The Banker reviews the Americas region's best deals of the past year.

Bonds: Corporate

Winner: CVS Health’s nine-tranche $40bn M&A financing

Lead left bookrunner and global marketing coordinator: Barclays

Joint active bookrunners and joint dealer managers: Bank of America Merrill Lynch, Goldman Sachs, JPMorgan, Wells Fargo

Described by one major investor as “the deal of 2018”, US pharmacy and health care group CVS Health attracted the largest order book on record for its huge multi-tranche bond offering.

In December 2017, CVS, already highly levered, agreed to buy US health insurer Aetna for $77bn. To close the deal, the company estimated it would need to raise $40bn in the bond market.

Most observers agreed that the acquisition would fundamentally change the nature of CVS’s business – the combination of retail and health insurance is unprecedented. A key objective for the company and its advisers was to secure permanent financing for this transformational, multi-industry deal, pricing bonds efficiently against a choppy market backdrop.

It would be the third largest bond transaction on record, but the market was increasingly concerned about pre-merger and acquisition financings. The creative response to this was to price long bonds with a steeper discount and, for all tranches but the 30-year, to include a special mandatory redemption clause. This stated that CVS would buy the bonds back from investors at a price of 101 if the merger failed to close by September 3, 2019.

Because of worries about the size of the deal and the capacity of US dollar investors to absorb it, issuance in other currencies was considered. In the end, however, CVS went for a dollar-only transaction, with fixed-rate tranches across two, three, five, seven, 10, 20 and 30 years and floaters in three and five.

Order books were the largest ever recorded, at $120bn. CVS was able to price the cheapest ever seven-, 10-, 20- and 30-year spreads for a $30bn-plus deal. And it issued more bonds in one day than the entire debt portfolio of any retail, health insurance or healthcare company.

Bonds: SSA

Winner: Colombia’s $2bn dual-tranche notes and intra-day cash tender/switch

Joint bookrunners and deal managers: Citi, Credit Suisse, JPMorgan

In what was called “a major test of investor appetite for Latin American sovereigns”, the Republic of Colombia launched a new long 10-year bond in benchmark size. Following its inordinate success, the issuer was encouraged to reopen its 5% 2045 bond, and raised a combined total of $2bn.

This was in October 2018 and, with no sovereign issuance out of Latin America since July, third-quarter volumes from the region had been the lowest in a decade. The crisis in Argentina and turmoil in emerging markets had not helped. However, a lack of supply, together with redemptions and a renewal of inflows, higher oil prices and the strong performance from Colombia’s bonds all created a strong technical market dynamic in favour of Colombia, bankers said.

A US dollar 10-year benchmark deal was announced with initial price thoughts of Treasuries plus 165 basis points (bps) area. The book was oversubscribed within 20 minutes. Overwhelming demand saw the order book, Colombia’s largest ever, peaking at $8bn. This allowed guidance to be released at Treasuries plus 140bps to 145bps, an impressive 20bps to 25bps tightening from initial price thoughts.

Indications of interest prompted an opportunistic tap of the 2045 notes for up to $500m, with guidance of Treasuries plus 190bps area (plus or minus 5bps), representing a small concession of about 10bps against secondaries. Both tranches were then closed at the tight end of the range – Treasuries plus 10bps for a $1.5bn 10-year (4.5% coupon) and Treasuries plus 185bps for a $500m tap of the 2045s (5%). The minimum new issue concessions were in line with high-quality US issuers, bankers said.

A tender offer was executed the same day, inviting holders of the 7.375% US dollar bonds due in 2019 to tender them for the new long 10-year or for cash. The next day Colombia announced it had accepted $1bn of tenders, representing 50% of the outstanding amount.

Corporate carveouts

Winner: Acxiom Marketing Solutions carve-out

Financial adviser: Evercore

It was the biggest-ever carve-out in the marketing services industry. When Acxiom sold Acxiom Marketing Solutions to Interpublic Group (IPG) for $2.3bn in cash, it represented 90% by value of the whole organisation. The rump has changed its name, retired its debt and grown its share repurchase programme.

The deal transfixed the marketing services industry, in which both buyer and seller are significant players, and was positive for them both. Advertising conglomerate IPG had been the subject of persistent rumour that it would be put up for sale, and this transaction put paid to that, commentators say.

