Deals of the Year 2020 - Europe

Corporate Bonds 

Winner: Enel’s $1.5bn and €2.5bn SDG-linked bond issuances

US dollar bond bookrunners: Bank of America, BNP Paribas, Citigroup, Crédit Agricole, Goldman Sachs, JPMorgan, Morgan Stanley, Société Générale

Euro bond bookrunners: Banca IMI, Barclays, BBVA, BNP Paribas, Bank of America, CaixaBank, Crédit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, ING, JPMorgan, Mediobanca, Mizuho, MUFG, Natixis, Santander, SMBC Nikko, UniCredit

Italian energy company Enel launched its first green bond in 2017 and has since issued two more. But, like many issuers, it found that the relatively strict green bond framework was limiting the scope of what was possible via its sustainable issuance. 

So it began to work on an alternative approach, which came to fruition in September 2019. It issued two bonds linked to four of the UN’s Sustainable Development Goals (SDGs); 7, 9, 11 and 13 – which relate to clean energy, innovative and resilient infrastructure, sustainable cities and tackling climate change – believing there is a strong synergy between these SDGs and its 2019-2021 strategic plan. Unlike a green bond, which must have clearly defined use of proceeds, these bonds provide finance that can be used for general corporate purposes, providing far greater flexibility. 

But the truly innovative development was the introduction of a pricing penalty if Enel did not meet a publicly stated key performance indicator (KPI). Enel has until December 31, 2021 to increase its installed renewable energy capacity to at least 55% of total capacity, otherwise it faces a 25% step-up in its coupon. 

It issued two bonds with this broad structure in quick succession. The first saw $1.5bn-worth of five-year bonds issued on September 5, 2019. US dollar investors were targeted to allow Enel to diversify its financing away from European accounts. In October, Enel issued again, this time in euros, with a triple-tranche €2.5bn bond with four-and-a-half, seven-and-a-half and 15-year tenors. The 15-year bond had a different KPI, specifying the company must cut its carbon emissions by 70% by 2030. Both bonds attracted considerable offers, kicking off a lively debate within the industry about the possibility of using KPI-linked pricing more widely for sustainable issuances.  

Equities 

Winner: Française des Jeux’s €1.89bn initial public offering

Joint global coordinators and joint bookrunners: Société Générale, BNP Paribas, Citigroup, Goldman Sachs

Joint bookrunners: Crédit Agricole, HSBC, Natixis

Co-lead manager: CM-CIC

The €1.89bn initial public offering (IPO) of French lottery company Française des Jeux (FDJ) was a standout success story in a largely lacklustre year for European IPOs more broadly. Established in 1933, FDJ is France’s leading lottery and sports betting operator, the second largest lottery provider in Europe and the fourth largest in the world. 

Prior to the IPO, the French government owned 72% of the business, and wanted to sell off 50% of this stake to raise capital for its innovation fund, which will provide finance for the development of disruptive technology. The transaction would also help the government to achieve its ambition of increasing the level of individual shareholdings among the national population, with the government keen to allocate a significant proportion of the shares to retail investors. 

FDJ shares represented an attractive proposition to investors, since the company has a strong and resilient business model, with good growth potential, based around its two core activities of the lottery and sports betting in points of sale and online. 

Its lottery portfolio includes about 85 draw games and instant games under exclusive rights, plus it has exclusive rights to point-of-sale sports betting (although is open to regulated competition online). 

FDJ has about 25 million players – around half of them regular players, accounting for more than 95% of stakes. The company saw steady growth in stakes of 5.2% per annum between 1994 and 2018, and took €1.8bn in revenues in 2018. 

The deal saw 92.5 million shares (including the 15% greenshoe over-allotment option) sold at a value of €1.89bn. The IPO was a major transaction for France, which had last seen a privatisation in 2005 and was Euronext Paris’s largest listing since 2005. The deal was a big success, with significant investor demand – including Ä1.5bn of retail orders – allowing more than 44% of the offering to be allocated to retail investors. 

