCourt oversight of the process. The advisors of both the targets and the vendor educated bidder groups and capital sources on the value of the media opportunity, the rare opportunity of owning an iconic baseball team, and the growth opportunities inside and outside the famous Dodger Stadium.

In particular, media rights that would have given first refusal to cable network Fox under the existing contract are to expire in 2014, and other networks were keen to be allowed to compete for the Dodgers’ media telecast rights, placing a premium on the company.

In the end, the Guggenheim Baseball Management consortium led by financial firm Guggenheim Partners and basketball legend Earvin ‘Magic’ Johnson placed the record-breaking offer – the highest any sports team has been sold for. Guggenheim Partners’ chief executive, Mark Walter, said: “It was the cost of owning one of baseball’s most storied franchises.”

Real estate finance
Winner: Kyo-Ya Hotels $1.85bn mortgage and mezzanine financing, US
Lead manager and sole bookrunner: Goldman Sachs
Co-manager: Citi
Highly commended: FII BB Progressivo II 1.6bn reais real estate fund
The financing package put together for leisure group Kyo-Ya Hotels marks one of the largest and most complex refinancing deals in the real estate market since the onset of the financial crisis.

It was formed by $750m-worth of mezzanine loans and a $1.1bn floating rate mortgage loan that was securitised in a single-borrower commercial mortgage-backed security (CMBS) deal. And it was executed at a time of high volatility in the CMBS market and with only few precedents for large, floating rate hotel deals. Goldman Sachs proudly points to the fact that this is the largest floating rate transaction of the past two years.

The transaction was backed by six full-service hotels and resorts in Honolulu, Maui and San Francisco, all in the US, and was used to retire $1.1bn of existing debt. The deal was sponsored by Japanese company Kokusai Kogyo, which is jointly owned by Cerberus Capital Management and Takamasa Osano.

The transaction was postponed a number of times over a 12-month period, during which time the Japanese tsunami hit, but it was eventually completed thanks largely to the determination of Goldman Sachs. The bank committed to providing the full financing when a third party that would have initially provided the mezzanine loan withdrew from the transaction, shortly before the scheduled closing date. Within two weeks of the withdrawal, the bookrunner committed to providing the entire $1.85bn transaction and within the following two weeks it was successfully closed.

The hotel market had been badly affected by the economic downturn and it should be noted that this deal was successfully marketed despite large-scale renovations being carried out at the properties involved. In spite of this, the deal was very well received by investors that represented 41 separate accounts. The mezzanine loan was sold in four tranches to prominent global institutional investors.

Restructuring
Winner: Kerzner International $4.1bn restructuring, The Bahamas

Financial advisors to Kerzner: Blackstone, Goldman Sachs

Financial advisor to Istithmar World: Moelis
Financial advisors to creditors: Arcturus Group, Houlihan Lokey

Highly commended: Tribune Company $11.7bn Chapter 11 restructuring
Few private sector companies can claim to represent more than 10% of a country’s gross domestic product, so when Kerzner International was on the brink of default, it could have had a devastating effect for the whole of The Bahamas.

Kerzner owns a wide portfolio of holiday resorts, casinos and hotels, which include the Atlantis and One&Only franchises. At the time of this restructuring, it employed 11% of the country’s population. Macroeconomic conditions, coupled with a weak international hospitality business and country-specific challenges, prevented the company accessing the capital markets so that it could refinance various existing debt maturities, which Kerzner would have been unable to repay.

The restructuring dealt with debt obligations by various parts of the holding, such as Atlantis, Paradise Island in The Bahamas and The Palm in Dubai, as well as by Kerzner International Holdings itself. It improved Kerzner’s capital structure and positioned the company for sustainable, long-term growth by eliminating nearly $4bn of liabilities, improving cash flow through new management agreements and helping existing shareholders retain most of their equity without requesting any additional capital.

Negotiations overcame creditor objections across parts of the multiple transactions and created an asset-light holding company. This was a complex deal that required the simultaneous execution of many of its parts.

It also required the support of the Bahamian government, which was obtained after extensive consultation and only a week ahead of prime ministerial elections. As a result, stamp tax was reduced, a critical element to execute a global consensual transaction, and government support was granted for marketing and infrastructure development linked to the deal.

Since the restructuring, operating performance across all properties has substantially improved and allowed the company to consider further refinancing options.

Structured finance
Winner: Gávea Crédito Estruturado 1bn reais FIDC, Brazil
Lead manager: Bradesco BBI
Bookrunners: Bradesco BBI, JPMorgan, BB Investimentos
Highly commended: Driver Brasil One R1bn auto securitisation
Recently, fundos de investimento em direitos creditórios, or FIDCs, have gained notoriety for all the wrong reasons, as some products sold by a mid-sized bank in Brazil were found to be based on fictitious assets. But the concept of FIDCs offers a great solution to Brazil’s smaller corporates as they struggle to access capital markets funds – and at a time when there is also a higher level of leverage and defaults among businesses. FIDCs are an easy way to access long-term financing, they provide a flexible debt structure and a debt amortisation tailored to fit companies’ cashflow generation.

In particular, the structure put together by Bradesco BBI for Brazilian fund Gávea Crédito Estruturado had interesting features for the portfolio manager too. It gave Gávea the ability to include several types of corporate debt – from plain-vanilla corporate assets, such as debentures, to more complex structures, such as asset-backed securities. It also allowed flexibility in terms of allocation strategies – with up to 50% of portfolio value potentially being allocated in higher yielding assets.

Gavea’s 1bn reais ($496.2m) was split in a 650m reais senior tranche, a 200m reais mezzanine tranche and a 150m reais junior tranche. A good rating score for the senior and mezzanine tranche was secured by limiting firm and sector concentration, with higher restrictions in sensitive sectors such as agribusiness and real estate.

The deal’s interesting structure was coupled with an effective marketing strategy. Public investor meetings as well as one-on-one meetings were organised.