Deals of the Year 2016 – Europe

Bonds: Corporates 

WINNER: Anheuser-Busch InBev’s $46bn bond in seven tranches

Joint bookrunners and global coordinators: Bank of America Merrill Lynch, Barclays, Deutsche Bank

Joint bookrunners: Mitsubishi UFG, Santander Global Banking and Markets, Société Générale Corporate and Investment Banking

Bookrunners: Banca IMI, BNP Paribas, Citigroup, HSBC, ING, Mizuho Securities, Rabo Securities, RBS, SMBC Nikko, TD Securities, UniCredit Capital Markets, Wells Fargo Securities

Anheuser-Busch InBev, one of the world’s largest brewers, stunned the bond markets in January 2016 with what was the second largest ever bond offering for a corporate issuer. The Belgium-headquartered company raised $46bn equivalent of bonds across seven tranches to part fund its acquisition of UK-based peer SAB Miller.

The deal size was raised from an initial $25bn to $46bn – having attracted some $106bn of orders, in what was the largest orderbook in corporate bond history.

The seven tranches were divided between a $4bn three-year fixed-rate bond at 85 basis points (bps) over Treasuries at 1.9% coupon; a $500m five-year floating rate bond at three-months Libor plus 126bps; a $7.5bn five-year bond at 120bps over Treasuries at 2.65% coupon; a $6bn seven-year at 150bps over Treasuries at 3.3%; an $11bn 10-year at Treasuries plus 160bps at 3.65%; a $6bn 20-year at Treasuries plus 190bps at 4.7%; and an $11bn 30-year at 205bps over Treasuries at 4.9%.

AB InBev initially also planned to sell a three-year floating rate note but chose to drop it, allowing the company to tighten pricing at the short end further and achieve highly competitive yields and tenors.

All notes for the A3/A- rated issue were senior unsecured and were sold in a single-day execution. Despite the increase in issue size by more than $20bn, the bookrunners on the AB InBev transaction were able to tighten initial price thoughts on the bond issue by between 10bps and 30bps, as well as by an additional 5bps from guidance to launch.

After the successful transaction, AB InBev used some $42.5bn of proceeds from the bond issue to cancel its two $15bn bridge loan facilities, as well as to repay some $12.5bn under its term loan A facility.

Bonds: SSA 

WINNER: Ministry of Finance of the Russian Federation Rbs75bn 2.5% inflation-indexed government bonds

Joint bookrunners: VTB Capital, Bank GPB, Sberbank

In what was the first internationally placed offering out of Russia in 2015, the country’s ministry of finance sold Rbs75bn ($1.14bn) of inflation-indexed bonds in July. The transaction was also the first inflation-linked bond issue out of Russia.

Despite the country’s difficult economic backdrop, weighed down by the low oil price, the ministry of finance issued the bond with a fixed coupon rate of 2.5% at a price at the tight end of guidance. The deal came at a re-offer price of 91% of the Rbs1000 denominations to yield 3.84% – after initial price guidance of 87% to 92% was narrowed to 90% to 91%. 

The book was 2.6 times oversubscribed with demand from 71 foreign and domestic accounts amounting to Rbs198bn. The inflation-linked Russian government bond (OFZ) lowers inflationary risks and offers lower price volatility than ordinary bonds, serving as a convenient instrument for domestic investors such as pension funds, which need to guarantee inflation-beating yield, as well as for non-Russian investors to mitigate foreign exchange risks. 

The notes are indexed to consumer price inflation on a daily basis, paying a fixed, semi-annual coupon. The demand for the instrument provides a potential for future price growth similar to floating rate OFZs. The final issue size was kept to 50% of the maximum approved amount in order to ensure strong secondary market performance.

Investors were able to choose between having settlements for inflation-indexed OFZs performed on the stock market or the over-the-counter market.

The ministry of finance’s inflation-linked OFZs followed the Canadian model of inflation-linked bonds. The bond helped meet the government’s aim to demonstrate increased confidence in the authorities’ inflation-targeting policy; to diversify funding sources by attracting long-term institutional investors; to extend maturities and the duration of the government’s debt portfolio; to lower price volatility compared with standard OFZs; and to build a liquid benchmark curve for corporate issuers.