Financial institutions group financing

Winner: Ardshinbank’s $300m Eurobond issuance

Bookrunners: Citi, Renaissance Capital

Armenia’s economy has enjoyed healthy and sustained economic growth in recent years. As a result of relatively tough regulation by regional standards, its banking sector is also well capitalised and stable. Slowly but surely the country is also beginning to make improvements on the endemic corruption problems that have hampered it in the past. In Transparency International’s most recent global corruption rankings, from January 2020, Armenia placed 77th out of 180 countries, a considerable improvement on its 2019 ranking of 105th position. 

It was against this backdrop in January 2020 that Ardshinbank, one of the country’s largest banks, priced a $300m five-year Eurobond with a 6.5% coupon. The bond was rated Ba3 by Moody’s and B+ by Fitch, the same rating as the Armenian sovereign, making it the first index-eligible non-sovereign issuance from Armenia. 

Investor demand reached $500m in orders, following an extensive roadshow that involved in-person meetings in Boston, Frankfurt, London, New York and Zurich. More than 70 investors were allocated a share of the bond, with a significant cohort from Switzerland and the US, as well other locations in Europe, and a smaller cohort from Asia and other geographies. 

The success of this issuance is an indication of Ardshinbank’s attractiveness to foreign investors and an endorsement of its strategy, transparency and drive to meet international standards in how it operates. 

Ardshinbank has issued two other Eurobonds since 2014, but this is by far the largest of the three. The first in 2014 raised $75m and the second in 2015 raised $100m. It is the only Armenian bank, and the only private entity from Armenia, to have issued bonds in international capital markets. 

Green Finance  

Snam’s €500m climate action bond

Structuring agent and joint bookrunner: Bank of America

Joint bookrunners: Banca IMI, Barclays, BNP Paribas, Credit Suisse, Goldman Sachs, ING, Mediobanca, MUFG 

The Banker has previously written about the important and growing role of so-called transition bonds in financing the shift to a sustainable and low-carbon economy. Italian energy infrastructure provider Snam’s climate action bond has strong grounds to be considered the first ‘transition bond’ put to the market. 

The proceeds from the bond will be used to fund green investments in biomethane and energy efficiency, as well as to reduce the environmental impact of Snam’s activities. The company has a target of reducing its methane emissions by 25% by 2025.

With this issuance, the Snam and Bank of America teams involved in structuring the transaction were keen to send a message to the financial markets, as well as wider society, that it is possible for companies from currently carbon-intensive industries to play an important role in tackling climate change. It also kick-starts a valuable debate about the pressing need to allow issuers from these industries to access the broader sustainable finance markets.

The offering was not marketed as a green bond and was not expected to be eligible for the green bond indices, yet several accounts that focused on environmental, social and corporate governance were engaged through a roadshow that took in London, Paris, Amsterdam and Frankfurt and met with more than 50 investors. 

Following a successful roadshow, the six-year bond was launched on February 21 and saw huge demand, with order books peaking at €3bn just before final terms were announced, closing at €2.4bn with an impressive 1.25% coupon. French investors took a considerable portion of the allocation, along with German, Italian and UK accounts.

The conversations around this bond issuance directly led to Axa Investment Managers publishing its highly regarded transition bond principles, which have made a significant impact in the market. Snam, as well as several of the banks involved in the issuance of this bond, are also sitting on trade body the International Capital Market Association’s climate transition finance working group.

High-yield and leveraged finance 

Winner: Ellaktor’s €600m bond issuance

Joint global coordinators: Citi, HSBC, JPMorgan

Joint bookrunner: Goldman Sachs

Co-managers: Alpha Bank, Eurobank, National Bank of Greece, Piraeus Bank, Ambrosia Capital, AXIA Ventures Athens Branch

Headquartered in Athens, Ellaktor is an international infrastructure group with operations in 30 countries. Its core segments are in environment, renewables and concessions. The company is the second largest wind energy producer in Greece, it operates five out of seven of Greece’s critical roadways and it is a waste management and waste-to-energy player in seven European countries. It also has a presence in construction and real estate.

The deal was a landmark transaction, not only for Ellaktor, which was issuing its debut bond on the international capital markets, but for Greece more broadly, as the country’s largest high-yield issuance since the financial crisis.

The Ä600m five-year senior notes transaction achieved a coupon of 6.375%. The company overcame several concerns in order to attract investor interest, such as the complex nature of its operations – that is, the interlinkage between different parts of the business, as well as concerns around the company owning a high concentration of Greek assets and its historical position as a construction business, rather than a diversified infrastructure player.

