Deals of the Year 2017 – Americas

Bonds: corporate 

WINNER: NCF 5.6bn reais debentures 

Sole lead manager: Bradesco BBI

Brazil is not a market for the faint-hearted. Political scandals continue to engulf economic activity in sectors as diverse as oil, construction and even food, while the country has only recently begun to emerge from its worst recession in decades. Attracting institutional investors to any kind of local issuance is no simple task. Indeed, most bonds had been taken up by underwriting banks over the past few years. Yet Bradesco’s investment banking arm, Bradesco BBI, not only managed to persuade institutional investors to buy NCF’s 5.6bn reais ($1.78bn) debentures– reais-denominated debt – due in 2020, it also broke new ground in the kind of guarantees that came with it. 

NCF is a financial holding owned by Cidade de Deus Participações and Fundação Bradesco, which are also majority shareholders of Bradesco, directly holding a 5.3% stake in the bank. NCF wanted to redeem a previous issuance but its pure holding nature did not make it a particularly appealing proposition and presented its own risks.

To ease concerns and tap long-term investors, at the end of 2016 Bradesco BBI created a new collateralised instrument that used Tier 2 bonds – which are part of a bank’s Tier 2 capital – as collateral, as well as bank shares; both collateral instruments provided by Bradesco. The deal was locally rated AA+(bra) by credit rating agency Fitch, just a notch below Bradesco’s own long-term rating. 

The new and complex solution was then carefully explained to the reticent investor audience. Bradesco’s technical and communication efforts worked so well that the deal ended up attracting a phenomenal 12bn reais from more than 40 accounts, all institutional investors, including asset managers, pension funds and wealth managers. 

The large oversubscription allowed for a welcome interest rate reduction, to 112% of the interbank rate value from the initial 116%, and resulted in the largest ever debt issuance in the country. 

Bonds: SSA 

WINNER: Republic of Argentina’s $16.5bn bond

Global coordinators: Deutsche Bank, HSBC, JPMorgan, Santander 

Bookrunners: BBVA, Citi, UBS

In March 2016, Argentina’s government settled its long-running and bitter legal battle with holdout creditors over its sovereign debt restructure in 2005. The month after the saga came to an end, the government made its triumphant return to international capital markets after 15 years of financial exile. 

Argentina had been locked out of international bond markets since defaulting on its debt in 2001. Its comeback issue made up for lost time. Led by Deutsche Bank, HSBC, JPMorgan and Santander, its $16.5bn four-tranche offering broke almost every record for emerging markets bonds.

Roadshows were held in London, New York, Boston, Los Angeles and Washington, DC. They attracted 350 investors, the most seen for an emerging market bond. The transaction was announced on April 18 as a $10bn to $15bn issue split among 30-year, 10-year, five-year and three-year tranches (the last being added by popular demand at a late stage).

The deal was more than four times oversubscribed, drawing $67.8bn in orders. That made it the biggest cash order book on record for a high-yield or emerging market senior unsecured bond. It meant the price was tightened by 25 to 50 basis points from initial price thoughts. The 10-year bond was the main attraction, drawing orders of more than $25bn before its yield was tightened from 8% to 7.5%. The 30-year bond yielded 8%, down from 8.85%, while the three- and five-year bonds yielded 6.875% and 6.25%, respectively. 

The huge investor response also allowed the deal to be upsized to $16.5bn, making it the biggest Latin American, emerging market and high-yield bond in history. Asset managers took between 60% and 90% of each tranche. By geography, North American investors accounted for between 67% and 80%, and Europeans 18% and 28%. 

The deal was a victory for Argentina’s newly elected government. It revealed international investors’ confidence in its ability to regroup its economy, and raised the funds needed for its settlement with holdouts. The balance of the proceeds were put towards general budgetary purposes.

Capital raising: FIG 

WINNER: Financing of Arch Capital’s $3.5bn acquisition of United Guaranty

Sole lead arranger and bookrunner (bridge facility): Credit Suisse

Joint bookrunners: Credit Suisse Securities, Barclays, JPMorgan, Lloyds Bank, Merrill Lynch, Pierce, Fenner & Smith, US Bancorp Investments, Wells Fargo

On the last day of 2016, Arch Capital closed its purchase of American International Group’s (AIG’s) mortgage guaranty business, United Guaranty. Announced in August, the $3.5bn price tag made it the largest ever acquisition in the global mortgage insurance industry.