Capital Raising 

WINNER: Eurobank capital share increase

Bookrunners: Bank of America Merrill Lynch, BNP Paribas, HSBC, Mediobanca, Nomura, Barclays

Sole financial adviser to the Hellenic Financial Stability Fund: Rothschild

HIGHLY COMMENDED: Standard Chartered £3.3bn rights issue

The year 2015 was an instrumental one for the recapitalisation of the Greek banking sector. The result of the asset quality review and stress tests conducted by the European Central Bank identified a €14.4bn capital shortfall across Greece’s four largest banks under the most adverse scenario. At the very least, the €4.4bn shortfall under the baseline scenario had to be met through private sector money, and to avoid being put into resolution, the banks’ advisers created a comprehensive share capital increase.

Eurobank Ergasias had a capital shortfall of €256m for the baseline scenario, plus an additional €1.78bn to raise to meet requirements under the adverse scenario. With the need to cover the entire €2.04bn shortfall before year-end 2015 in order to avoid resolution driven by the EU Bank Recovery and Resolution Directive, Eurobank, as its peers, only had two months to act.

Eurobank linked its capital increase to a voluntary liability management exercise (LME), which opened only four days after the announcement of the results of the comprehensive assessment. Thanks to a high participation rate in the LME of about 80%, the risk on the capital increase was lowered and the book was closed with a coverage of about 1.2 times on November 17. 

Within the short timeframe, the country’s fourth largest bank by Tier 1 capital as of 2014 was only one of two banks to raise the capital solely via private sources, avoiding state aid and burden sharing – a key aim. 

After the share capital increase, the Hellenic Financial Stability Fund owns only 2% in Eurobank – the smallest share across the four Greek banks – from 35% previously.

The transaction was supported by international financial institutions the European Bank for Reconstruction and Development and the International Financial Corporation, which invested €65m and €50m, respectively.

Standard Chartered’s £3.3bn ($4.75bn) rights issue, meanwhile, was the largest in the UK since 2013 and the largest UK equity capital market transaction in 2015, making it this year’s highly commended entrant.

Equities 

WINNER: €16.7bn privatisation initial public offering of ABN Amro raising €3.8bn

Sole financial adviser: Rothschild Joint global coordinators: ABN Amro Bank, Deutsche Bank, Morgan Stanley 

Joint bookrunners: Barclays, Bank of America Merrill Lynch, Citi, ING, JPMorgan, Rabobank 

Co-lead managers: KBW, RBC 

HIGHLY COMMENDED: Worldpay Group £2.5bn IPO

In what was the largest ever privatisation and initial public offering (IPO) in the Netherlands, the Dutch state disposed of a 23% stake in the country’s third largest bank by assets, ABN Amro. The IPO raised €3.8bn for the Dutch state, including a 15% greenshoe. 

The secondary sale of depositary receipts in ABN Amro priced just below the mid-point of the original €16 to €20 range at €17.75 per share, which valued the company at €16.7bn. It represented about 1.03 times 2015 tangible book value, according to consensus.

Following a continued positive aftermarket performance, the greenshoe was fully exercised about two weeks after the pricing of the IPO in late November 2015, which took the free float from 20% to 23%.

There were more than 370 investor orders in the final orderbook, of which about 20% could not be allocated. The retail investor demand was also strong – more than 2.4 times the 10% preferential allocation planned for retail investors.

The IPO had to be constructed around a complex stakeholder group, including the Dutch parliament, the Dutch ministry of finance, ABN Amro, 11 syndicate banks, five external legal advisers, financial advisers, accountants as well as the regulators European Central Bank, the Dutch central bank and the Netherlands Authority for the Financial Markets.

The transaction returned ABN Amro to the Dutch stock market after eight-and-a-half years as an unlisted company post-nationalisation during the financial crisis in what was the largest ever IPO of a western European bank.