Acxiom is a US database marketing company, once described as a “formidable marketing giant”, but facing reduced prospects in the wake of the Cambridge Analytica scandal. Facebook had responded to the affair by closing Partner Categories, an ad-targeting service to which Acxiom was a significant broker.

Before the carve-out, Acxiom had two divisions – Acxiom Marketing Solutions, and LiveRamp, a data on-boarding service acquired in 2014. In 2018, Acxiom said it had launched a strategic review to decide which one to sell.

For IPG, the acquisition brings it up to speed in an increasingly data-driven business. Acxiom will be a standalone unit within IPG, able to pursue growth with renewed vigour.

Acxiom Corporation has transferred the Acxiom brand name and associated trademarks to IPG. It has renamed itself LiveRamp and used the proceeds of the sale to retire its $230m in debt, leaving a debt-free balance sheet. It also launched a $500m tender offer for its shares, buying in some 14% of the shares outstanding, and increased its existing share repurchase programme by up to $500m, extending it to the end of 2020.

LiveRamp has also consolidated its existing relationship with IPG via a new five-year partnership agreement.

Equities

Winner: Farfetch’s $885m intial public offering

Joint lead managers and bookrunners: Goldman Sachs, JPMorgan, Allen & Co, UBS

Joint bookrunners: Credit Suisse, Deutsche Bank, Wells Fargo

After an extensive marketing effort led by the management team, shares in Farfetch’s initial public offering priced well above the initial range, with an increase of the shares on offer. They then rose 57% to their intraday high on their first day of trading.

London-based Farfetch is a luxury online marketplace that connects fashion shoppers with luxury brands. It provides a classy channel for high-end fashion names, which are doubtful about using platforms such as Amazon, to sell directly online. Most of the retailers Farfetch works with have an exclusive relationship with it.

Farfetch Marketplace connects more than 2.3 million consumers in 190 countries to more than 980 luxury sellers. It carries no stock and makes money mainly from commissions on website sales. It has never made a profit, though it had revenues of $365m in 2017, a rise of 59% over the previous year. Losses also rose, by 38% to $112m, as the company built out its infrastructure and grew its customer base. A global business, it has offices in 11 cities, including Tokyo and Los Angeles, and has built partnerships in Asia and the Middle East. Farfetch does have competitors, such as Net-a-Porter and Matchesfashion.com, but enjoys a rare level of loyalty from its customers.

The company chose to list in New York. After a nine-day international roadshow reaching more than 200 investors in seven cities, the initial marketing range was set at $15 to $17 a share. Two days before pricing this was increased to $17 to $19, and the shares on offer were increased by 18% to 44.2 million. They were finally priced at $20 a share, raising $885m and valuing the company at $6.3bn. They ended a frenzied first trading day at $27.

FIG financing

Winner: Principal Financial’s $750m pre-capitalised trust securities

Sole structuring adviser and lead left bookrunner: Credit Suisse

Joint bookrunners: Bank of America Merrill Lynch, HSBC, Wells Fargo Securities, BNP Paribas, Citi, Morgan Stanley

Co-managers: Barclays, Goldman Sachs, RBC Capital Markets, US Bancorp, ANZ, BNY Mellon, Deutsche Bank, Mizuho, Ramirez & Co, The Williams Capital Group

In an inaugural outing, US investment management and insurance company Principal Financial Group (PFG) sold $750m-worth of pre-capitalised trust securities (P-caps). It was the market’s first dual-tranche P-cap, the first 30-year and the first to include a multiple draw feature.

P-caps are a capital markets alternative to revolving credit facilities. Both remain off balance sheet until drawn and can be repaid without penalty. But while bank facilities are seldom available for longer than five years, P-caps can go out much longer – to 30 years in PFG’s case.

Facilities are exposed to the lending bank’s creditworthiness and willingness to lend in stress scenarios. With P-caps, the funds have been raised up-front and are invested in risk-free US Treasuries until they are needed. Unlike a bank facility, their value actually increases in market downturns, and their pricing is locked in.

PFG’s motives in issuing P-caps were to introduce a prudent risk management tool to its capital and liquidity framework, giving it more flexibility in different market environments; and to optimise its credit rating.

After a two-day telephonic roadshow, it launched a dual-tranche deal with both 10- and 30-year securities. The notes have an unlimited unwind feature, compared to the once-only unwind on previous transactions. This gives the company 30 years of committed revolving financing at no incremental cost, bankers said.