Ellaktor was able to reinforce its strong operational foundations in its concessions, renewables and environmental businesses, as well as taking steps to limit the rest of the group’s exposure to the construction business. With this tailored credit story, it was able to attract a diverse and international investor base.

The proceeds of the bond were used for general corporate purposes, as well as to finance and refinance certain assets, including solar and wind electricity generation assets in Greece, allowing it to qualify as a green bond. The issue was Greece’s debut green high-yield instrument and Europe’s largest high-yield issuance of 2019.

Infrastructure and project finance 

Winner: Porterbrook’s £250m dual-track Samurai and green US private placement mandate 

Coordinator, sole active bookrunning mandated lead arranger and facility agent on the Samurai loan and joint lead placement agent on the US private placement: MUFG

Joint lead placement agents on the US private placement: MUFG Securities

Americas, Crédit Agricole Securities (USA), Lloyds Securities

In late 2019, Porterbrook, a UK rolling stock company, announced the refinancing of its £250m ($308m) October 2020 public bond via a dual-track Samurai and green US private placement. The £100m Samurai loan was funded by a syndicate of three institutional Japanese investors and MUFG, which also acted as sole coordinator and mandated lead arranger on the loan. The transaction marks the first time a UK rolling stock company has tapped the Samurai market. 

A group of US, Swiss and Canadian institutional investors participated in the £150m US private placement, which was issued under Porterbrook’s green framework and aligns with the International Capital Market Association’s green bond principles.

Both facilities were priced at competitive levels and were oversubscribed. The coupons achieved were both below the outstanding public bond, which will support Porterbrook’s plans to continue investment into the UK rail sector.

Porterbrook has a market share of approximately 32% of the UK passenger train leasing market by number of vehicles. Over the next five years, the company plans to invest more than £1bn into UK rail, using a portion of the funds to ensure that the UK rail sector meets its decarbonisation targets.

At the time of the issuance, Stefan Rose, head of structured finance at Porterbrook, said: “The successful closing of our dual-issuance debt raising in the Samurai and private placement markets is an important milestone for Porterbrook. We are delighted to have diversified our funder base into the Japanese institutional investor market and secure such strong support from another pool of liquidity.” 

Islamic Finance 

Winner: Palmet Gaz Grup’s Tl150m sukuk

Sole arranger: Industrial Development Bank of Turkey

Palmet Gaz Grup, one of Turkey’s largest natural gas distribution companies, aimed to issue a sukuk to fund the expansion of its natural gas distribution network. Such an expansion would enable it to reach households and businesses in rural areas that are currently using coal as an energy source. 

While natural gas is not as green as renewable energy, it is far cleaner than burning coal, and will result in lower carbon emissions and better air quality for those areas. It was the first sukuk deal in Turkey’s gas distribution sector and opens the door for other energy companies to embark on similar issuance programme

The Tl150m ($21.5m) two-year sukuk was finalised on December 27, 2019, and attracted investment from a portfolio of qualified Turkish investors, such as management companies, insurance companies, pension funds and high-net-worth individuals. Institutional investors were allocated about 80% of the issue, with the remaining amount placed with high-net-worth individuals. 

One of the main challenges with the transaction was to structure the deal to meet strict Energy Market Regulatory Authority (EMRA) requirements and regulations, which prohibit any transfers, pledges and liens on energy assets. The deal was carefully structured to avoid this being an issue, and with EMRA’s permission, paving the way for future issuances with that structure. This included the setting up of an asset lease company to act as a special purpose vehicle for the issuance. 

The solid structure of the deal and the fact that the proceeds will support the transition away from coal attracted significant investor interest. The initial target was to obtain Tl100m of investment but such was the level of demand that it was possible to increase it to Tl150m. 

Loans 

Winner: Carrefour’s €3.9bn sustainability-linked loans

Bookrunners: Bradesco, BNP Paribas, Crédit Agricole, HSBC, ING, Intesa Sanpaolo, Natixis, Santander, Société Générale, UniCredit

Mandated lead arrangers: Bradesco, BBVA, CM-CIC, RBS Arrangers: Banco Itaú, Barclays, Citi,

Credit Suisse, Deutsche Bank

In June 2019, French multinational retailer Carrefour signed the refinancing of its existing €2.5bn and €1.4bn revolving credit facilities (RCFs). But rather than sticking with more standard facilities it took the opportunity to introduce a new and highly innovative environmental, social and corporate governance (ESG)-linked structure.