Meanwhile, the £2.5bn ($3.6bn) IPO of Worldpay Group is this year’s highly commended transaction. The offering also boasted numerous superlatives: it was the largest ever financial sponsor IPO in Europe, Middle East and Africa (EMEA) region, the largest EMEA IPO for a financial technology company, as well as the largest UK IPO since 2011.

Green Finance 

WINNER: Galloper offshore wind farm

Mandated lead arrangers: ABN Amro, BNP Paribas, BTMU, Crédit Agricole, Helaba, ING, Lloyds Bank, Natixis, Santander, SEB, SMBC, Société Générale

With climate change and the financing of green projects taking an ever more prominent position in the headlines, The Banker chose to this year add a green finance category. And although in this relatively young asset class there are numerous ways to innovate, this year’s Green Finance Deal of the Year in Europe is more of a classic green transaction: the project financing for the Galloper offshore wind farm.

The Galloper project of developing, constructing and operating a 336-megawatt offshore wind farm off the coast of Suffolk in the UK, was the largest project financing in the renewable sector in the UK to date. It also is the first ever fully greenfield offshore wind farm being financed in the UK, as previous project financings were for operational offshore wind farms or for offshore wind farms already in construction and near completion.

Sponsors Macquarie Capital, RWE Innogy, Siemens Project Ventures and the UK Green Investment Bank raised £1.37bn ($1.97bn) in financing, with the long-term debt tranche having a tenor of 15 years post construction. Construction has begun and is expected to reach completion by March 2018.

Meanwhile, the repayment profile is created in accordance with the debt service coverage ratio based on 1.35 times for the fixed portion of the revenues and 1.85 times for the variable portion.

The project will be supplied by 56 Siemens six-megawatt turbines and is supported by foundations 27 kilometres from shore. The project also includes the construction of an offshore substation platform and its connection to the onshore grid via two 132-kilovolt offshore export cables.

Galloper will benefit from the UK’s Renewable Obligation (RO) regulatory regime, under which it will be granted 1.8 RO certificates per megawatt hour over 20 years. The project will also benefit from two 15-year off-take agreements with Statkraft and RWE Innogy for 75% and 25% of electrical output and green benefits, respectively.

The Galloper project is next to the existing and fully operational Greater Gabbard wind farm. 

Infrastructure and Project Finance 

WINNER: Baltic 2 offshore wind farm project €720m financing through acquisition of 49.89% equity stake

Financial adviser: Macquarie 

Mandated lead arrangers: BTMU, Commerzbank, ING, KfW-Ipex, LBBW Bank, SEB, Siemens Bank, Société Générale, SMBC

HIGHLY COMMENDED: WindMW €978m bond

The specific objectives of Energie Baden-Württemberg (EnBW) for its Baltic 2 offshore wind farm project provided for an innovative financing solution. EnBW, one of the largest energy supply companies in Europe, had a strong preference to retain control of the project, while having no asset level debt, saw Macquarie Capital develop a transaction structure enabling the Sydney-based financial services group to acquire a 49.89% stake for €720m from EnBW through an innovative forward sale structure with a purchase price adjustment mechanism. The model provides the vendor with added execution certainty while protecting the investor against undesirable risks.

After the stake sale, EnBW remains invested with a majority stake and will provide extended operation and maintenance as well as commercial and technical management services to the project. 

The enterprise value of the project is about €1.44bn on a debt- and cash-free basis for 100% of the shares. Macquarie Capital’s €720m investment was met with an equity commitment of about €240m and €540m of holding company financing raised by Macquarie Capital through a club of nine banks.

The acquisition debt was structured as a minority holding company financing, which established a new form of financing structure in the German offshore wind sector, limiting the lenders’ security to share pledges, requiring considerable structuring around the project’s governance and minority shareholder protections. 

WindMW €978m project bond financing is highly commended thanks to its many firsts in the market. The owner of the 288-megawatt Meerwind offshore wind farm located off the coast of Germany is the largest European project bond without multilateral support and the largest renewables project bond globally. The project is also the first offshore wind project that has been rated or financed in the capital markets.