Orders peaked at a combined $3.75bn and PFG priced $400m of 4.11% 10-year securities at Treasuries plus 125 basis points (bps) and $350m 4.68% 30-year P-caps at Treasuries plus 155bps. This represented the issuer’s tightest ever 10- and 30-year re-offer spreads, despite the structural premium. And the structural premium was the tightest ever for any P-cap.

Green finance

Winner: Fannie Mae’s $904.5m Green Guaranteed Multifamily structures

Lead manager: Bank of America Merrill Lynch

Co-managers: KGS-Alpha, Nomura, Multi-Bank Securities

Fannie Mae continued to pursue its vision of being “America’s most valued housing partner” by issuing its largest ever bond backed exclusively by green mortgage-backed securities (MBS), in a $904.5m deal.

Fannie Mae’s Multifamily Green Financing encourages apartment block multi-family owners to rehabilitate existing buildings to reduce energy or water consumption. Such improvements, it says, benefit owners with better quality assets and tenants with lower bills. Its Green Rewards programme rewards such borrowers with lower pricing and other benefits.

In 2018, to qualify for a green mortgage, borrowers were required to make a 25% or greater reduction in energy or water consumption and to provide ongoing annual reporting. Fannie Mae introduced the green MBS product to the US market in 2012 and each year since then has grown its book, which now stands at more than $50bn (at the end of 2018).

Green Guaranteed Multifamily structures (GeMS) are MBSs created from qualifying collateral, and Fannie Mae issues about $10bn in GeMS each year. The $904.5m FNA 2018-M2 deal, priced in February 2018, was its second and the largest to be backed only by green MBS. They are all secured either by approved third-party green-certified buildings or multi-family properties meeting the energy or water consumption reductions described above.

The $108.4m A1 tranche, with a weighted average life of 5.73 years, had a 2.8% coupon. The $796m A2 tranche, with a weighted average life of 9.73 years, paid 2.9%.

Fannie Mae believes its green bonds are more than just an investment vehicle. “They are designed to offer significant environmental, financial and social impact,” it says. The organisation was named the world’s largest issuer of green bonds by the Climate Bonds Initiative in 2017 and 2018.

High-yield and leveraged finance

Winner: Blackstone’s $14.5bn leveraged buyout of Refinitiv

Financial adviser to Blackstone, left lead bookrunner and joint global coordinator: Bank of America Merrill Lynch

Joint global coordinators and bookrunners: Citi, JPMorgan

The $14.25bn loan and bond package raised to finance Blackstone’s acquisition of a majority stake in Refinitiv was the largest for a leveraged buyout in more than a decade. The US dollar term loan was the biggest single B-rated syndicated loan ever.

Early in 2018, US private equity group Blackstone announced it was buying 55% of Thomson Reuters’ Financial & Risk unit (since renamed Refinitiv) for $17.3bn, in a consortium with the Canadian Pension Plan Investment Board and Singaporean state fund GIC. They put up $3bn in cash, leaving the balance to be raised in the debt markets.

Financing priced in September, with a $6.5bn term loan B priced at Libor plus 375 basis points (bps) (tightened from 400bps to 425bps), and a €2.75bn term loan B at Euribor plus 400bps (tightened from 425bps). Both featured a 25bps step-down and zero floor.

The bond issue, the largest since the financial crisis for a sponsor-related buyout, was in four tranches. There were secured notes of $1.25bn with a 6.25% coupon and $1bn euro-equivalent paying 4.5%. They were accompanied by unsecured notes of $1.575bn (8.25%) and $425m euro-equivalent (6.875%). All were priced tighter or at the tight end of price talk.

The deals were criticised in some quarters for their generous covenants, one of which allows the owners to pay themselves dividends even if the business is in default. This did little to stem demand from investors and banks, however. Thanks to a material oversubscription across the structure, Refinitiv was able to shift $1.25bn from bonds into the term loan, and $500m from unsecured to secured notes.

Infrastructure and project finance

Winner: Porto do Sergipe’s $1bn project financing

Arranger: IDB Invest

Financiers: IDB Invest, International Finance Corporation, Swiss Export Risk Insurance

Bond underwriter: Goldman Sachs

The financing package for Brazil’s new Porto do Sergipe power plant included an innovative $1bn-equivalent bond issue in local currency as well as Brazilian real loans linked, for the first time, to the Brazilian inflation index.

