Deals of year logo 2021

The Banker reviews the best deals of the past year in the Americas. 

Corporate bonds

Winner: Boeing’s $250bn seven-tranche issuance

Bookrunners: Bank of America, Citi, JPMorgan and Wells Fargo

The aviation industry has been one of the hardest hit by the Covid-19 pandemic. In March 2020, almost overnight, international travel largely ground to a halt and is yet to really recover. On April 30, 2020, at the height of uncertainty about how long the disruption would last, Boeing issued a mega seven-tranche bond offering worth $25bn, to shore up its cash position. The offering was spread across three-, five-, seven-, 10-, 20-, 30- and 40-year maturities, each sized between $2bn and $5.5bn.

This was an important transaction for Boeing not only due to the challenges imposed on it by the coronavirus outbreak but also following a difficult year, with the grounding of its 737 Max model in March 2019 taking a heavy financial toll on the company. On April 29, just one day prior to the transaction, the company had announced a quarterly net loss of $641m and that it would be reducing production and staffing levels.

Despite the challenging circumstances facing the company, substantial investor demand enabled it to significantly upsize the transaction. The larger issuance enabled the company to avoid seeking government funding, something it had previously said it was exploring.

Boeing did have to pay a new issue premium across the tranches, however given its liquidity needs it opted to prioritise securing the funding it needed. The company also included provisions for coupons to increase in the event of its credit rating being downgraded to junk status – on April 29, S&P had downgraded the company to BBB-, its lowest investment grade rating.

The jumbo transaction, issued during extraordinary circumstances, was the sixth largest investment grade bond offering of all time and the largest issuance during 2020.

Sovereign, supranational and agencies financing

Winner: Peru’s $4bn triple-tranche issuance

Bookrunners: BBVA, Citi, Goldman Sachs, Itaú BBA and Morgan Stanley

In November 2020, Peru issued a ground-breaking bond offering in several respects. The $4bn triple-tranche offering was its largest ever transaction. And despite coming amid a highly unstable political backdrop, just days after president Martin Vizcarra was impeached under charges of corruption and mishandling the Covid-19 pandemic, the offering attracted $14bn of demand from 600 investors.

The deal consisted of a $1bn 12-year tranche, a $2bn 40-year tranche and a $1bn 100-year tranche – marking Peru’s entry into the select club of sovereigns to issue a century bond. The issuance came off the back of multiple reverse enquiries about longer-dated securities from the sovereign. The high level of interest enabled significant price tightening of 100 basis points or more for each of the three tranches, with the 12-year, 40-year and 100-year pricing at 1.862%, 2.828% and 3.278%, respectively.

The deal was a clear success, with the country able to achieve the lowest-ever 12-year coupon for a Latin America issuer and the lowest-ever 100-year US dollar coupon for an emerging markets issuer. It was also the largest and longest-dated bond transaction of a South American sovereign in 2020.

Peru will use the proceeds to finance Covid-19 related measures and to boost its economy.

Equities

Winner: Petz’s 3bn reis IPO

Bookrunners: Itau BBA, Santander, Bank of America, JPMorgan and BTG Pactual

Petz is a leading Brazilian retailer and healthcare provider for pets, with more than 100 stores and almost 100 veterinary centres across the country. The company has also been able to develop a strong omnichannel strategy, with a well-established digital platform – its digital sales increased by a third, year-on-year, between 2019 and 2020. In addition, it has a well-subscribed loyalty programme, encouraging repeat custom, with 80% of its sales made via the scheme. It also reported strong financial results and growth for the first half of 2020, despite the Covid-19 pandemic. All of this provided the company with a strong foundation before its listing on September 9, 2020 on the Novo Mercado segment of the B3 stock exchange.

There was strong demand for the offering, which saw 195.92 million shares sold at a price of 13.75 reais ($2.48), with the offering almost seven times oversubscribed. The company also exercised its greenshoe over-allotment option, offering a further 24.5 million shares. In total, the whole offering raised $3.031m reais, which the company will use to invest in opening new stores and healthcare facilities, as well as further development of its digital channels.

Financial institutions group financing

Winner: Charles Schwab’s $2.5bn preferred stock issuance

Lead bookrunner: Credit Suisse

Additional bookrunners: Bank of America, Citi, Goldman Sachs, JPMorgan and Morgan Stanley

Charles Schwab is a leading investment services provider, which in recent years has consolidated its position via the acquisition of TD Ameritrade as well as the brokerage and wealth management operations of USAA.

In April 2020, the company issued $2.5bn of perpetual non-call five-year fixed rate preferred stock aimed at institutional investors, marking the largest ever preferred stock offering not issued by a global systemically important bank.

The deal was Schwab’s first regulatory capital raise following its $26bn acquisition of TD Ameritrade in November 2019, and provided it with capital to support significant growth, building on a significant increase in client cash deposits. The deal also reopened the preferred stock primary markets following several weeks of severe market dislocation.