Islamic Finance 

WINNER: International Finance Facility for Immunisation Company $200m sukuk

Global coordinator: Standard Chartered Bank

Joint lead managers and bookrunners: Emirates NBD, Maybank, National Bank of Abu Dhabi, NCB Capital

Co-lead managers: Crédit Agricole, Morgan Stanley

September 2015’s vaccine sukuk for the International Finance Facility for Immunisation (IFFIm) has helped to put both Islamic finance and socially responsible investing on the map in Europe. The transaction, which was only the second ever vaccine sukuk as well as the first socially responsible sukuk in 2015, raised $200m for health partnership group Gavi, the Vaccine Alliance. The net proceeds of the sukuk support the alliance’s mission to provide children in poorer countries with life-saving vaccinations.

The transaction was priced after only one day, which allowed the book to grow to 1.6 times oversubscription levels. The three-year floating rate deal priced in line with guidance at three-month US Libor plus 14 basis points per annum at par.

IFFIm uses long-term pledges from donor governments to sell the so-called vaccine bonds in the capital markets. It benefits from $6.5bn in donor contributions over 23 years from the UK, France, Italy, Norway, Australia, Spain, the Netherlands, Sweden and South Africa – pledges that support the issuance of its vaccine bonds. The World Bank is acting as IFFIm’s treasury manager. All of this contributes to IFFIm’s strong Aa1/AA/AA issuer ratings, which supported demand, attracting interest from both traditional sukuk investors, as well as conventional investors with a focus on environmental, social and governance issues, some of whom had never invested in sukuk before.

The majority of the issue was placed with Middle Eastern investors at 65%, with Asia and Europe sharing the remainder. Most of the allocation went to banks with 78%, as well as central banks and other official institutions, while a share of 4% was allocated to fund managers.

The IFFIm’s vaccination bond programme helped nearly doubling Gavi’s funding for immunisation programmes since its launch in 2006.

Currently, 52 countries are eligible for Gavi support based on a gross national income per capita of $1580 or less.

Leveraged Finance 

WINNER: Istituto Centrale delle Banche Popolari Italiane Ä1.1bn high-yield bond transaction

Global coordinators: Goldman Sachs, HSBC, JPMorgan

Joint bookrunners: Bank of America Merrill Lynch, Citigroup, UniCredit, Nomura

The €1.1bn high-yield bond for Italy’s Istituto Centrale delle Banche Popolari Italiane (ICBPI) showed just how mature the European leveraged finance markets have become. The transaction, which priced in November 2015, consisted of two tranches of payment-in-kind (PIK) bonds to finance ICBPI’s acquisition by private equity investors Advent International, Bain Capital and Clessidra.

PIK bonds are seen as the pinnacle of riskiness within the leveraged finance world, as such bonds allow for the issuers to pay their interest payments in additional bonds rather than cash – making potential losses in case of a bankruptcy significantly higher for investors.

In the case of ICBPI, a leading operator in the Italian payments and securities services areas, the PIK structure was made necessary by the presence of bank-regulated activities within the group, where no external debt could be raised.

The result was the sale of a Ä900m PIK toggle bond due 2021 with an 8.25% coupon, as well as a €200m floating rate PIK toggle bond with the same tenor paying a coupon of 8% over Euribor through a holding company entity, MercuryBondCo. Both tranches were toggle notes, allowing for the issuer to pay some of the interest in cash under certain conditions, which depend on the flows of dividends upstreamed from ICBPI to MercuryBondCo.

The transaction was the largest ever debut PIK toggle bond issue in the European high-yield market and constituted the sale of the first ever PIK toggle floating rate notes. 

The proceeds of the offering were used to part-fund the €2.15bn acquisition of 89% of ICBPI by Advent, Bain and Clessidra, initial interest payment overfunding and related transaction costs, while the remainder of about €900m was financed through equity. 

The transaction had pro-forma opening net leverage of 4.5 times ICBPI’s normalised earnings before interest, tax, depreciation and amortisation of Ä233m. Despite the leverage and complex structure, instrument ratings from Moody’s and Standard & Poor’s were B3/B. 