The facilities incorporate an ESG-linked mechanism based on Carrefour’s CSR & Food Transition Index, a series of key performance indicators (KPIs) that the company established in 2017. The index measures the group’s progress against 17 key corporate social responsibility and sustainable food provision targets across its products, stores, customer base and employees. Its score is expressed as a percentage average of the 17 indicators and is validated by auditors, as well as due for independent expert review in 2020, 2022 and 2025. 

The company has set a yearly percentage threshold KPI, which it needs to meet, otherwise it must transfer circa 2 basis points of the facilities’ value into an environmental investment fund. However, it will also never financially benefit from hitting the targets, as it will still invest a similar amount into the fund, but a proportion will be provided by banks cutting their commitment fees. 

Carrefour is the first borrower to use an in-house index as a sustainability-linked loan KPI, as well as the first to introduce a structure where it does not benefit from a pricing improvement if it hits its targets. 

The facilities consist of a €2.5bn ‘syndicated facility’, which was provided by 21 banks and a €1.4bn ‘club facility’ via its existing eight lenders. The loans were ground-breaking in several respects, such being the first ESG-linked RCF in the European retail sector, as well as the first ESG-linked RCF to align borrower and lender in contributing into a dedicated ESG initiative. 

M&A 

Galapagos and Gilead’s $5.1bn collaboration

Financial advisers to Galapagos: Moelis, Morgan Stanley

Financial advisers to Gilead: Barclays, Centerview Partners, Lazard 

In July 2019, Belgian biotech company Galapagos and US biopharma firm Gilead Science entered into a major strategic collaboration, which will give Gilead access to Galapagos’s drug discovery platform, and the opportunity to develop and commercialise products from that pipeline. In exchange, Gilead will make an upfront payment of $3.95bn and a $1.1bn equity investment into Galapagos, increasing its ownership in Galapagos to 22%. Additionally, the agreement includes two warrants allowing Gilead to further increase its ownership up to 29.9%.

The 10-year collaboration will allow for closer scientific partnership between the two companies. Gilead will have access to Galapagos’s established research base, which includes more than 500 scientists, and to its unique drug discovery platform. Gilead will also nominate two individuals to Galapagos’s board of directors following the closing of the transaction.

Under the arrangement, Gilead will have exclusive product licence and option rights to develop and commercialise all current and future programmes developed via the drug discovery platform in all countries outside of Europe, including six clinical programmes and more than 20 pre-clinical programmes.

Galapagos will fund and lead all discovery autonomously until the end of phase two of development. After the completion of a qualifying phase two study, Gilead will have the option to acquire an expanded licence to the relevant chemical compound. If the option is exercised, Gilead and Galapagos will co-develop the compound and share costs equally.

This was an innovative, first-of-its-kind arrangement with benefits for both parties and, in this case, a better outcome compared to a traditional merger and acquisition approach. The arrangement will support both companies to boost their long-term growth, share risks and accelerate the launch of new medicines. The markets broadly endorsed the approach, with shares in both companies showing substantial increases in the months following the announcement. 

Restructuring 

Winner: Steinhoff International Holding’s €11.9bn restructuring 

Financial adviser: Moelis, AlixPartners

Global retailer Steinhoff operates in 30 countries through more than 40 local brands, including Mattress Firm in the US, discount retailer Poundland in the UK and its European real-estate subsidiary Hemisphere. Steinhoff’s market capitalisation plummeted by 95% in December 2017 following the shock resignation of its CEO and the announcement of accounting irregularities that revealed a multi-billion-euro hole in its accounts. The loss of virtually all available funding under existing facilities and a breakdown of cash management arrangements triggered several liquidity crises across the group. Liquidation seemed inevitable. 

Moelis worked closely with Steinhoff to protect liquidity positions and prevent the group’s collapse, securing new financing for Steinhoff’s troubled operating companies, including a £180m ($222m) two-year loan in January 2018 from hedge fund Davidson Kempner for Poundland. New credit lines and a series of expedited disposals raised more than €2.7bn. 