It was paid for via a combination of cash and stock, and Credit Suisse – which was sole financial adviser to Bermuda-based Arch on the acquisition – had a leading hand on the multi-pronged financing. This consisted of a $1.375bn senior unsecured bridge facility, a dual-tranche $950m senior notes offering, and $450m of preferred shares. 

It was the year’s biggest merger and acquisition (M&A) financing for a financial company. But it is the customised and efficient funding solution it provided that makes it stand out. AIG needed to sell United Guaranty to meet the demands of activist investors. It planned to list the unit, but Arch Capital made a bid for the business, creating a type of dual-track sales process for AIG. For the M&A route of any dual-track to prevail, it needs a watertight financing package to give the seller a high degree of certainty and comfort that the deal will complete. 

The first step was a 364-day $1.375bn bridge loan – on which Credit Suisse was the sole lead arranger and bookrunner – put in place the day after the acquisition was announced. In September, Arch issued $450m of 5.25% non-cumulative perpetual preferred shares. It was originally announced at $250m at 5.25% to 5.375%, but strong investor demand enabled it to be upsized and price at the tight end of guidance. 

Finally, in November it issued $500m of 4.01% 10-year notes and $450m of 5.03% 20-year notes. The dual-tranche offering was announced at $800m but thanks to a bespoke marketing effort, which included a large number of one-on-one meetings, and a particularly buoyant investment-grade debt market, the order book hit $4bn. As a result, Arch achieved its tightest ever coupons, the deal was upsized to $950m, and the issuer secured its status as a leader in the US mortgage insurance.

Equities 

WINNER: Athene’s $1.2bn IPO

Lead underwriters: Barclays, Citi, Goldman Sachs, Wells Fargo

Independent financial adviser: Rothschild

Athene’s initial public offering (IPO) may be one of the best timed in recent history. The US firm is a retirement services company that issues, reinsures and acquires retirement savings products. It floated on the New York Stock Exchange on December 8, 2016, exactly one month after Donald Trump’s surprise victory in the US presidential election. 

The president’s promises of tax cuts, deregulation, fiscal stimulus and a swathe of other growth-driven policies – all of which suggested more interest rate rises on the horizon – led US financial stocks to soar. It created a perfect window for the Apollo-backed insurer to go public.

During the nine-day roadshow, which commenced in late November, Athene was positioned as a compelling equity story, especially against the supportive market backdrop post-election. More than 250 investors were engaged, nearly 50 of which were one to ones. The prospectus also maximised the value of the interest rally, by disclosing that every increase of 25 basis points in rates would lead to an increase of $25m in operating income.

It attracted orders equal to more than eight times the base offer size, which allowed it to be upsized by 14%. Some 27 million shares were sold at $40 each, valuing the company at about $7.5bn. On its first day of trading the stock closed 10% higher than its offer price. By early April 2017 they were trading at more than $50. 

One of the biggest US IPOs in 2016, the deal was a coup for Apollo Global Management. The private equity firm’s fourth-quarter profits were boosted by Athene’s increase in valuation. In late March 2017, Athene announced a further sale of 25 million shares by certain shareholders. For those with a stake in the Bermuda-based annuities seller, there could be more windfalls to come.

Green finance 

WINNER: New Mexico City International Airport $2bn green bond

Global coordinators: Citigroup, HSBC, JPMorgan Co-managers: Crédit Agricole Securities, Inbursa, MUFG, Scotiabank 

Joint bookrunners: Citigroup, BBVA, HSBC, JPMorgan, Santander

The new $13bn airport being built in Mexico City is transformational in many respects. The biggest public works effort under president Enrique Pena Nieto’s administration, it will ease pressure on the city’s existing airport – Latin America’s busiest – which suffers from persistent bottlenecks and will soon hit capacity. The new airport’s multi-pronged financing is backed by an innovative collateral structure which securitises existing and future passenger charges, known as TUAs, collected at the existing airport and new airport once operational. 