Loans 

WINNER: AB InBev $75bn acquisition facilities

Mandated lead arrangers: Bank of America Merrill Lynch, Barclays, BNP Paribas, BTMU, Citi, Deutsche Bank, HSBC, ING, Intesa Sanpaolo, Mizuho, Rabobank, RBS, Santander, Société Générale, SMBC, TD Bank, UniCredit, Wells Fargo (all $4bn each)

Arrangers: ANZ, BNY Mellon, Commerzbank ($1bn each)

Although only in place for a short period of time – at least some of it – Anheuser-Busch InBev’s loan package supporting its acquisition of SAB Miller stands out as having been the largest syndicated loan ever. The $75bn of acquisition facilities for the US-Belgian brewer was divided into a $25bn term loan A with a two-year plus one tenor, a $10bn term loan B with a five-year tenor, two $15bn bridge facilities of one year and one year plus one each, as well as a $10bn disposals bridge facility with a one-year maturity.

AB InBev self-arranged the acquisition package in October 2015 between 21 banks, 18 of which provided ticket sizes of $4bn, while three committed $1bn each. The sheer number of credit facilities pledged makes this syndicated loan stand out – the largest transaction previously was that of US telecoms business Verizon, which raised $61bn from six banks in 2013.

As per the nature of bridge loans, within some three months AB InBev had repaid and cancelled both of its $15bn bridge loan facilities thanks to a $46bn bond issue in seven tranches. The Belgium-headquartered brewer used some $42.5bn of the proceeds for loan repayments, also allowing it to refinance some $12.5bn under its term loan A facility early. This leaves AB InBev with $12.5bn under its three-year term loan A, $10bn under its five-year term loan B and another $10bn under its one-year disposals bridge facility to repay.

The takeover of SABMiller by AB InBev was agreed on the terms of SABMiller shareholders receiving a cash consideration of $70.2bn, with a partial share alternative available to shareholders holding up to 40.5% of the company’s shares, valuing the UK brewer at $107.9bn. SABMiller recommended the takeover in November 2015.

M&A 

WINNER: Lafarge and Holcim merger and €6.5bn sale of assets to CRH

Merger advisers to Lafarge: Barclays, BNP Paribas, Citigroup, Lazard, Morgan Stanley, Rothschild, Zaoui & Co 

Merger advisers to Holcim: Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC, Perella Weinberg Partners, Société Générale, UBS

The merger of two giants in the global building material industry, France’s Lafarge and Switzerland’s Holcim, was a huge operation. With both companies previously ranking among the top three cement-producing companies in the world, the merger of equals first announced in April 2014 was creating a new world leader in the building materials industry, but required both companies to sell certain assets prior to the merger.

Holcim and Lafarge selected assets in 11 countries, which together could form a global competitor capable of standalone operations but could also be marketed separately as six asset packages, which allowed the sellers to create a competitive bidding process playing local against global bidders.

The merger further required anti-trust approvals in 20 jurisdictions to allow it to complete. The European Commission first approved the merger subject to divestments and other regulatory approvals in December 2014 and gave its final buyer approval in April 2015 after the announcement that all assets were being sold to Irish peer CRH for €6.5bn, and that CRH’s shareholders approved the transaction. The divested assets represented 36 million tonnes of cement production capacity, and the sale price was 8.7 times expected earnings before interest, tax, depreciation and amortisation (Ebitda).

As per the final terms of the transaction, Holcim initiated a public exchange offer of nine new Holcim shares for 10 Lafarge shares in July 2015, resulting in the full delisting of Lafarge. The merged entity – LafargeHolcim – is registered in Switzerland and listed on both the Euronext Paris and Zurich’s SIX Swiss Exchange.

The merged LafargeHolcim group is expected to extract more than €1bn of Ebitda of operating synergies from the merger and has a combined enterprise value of about €60bn, with some €40bn of equity. It is expected to generate about Ä32bn of sales and Ä6.5bn of Ebitda a year.