Extensive negotiations with creditor groups across the group’s structure resulted in a total of €9bn of debt spread across three key holding companies, Steinhoff Europe AG (SEAG), Steinhoff Finance (SFHG) and Hemisphere. SFHG contained debt totalling €2.9bn and SEAG €5.8bn. The debt was reissued and consolidated into a handful of facilities with semi-annual compounding payment-in-kind interest replacing cash interest payments and a December 2021 maturity. 

Mattress Firm emerged from a $3.6bn pre-arranged Chapter 11 debt restructuring with access to $525m of exit financing, after closing 660 underperforming stores. Hemisphere’s €750m debt was restructured by way of a contractual agreement, resulting in a three-year loan facility of €775m. The sale of its Kika-Leiner property holding company for £490m enabled an early pay down of the restructured facility. 

Securitisation  

Winner: Sabadell’s €1bn consumer loans securitisation

Sole arranger: Deutsche Bank

Lead managers:  Deutsche Bank, Banco Sabadell

In September 2019, Spanish bank Banco Sabadell priced an inaugural securitisation of consumer loans in the ‘Sabadell Consumo 1’ transaction. This was a significant deal for both the Spanish and European asset-backed securities (ABS) markets. 

The €1bn transaction allowed Banco Sabadell to deconsolidate the portfolio from its balance sheet, releasing risk-weighted assets and generating an upfront capital gain of Ä88m. The transaction will also have a positive impact on the bank’s fully loaded common equity Tier 1 ratio of about 14 basis points, with an implicit cost of just 5%.

Placement of the seven-tranche transaction was split between a private placement and public marketing. The four lower tranches of the capital structure were pre-placed via a competitive tendering process, allowing Sabadell to achieve a good level of pricing for the riskier securities ahead of public marketing. The bookbuild for the three most senior tranches saw the book more than three times oversubscribed, including a protected order from the European Investment Bank, and allowing significant tightening of pricing. The average coupon across the transaction stood at 7.4% at the date of the assignment (with all tranches linked to three-month Euribor), and the average duration stood at about two years.

The deal was the largest Spanish securitisation since 2007 and the first public consumer loan ABS in Europe, where the entire capital structure – including excess spread – was sold to investors. The deal was also significant as the first Spanish simple, transparent and standardised transaction, which was introduced by the EU and came into force in January 2019 with the aim of bringing increased uniformity and transparency into European securitisation markets. 

Sovereign, supranational and agency financing

Winner: Ukraine’s €1bn sovereign bonds

Bookrunners: BNP Paribas, Goldman Sachs

In June 2019, Ukraine returned to the euro-denominated bond markets with its first euro issuance in 15 years, and its first sovereign issuance under the administration of president Volodymyr Zelensky, who was elected in April 2019. 

Mr Zelensky came into power off the back of widespread discontent with the prior regime of Petro Poroshenko, particularly over concerns regarding corruption and the struggling economy. His election offered the possibility of a reboot in the country’s economic and foreign policy.  

Investor sentiment about Mr Zelensky’s presidency and the potential for economic improvement appeared to be positive, with a rally in secondary trading of the sovereign’s bonds following the election. The International Monetary Fund also made a positive statement about the country’s economic progress following a two-week visit to Kyiv at the end of May. It was against this backdrop that Ukraine launched a European roadshow to promote its seven-year euro-denominated bond, led by minister of finance Oksana Markarova, including one-to-one and group meetings as well as international calls for non-European accounts. 

The transaction was launched on June 13, following a busy day for European sovereign issuance on June 12, and attracted huge interest for the €1bn issue, with order books peaking at €6bn. This allowed a significant tightening of pricing from initial guidance of 7.125% to a coupon of 6.75%. 

The deal attracted a wide range of investors from across Europe and the US, as well as some in Asia, and has become the most diversified B rated euro offering in the sovereign space.

This transaction was a landmark strategic deal for Ukraine as it sought to re-engage with continental European accounts and establish an alternative liquidity pool away from its US dollar investor base. In the previous two years it had issued two US dollar-denominated transactions. The bond also allowed the country to make a strong statement about its ambitions for close economic relations with Europe. Ms Markarova said at the time: “With this successful deal, we are putting the first dot in the future long history of financial integration into Europe.”