In September 2016, the project company issued Latin America’s biggest green bond, which was also the first in the world to finance construction of an airport. Helped by global coordinators Citibanamex, HSBC and JPMorgan, it sold a $2bn dual-tranche deal consisting of $1bn of 4.37% notes due 2026 and $1bn of 5.59% notes due 2046. It was the project’s first foray into the bond markets and attracted about $13bn of demand, which allowed the notes to price similar to other Mexican quasi-sovereigns better known in the market.

The project company will allocate an amount equal to the proceeds to environmentally beneficial projects associated with the construction, development and operations of the new airport. Thanks to this commitment, it became the first emerging market bond to receive Moody’s highest green rating of GB1. As Mexico’s first non-financial green bond, it is hoped to spur more corporates from the region to tap into the fast-growing asset class. 

The financial structure of the bonds is worthy in itself. They permit no recourse to the Mexican government or sponsors and, like the project company’s prior financings, are backed by TUAs. 

Historically, investors have struggled to get comfortable with construction risk. This is mitigated in the Mexico airport deal as the TUAs from the existing operational airport can fully service bond repayment. This helps de-risk the project bonds, and allowed the 30-year tranche to be structured with a bullet repayment – which is unusual for such a long tenor.

Infrastructure and project finance 

WINNER: TEN’s $920m transmission line 

Mandated lead arranger and joint bookrunner: Santander

Senior lenders: Banco de Chile, Banco del Estado de Chile, Banco de Crédito e Inversiones, Banco Santander, Mizuho Bank, MUFG, Sumitomo Mitsui Banking Corporation

The two electricity grids powering Chile had operated as separate, unconnected systems. Naturally, this created inefficiencies and distortions, both for consumers and energy providers. The solar power generated in the north, for example, could not be transported to the more populous central and southern areas, while hydroelectric energy producers could not reach the energy-starved mines in the north. 

This is now beginning to change, thanks to a 500-kilovolt transmission line that will run for 600 kilometres across the country, connecting the two grids. The $920m project to link up the two networks, by Transmisora Eléctrica del Norte (TEN), has shaken up Chile’s energy market and will provide users with a more efficient system; it will also boost the renewable energy offering to the north of the country, where, despite the growing share of solar energy, coal and gas remain key sources. 

But it is not just its transformational nature that makes the deal interesting; its structure and execution are noteworthy too. TEN’s parent, E.CL, decided to dispose of 50% of the shares in the project while simultaneously structuring the debt financing. After a complex and competitive process, the stake was successfully sold to the local business of Spain’s Red Eléctrica for a $218m. Challenges came also in the shape of an unusual revenue scheme, which, in contrast to other transmission lines in Chile, required the tariffs to be recalculated every four years, rather than being fixed, adding uncertainty to the future cash flows. 

Finally, the deal was financed in two currencies and three tranches to mirror the future cash flows available to service the debt as well as different investors’ appetite – a specific dollar tranche was dedicated to long-term buyers, which allowed to stretch the debt tenor. It also included clever solutions to fix interest rates and provide a currency hedge.

Leveraged finance and high yield 

WINNER: Dell’s $49.5bn debt financing to acquire EMC

Global financing coordinators and bookrunners: Credit Suisse, JPMorgan 

Bookrunners: Barclays, Bank of America Merrill Lynch, Citi, Goldman

Dell and EMC made history in 2016 by combining to create the US’s largest privately controlled technology company. The deal, which completed in September, would not have been possible without a $49.5bn fully committed debt financing package provided by eight banks.

Between June and September 2016 the banks put in place $20bn of first lien notes, $3.25bn of senior unsecured notes, $17.575bn of senior secured credit facilities (including a $5bn term loan B) and $8.7bn in bridge facilities. Global financing coordinator Credit Suisse was the linchpin in structuring and executing the large and complex transactions.