Restructuring 

WINNER: PrivatBank’s consent solicitations on $200m 9.375% 2015 senior bond and $150m 5.8% 2016 bond

Sole solicitation agent: Commerzbank

HIGHLY COMMENDED: GHG European CMBS restructuring

New capital requirements implemented by the National Bank of Ukraine (NBU) in May 2015, coupled with a decline in economic growth within the country as well as a devaluation of the hryvina, put PrivatBank in a difficult position. 

The systemically important bank had debt maturities coming up in 2015 and 2016 and was faced with a potential inability to secure new mid- to long-term financing on commercially acceptable terms. 

In one of the most complex bank restructuring transactions out of Ukraine to date, involving two categories of debt – senior and subordinated – as well as Ukraine’s first implementation of a UK Scheme of Arrangement, two consent solicitations were launched for the $200m of 9.375% senior notes maturing September 2015 and $150m of 5.8% subordinated notes due February 2016.

The transactions were exposed to difficulties, including the geopolitical situation in east Ukraine, as well as challenges posed by PrivatBank’s depositor base erosion. There was also a further risk of PrivatBank having its banking licence suspended and being put into administration by the NBU should the debt restructuring and recapitalisation not be achieved.

The 2015 notes were extended to January 2018, with a modified coupon of 10.25% and a revised amortisation schedule of 20% of outstanding principal payable in August 2016 and February 2017, as well as 15% each in May, August and November 2017, and at maturity in January 2018.

The re-profiling of the 2016 notes was carried out in two steps: a partial recapitalisation of PrivatBank as required by the NBU through the issuance of new $70m 5.8% subordinated loan participation notes due February 2021 at par, which were privately placed with a member of PrivatBank’s shareholder group. 

In a second step, the privately placed notes, by way of an exchange offer, were combined with the existing 2016 notes through a court-driven UK Scheme of Arrangement, with a second consent solicitation launched to create one new category of subordinated notes with an increased coupon of 11% and new maturity of February 2021. 

Securitisation and Structured Finance 

WINNER: Warwick Finance Residential Mortgages Number 1 £1.5bn RMBS for the Co-operative Bank

Sole arranger: Bank of America Merrill Lynch

Joint lead managers: Bank of America Merrill Lynch, Citi, Morgan Stanley

The £1.5bn ($2.16bn) retail mortgage bond securitisation (RMBS) for the Co-operative Bank was the largest UK non-conforming mortgages deal ever to be securitised in sterling and sold under a Regulation S licence. The transaction was structured under the Capital Requirements Directive IV, which meant that the Co-operative Bank maintained a 5% retention in the transaction through a random selection of loans.

The transaction, issued through Warwick Finance Residential Mortgages Number 1, was upsized from an initially planned £1.2bn to a final issuance of £1.5bn and divided into six tranches. The books received strong investor interest, with classes A to C oversubscribed by 1.1 to 1.4 times, while classes D to F attracted oversubscription levels of 4.1 to 5.5 times.

The Co-operative Bank retained 65% of its class A bond, equating to about £707m – less than the 70% share originally envisaged.

The RMBS allowed the Co-operative Bank to manage its risk-weighted assets (RWAs) by reducing its non-core optimum residential mortgage portfolio, which stood at £6.5bn at the start of the year, and helped increase the bank’s common equity Tier 1 ratio by 1.2 percentage points as at June 30, 2015.

The Co-operative Bank committed to an accelerated reduction in its RWAs particularly through reducing the optimum portfolio, with the non-core portion at circa 10% of total RWAs by the end of 2018 with a view to the Bank of England’s hypothetical stress tests in 2014.

The transaction established the Warwick platform, allowing for further follow-on sell-downs of the portfolio. The Co-operative Bank did so to sell its £1.65bn Warwick Finance Residential Mortgages Number 2 trade five months later. After both Warwick 1 and 2, only £3.1bn of the initial £6.5bn non-core optimum residential mortgage portfolio remained on the Co-operative Bank balance sheet.

At the time of pricing in April 2015, the deal represented the largest fully marketed placement of UK non-conforming mortgage RMBS paper post-crisis.