Porto do Sergipe is a 1516-megawatt combined cycle thermonuclear plant in Brazil’s north-eastern state of Sergipe. It will burn natural gas, the fossil fuel with the lowest carbon emissions, abundant and historically cheap. It will be the largest and most efficient thermoelectric plant in Latin America and the Caribbean, and will sell electricity to 26 distribution companies.

The project is being developed by Centrais Elétricas de Sergipe, a joint venture between national utility Ebrasil and liquefied natural gas shipping company Golar. IDB Invest, the private sector arm of the Inter-American Development Bank, is financing the plant’s construction and operation.

The IDB package includes its own capital and mobilised financing, in real and dollars, with tenors of up to 15 years. This is the first time that BNDES, the Brazilian development bank, has not participated in such a major local development project.

There are three loans – a non-synthetic loan in local currency for up to 664m reais ($171m) from IDB Invest; a US dollar loan of $38m, also from IDB Invest; and a $50m loan from the China Co-financing Fund for the Private Sector of the Americas. The fact that the Brazilian real interest rate will be linked to local inflation is key for the client, since revenues generated by the project are received in local currency.

The bond issue raised $1bn in local currency at a fixed, long-term rate in international markets. The bond issue is guaranteed by Swiss Export Risk Insurance, Switzerland’s export-import credit agency. IDB Invest believes that the interest created among international investors opens the possibility of new forms of infrastructure financing in Brazil.

Loans

Winner: Arby’s $2.2bn acquisition financing for Buffalo Wild Wings

Lead left arranger and bookrunner: Barclays

Joint lead arrangers and bookrunners: Credit Suisse, Bank of America Merrill Lynch, Morgan Stanley, Wells Fargo

Co-manager: Keybank

Despite difficult conditions for high-street restaurant chains, Arby’s Restaurant Group priced $2.21bn in financing in early January 2018 to support its acquisition of Buffalo Wild Wings. Barclays provided 100% of the initial commitment and structured the deal, which was then substantially oversubscribed.

Arby’s is the second largest sandwich restaurant brand in the world, with nearly 3400 outlets in seven countries. It is majority owned by affiliates of US private equity firm Roark Capital. Restaurant franchise businesses are one of Roark’s specialities.

Buffalo Wild Wings, founded in 1982 and headquartered in Minnesota, is a fast-food chain majoring in chicken wings. It has struggled in recent years following a slump in so-called casual dining. In November 2017, Roark said it would buy Buffalo for $2.9bn. The rationale was that the new management team that had turned Arby’s around could do the same for Buffalo. Neither Arby’s nor Buffalo were existing loan issuers, so this was a debut for Arby’s.

The debt financing consisted a $150m revolving credit facility, a $1.575bn covenant-lite term loan and $485m in senior notes. The seven-year term loan, which received orders from more than 150 lenders, priced at Libor plus 325 basis points (bps), with a step-down to 300bps. The eight-year non-call three senior notes priced at par to yield 6.75%. Order books across the term loan and the bonds were 4.5 times oversubscribed.

Arby’s becomes the first restaurant issuer with term loans that are subordinate to a whole business securitisation (WBS) and that leverage the residual cash flow left after debt service on the WBS debt.

M&A

Winner: CVS Health’s $77bn takeover of Aetna Lead financial adviser to Aetna: Lazard

Financial adviser to Aetna: Allen & Co

Independent adviser to the Aetna board: Evercore

Financial advisers to CVS Health: Barclays, Goldman Sachs

Financial adviser to CVS Health board: Centerview Partners

In the largest healthcare services merger on record, nationwide US pharmacy chain CVS Health acquired US health insurer Aetna for a total transaction value of $77bn. The result is a uniquely integrated business that hopes to improve the quality and value of healthcare for consumers.

The operational synergies are persuasive. CVS has unparallelled reach, with 70% of Americans living within five kilometres of a CVS store. As a low-cost care provider it has 1000 MinuteClinic locations around the country. It is a market leader in retail pharmacy and pharmacy benefits management, and is rich in pharmacy and clinical data.