The strategy was to tap into multiple markets – high yield, term loan B and investment grade – to achieve the best pricing and reach both investment-grade and non-investment-grade investors. Each deal was carefully timed to maximise demand. First out the blocks was the $20bn in first lien notes, a six-tranche offering with maturities between three and 30 years. In addition to locking in financing at a longer tenor than what is typically available in the non-investment-grade and loan market, it will help Dell achieve its goal of lifting its credit rating to investment grade within two years of acquiring EMC. 

The $5bn term loan B and $3.25bn of junk bonds were launched within a week of each other to fully capitalise on investor demand and drive down borrowing costs. The tactic worked. Pricing of the dual-tranche BB rated bonds tightened to 5.88% for the five-year notes and 7.13% for the eight-year notes. 

By carefully staggering the launch of each aspect of the debt package, Dell managed to raise one of 2016’s biggest acquisition financings worldwide, despite the volatile markets that characterised much of the year. The fact it was fully underwritten also shows that for the right transactions, banks can commit substantial balance sheets.

Loans 

WINNER: Abbott Laboratories’ $17.2bn bridge facility

Sole lead arranger and underwriter: Bank of America Merrill Lynch

Throughout 2016, pharmaceuticals companies continued to generate some of the US’s biggest mergers and acquisition (M&A) deals. It included Abbott Laboratories’ acquisition of St Jude Medical, which was announced in April and closed in the first days of 2017.

The target’s shareholders received $46.75 in cash and 0.8708 of one Abbott share for each of their St Jude shares. Abbott called on Bank of America Merrill Lynch (BAML), its financial adviser on the acquisition, to fund the cash portion of the deal. A bridge loan was the best solution but there was one snag; Abbott was also in the process of buying US diagnostics company Alere, for which it had a $9bn bridge loan that was still outstanding.  

Never before had a borrower obtained and used a bridge facility while a distinct and separate bridge was in existence. The prospect raised tricky questions regarding their ranking, the borrower’s ability to tap the capital markets to take out either bridge, credit ratings implications and their relative pricing. 

Nonetheless, thanks to some clever structuring, the deal’s lead advisers found a way for the two bridges to co-exist. An underwritten $17.2bn bridge facility was extended to Abbott, which gave it the liquidity to buy St Jude. Both bridges were syndicated to the same group of 20 lenders, meaning they all maintained pro rata exposure to the combined bridge facilities. The deal stoked some life into the US syndicated loan market, which had a relatively quiet start to the year.

The St Jude facility consisted of a $15.2bn 364-day capital markets bridge loan and $2bn 60-day cash bridge. On November 17, Abbott issued $15.1bn of medium- and long-term senior notes – one of the year’s biggest bond offerings – to take-out the capital markets bridge. BAML also served as lead bookrunner on the capital markets financing, rounding out its work on one of 2016’s defining M&A transactions. 

M&A 

WINNER: Dell’s $67bn acquisition of EMC

Dell’s financial advisers: Barclays, Bank of America Merrill Lynch, Citi, Credit Suisse, Deutsche Bank Securities, affiliates of Goldman Sachs, JPMorgan, RBC Capital Markets

EMC’s financial advisers: Evercore, Morgan Stanley

In October 2015, Dell and EMC set about creating the world’s biggest private technology company. Dell was to acquire publicly listed EMC for $67bn, making it the biggest take-private in the history of buyouts.

For Dell, the business rationale was flawless. Its core areas, including PCs and servers, were facing growing competition from software-driven technologies. EMC was focused on high-end storage equipment and held a controlling stake in a variety of tech companies, including cloud computing pioneer VMware. The deal made sense for EMC shareholders, too. The offer price represented a 28.4% premium to EMC’s share price the day before the announcement and a 36.6% premium to the share price one month before the announcement. 

The ambitious deal closed in September 2016, thanks to the work of an army of financial and legal advisers. Integrating two huge tech vendors with diverse product and geographical footprint required detailed due diligence to identify synergies and reduce costs. 

The capital structure had to support the $49.5bn of debt that was being raised to fund their combination, and align with Dell’s goal to achieve an investment-grade rating. The banks delivered a detailed narrative to the rating agencies on the company’s plans for rapid deleveraging. After the deal closed, Moody’s upgraded the merged company, known as Dell EMC, to Ba1 and Fitch upgraded its long-term issuer default rating.