Aetna is a leading health financing platform with more than 22 million members. It provides innovative health insurance and digital-enabled solutions to improve health, while collaborating with care providers to improve outcomes. Between them, the two businesses span virtually all the services in the healthcare sector.

Discussions between the two began in April 2017. An initial offer of $203 per Aetna share was made in November that year, quickly increased to $207 (70% cash, 30% stock). That compared with an unaffected all-time Aetna share price high of $163.21. Agreement was reached in December, with the deal closing in November 2018. CVS shareholders owned 78% of the combined company.

Innovation through integration was not slow in coming. In February 2019, the company announced a pilot scheme for HealthHUBs. HealthHUBs offer a “new front door to healthcare”, the company says, by elevating the CVS store into a convenient neighbourhood healthcare destination, bringing easier access to better care at lower cost. This is powered by Aetna financing and its member engagement platform.

Restructuring

Winner: Pacific Drilling’s restructuring and reorganisation

Ad Hoc Group creditor adviser: Houlihan Lokey

After the oil price slump drove Pacific Drilling into Chapter 11 bankruptcy, a restructuring significantly reduced the company’s leverage, repaid senior creditors in full and gave the Ad Hoc Group of unsecured creditors equity control. Houlihan Lokey managed the process.

Pacific Drilling is a global ultra-deep-water offshore oil and gas drilling business, with the only exclusively ultra-deep-water drillship fleet in the industry. While the company was listed on the New York Stock Exchange, 70% of its equity was owned by Quantum Pacific, the vehicle of Israeli shipping magnate Idan Ofer.

Following the oil price decline that began in 2014, Pacific Drilling’s contracts were hit by a severe downturn in the industry and an upsurge in the supply of ultra-deep-water rigs. Many of its contracts ended in 2017 and 2018, and new ones were at much lower rates or not available at all.

It responded with a series of liability management transactions, none of which fully addressed its capital structure problems. The Ad Hoc Group and the majority shareholder had different views on prospects for the oil industry (and hence valuations), and presented competing restructuring plans.

After prolonged negotiations, the company filed for Chapter 11 bankruptcy in November 2017 and in March 2018 the court ordered all parties to undertake mediation and reach a consensual deal.

The agreed plan included $1.5bn of new capital, made up of $750m in first lien notes, $250m of second lien payment-in-kind toggle notes, a $460m equity rights offering and a $40m private placement to Quantum Pacific on terms similar to the rights offer. Debt was reduced by $2bn and the company is now well capitalised. Quantum Pacific is left with 5% of the equity, with the rest owned by the Ad Hoc Group and other bondholders.

Securitisation and structured finance

Winner: GE Capital Aviation Services’ ABS with tradeable equity certificates

Joint structuring agents and joint lead bookrunners: Citi, Deutsche Bank

GE Capital Aviation Services (Gecas) broke new ground with the first aircraft asset-backed securities (ABS) deal in which the equity is sold to investors in tradeable form.

Gecas is one of the world’s leading lessors, with a fleet of some 1280 owned and serviced aircraft, totalling $42.9bn in assets, with $1.3bn in net income for financial year 2017. In June 2018, it priced $586.9m of series A, B and C asset-backed notes, each with a seven-year tenor.

In itself this was a fairly routine transaction. The A rated class A tranche totalled $430m, yielding a spread to mid-swaps of 140 basis points (bps), with a weighted average life to call (WAL) of 5.1 years. The $120m BBB rated class B tranche yielded 269bps with a WAL also of 5.1 years. Class C was rated BB and totalled $36.9m, yielding 409bps with a WAL of 3.5 years.

What was unique about this transaction was the issue of an additional $100m in a new type of class E equity certificate, intended to be tradeable and to clear via the Depository Trust Company. These 144A/Reg S-style instruments were designed specifically to allow institutional investors to invest in aviation equity residual cashflows without the need to have significant aircraft knowledge, thereby broadening the investor universe.

The aircraft portfolio purchase vehicle, Starr 2018-1, becomes the first to include a dedicated asset manager – Och-Ziff Capital Management (OZ). OZ held 19.5% of the E certificates at closing. Gecas acts as the servicer, and an affiliate of Gecas acquired another 9.5%. The balance was sold to institutional investors with the order book two times oversubscribed.

This model provides a programmatic and scaleable platform for Gecas to sell assets more efficiently and effectively while maintaining its day-to-day interface with the airlines, bankers said.

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