The consideration was a combination of cash and tracking stock linked to VMware, the target’s prized asset. It means EMC’s selling shareholders can maintain exposure to VMware and its growth story. This instrument had never been used in the tech sector, so it had to be structured without a precedent and receive the necessary approvals.  

Taken together with the $49.5bn debt package raised to fund the acquisition, which has been named the Americas leveraged finance and high yield deal of the year, the creation of Dell EMC is undoubtedly one of the year’s most complex transactions. 

Restructuring 

WINNER: SandRidge Energy restructuring

Financial adviser: Houlihan Lokey

For the US onshore oil and gas sector, 2016 was one of the toughest years in history. The benchmark WTI crude oil price hit a 13-year low of $26.19 in February, and by the time it crept up to the $50 mark by year-end, it had sunk many small exploration and production companies.

SandRidge Energy was among those facing tough times. Since late 2014 it had taken a proactive approach to its problems, cutting costs and eliminating debt via a debt-for-equity swap among other measures. But when it could not deleverage anymore, it called in Houlihan Lokey to assess more drastic measures.

Stakeholders disagreed on asset values, and creditor groups’ demands varied from a large cash recovery, to a sizeable reduction in their overall exposure, to more secured debt. A number of small earthquakes in the Oklahoma area, where SandRidge drilled, prompted regulators to curtail production, further straining the company’s revenues.

Against this backdrop, Houlihan Lokey devised a strategy that would save time and minimise restructuring costs. Over three months it negotiated the terms of a so-called ‘pre-arranged’ Chapter 11 plan with each creditor group. After the plan was filed with the Bankruptcy Court, unsecured creditors appointed a committee, meaning it had to be renegotiated. 

Under the revised plan, the reserve-based loan’s borrowing base was reduced and the re-determination reviews waived for two years; second lien noteholders received a $300m convertible note plus common equity (giving them more than 80% of SandRidge once converted); and unsecured creditors received $36m in cash, a 15% equity plus warrants.

Shareholders staged a last-minute challenge to the plan, but it was confirmed by the court in September 2016 and closed the following month. It eliminated $3.7bn of debt and preferred stock, left SandRidge with $525m of liquidity and reduced its net leverage from 14.4 times earnings before interest, tax, depreciation and amortisation to 0.9 times. The commodity crunch has claimed many victims, but thanks to a carefully orchestrated strategy, SandRidge was not one of them.

Securitisation and structured finance 

WINNER: Verizon Device Payment ABS Programme

Sole structuring lead: Bank of America Merrill Lynch 

Lead managers: Barclays, MUFG

In July 2016, Verizon issued the US’s first public asset-backed securitisation (ABS) of mobile equipment instalment plan (EIP) receivables. Bank of America Merrill Lynch was the sole structuring lead on the market-opening deal known as Verizon Owner Trust 2016-1, which involved the issuance of $1.08bn of class A and B notes secured by a pool of customer contracts

With the help of extensive marketing efforts, the deal was a huge success for Verizon. Its ABS platform was the first since the financial crisis to receive AAA ratings from two of the biggest rating agencies, and its first issuance drew orders from traditional ABS investors as well as corporate accounts. The order book was heavily oversubscribed, allowing the Class A notes to price at 55 basis points (bps) over swaps which was 10bps to 15bps tighter than guidance. Verizon built on the success of its inaugural deal with a follow-up issuance in November, which priced even tighter.  

This new type of esoteric ABS has the potential to become a huge asset class, largely due to changes in how customers pay for their mobile phones. In the past, they would buy the handset outright for a subsidised price. But in recent years the overwhelming majority of handsets are sold via EIP, which sees the customer pay for the handset in instalments. This leaves wireless carriers with bigger upfront costs, meaning they need new sources of funding. 

Phone companies are among the biggest issuers in the investment-grade bond market, and Verizon’s inaugural ABS deal has laid the groundwork for its peers to follow suit. It has proven that securitisation can be an important tool in managing the financial impact of sector-wide shifts in a business model. Analysts predict the US market could grow to between $20bn and $35bn, which would make it the third biggest consumer-backed ABS sector after auto loans and credit cards.