The company took advantage of a positive market on the morning of April 27, 2020 to announce the offering, its first regulatory capital issuance since 2017. It included an investor-friendly, fixed-reset structure with the back-end dividend reset rate benchmarked to the five-year “Constant Maturity Treasury” yield and optional redemption dates matching dividend reset dates every five years.

The announcement was very well received, with the order books more than eight times oversubscribed based on the initial allocation size, enabling Schwab to both increase the size of the offering and to significantly tighten pricing to 5.375%.

Infrastructure and project finance

Winner: Cascade Power Project’s financing

Financial adviser: Macquarie Capital

Funding financial institutions: ING, ATB Financial, MUFG, National Bank Financial, Nomura, Siemens Financial Services, Natixis, Canadian Western Bank, Fiera Private Debt Fund

The C$1.5bn ($1.2bn) Cascade Power Project will finance Canadian asset manager Kineticor in its construction of a 900-megawatt combined-cycle gas power plant in the country’s province of Alberta. The Cascade site is strategically situated in proximity to significant gas production and pipeline infrastructure, as well as high-voltage electrical transmission lines, an important competitive advantage for the facility.

The project aims to accelerate Alberta’s transition to clean energy. More than half of the Canadian electricity generation sector’s greenhouse gas emissions are currently produced by the province’s power plants. Cascade’s combined-cycle gas turbines emit 62% less carbon dioxide per megawatt hour when compared with traditional coal fired plants. The plant is expected to begin commercial operation in 2023 and will provide one of the largest emission reduction opportunities for Canada’s energy sector.

Macquarie Capital, in partnership with Ontario-based pension fund OPTrust, secured and closed the deal in August 2020. Macquarie served as the exclusive financial adviser and debt arranger to the partnership, raising $629m in debt from a consortium of 10 financial institutions, as well as taking an equity stake in the project. The project will provide protection from revenue uncertainty through gas netbacks: a 10-year gas hedge, which links the cost of gas to Cascade’s ahead-one-day power price.

With an estimated service life of 30 years, Cascade will generate enough electricity to power 900,0000 homes, meeting 8% of Alberta’s total electricity supply needs. The new plant will strongly benefit the local community, creating an estimated 600 jobs during peak construction, as well as 25 long-term jobs during its operation.

Leveraged Finance

Winner: Zayo’s $8.1bn leveraged buyout debt financing

Joint lead managers: Citi, Credit Suisse, Deutsche Bank, SunTrust, TD Bank

Co-managers: BNP Paribas, Citizens Bank, CoBank, Fifth Third, ING, MUFG, Natixis, Nomura, Scotiabank

Financial advisers to Digital Colony

Partners and EQT: Morgan Stanley and Deutsche Bank

Zayo is one of the world’s largest independent providers of fibre optic cables and other telecommunications infrastructure, active across North America and Europe. In March 2020, the company, which had been publicly listed since 2014, was acquired and taken private by leading private equity firms EQT and Digital Colony Partners at a value of $14.3bn. It was one of the largest leveraged buyouts since the global financial crisis in 2007-09, a reflection of the core role which digital infrastructure is expected to play in the global economy into the future.

To fund the takeover, a financing package comprised of $4.57bn and €750m of first lien term loans, $1.5bn seven-year senior secured bonds and $1.08bn eight-year senior unsecured bonds was put together. Despite Zayo’s single B rating with S&P, many investors regarded the company favourably with strong prospects for the future, allowing the first lien loan facility to be upsized across by $500m.

Interest was also strong for the bonds with demand reported to have topped $10bn, and the secured notes tranche was upsized by $500m. The upsize in both the loans and the secured bonds enabled the higher yielding unsecured tranche of bonds to be downsized by $1bn, cutting costs for the issuer.

The transaction was also notable for the unusually short one-year non-call period attached to the seven-year secured notes. A one-year non-call period is closer to the norm for leveraged loans than high yield bonds, and this will provide the issuer with greater flexibility to refinance this part of its debt package more quickly than would typically have been the case.

Loans

Winner: LD Celulose debt financing

Lead arrangers: IDB/IDB Invest, IFC, Finnvera

Participating banks: Santander, BNP Paribas, Commerzbank, Erste Group, HSBC, KfW-IPEX-Bank and Raiffeisen

LD Celulose (LDC) is a joint venture owned by Austrian firm Lenzing, a market leader in speciality fibres used in the textiles industry and other sectors, and Brazilian company Duratex, the largest producer of wooden panels in the southern hemisphere.

It’s plan is to construct a plant with the capacity to produce 450,000 tonnes a year of dissolving wood pulp (DWP), a material used in the manufacture of textiles and non-woven fabrics, in the Brazilian state of Minas Gerais. DWP can be used to replace both synthetic and cotton-based fibres in manufacturing processes, and the production of this plant, which is expected to be the most modern and efficient DWP plant in Brazil, will have a positive environmental impact.

There are also clear benefits for both Lenzing, with the project enabling backward integration in its supply chain and providing a growth opportunity, and for Duratex, with it providing an opportunity to diversify its income stream and expand into an area of growing international demand.

The complete project has been costed at $1.8bn, with the Inter-American Development Bank (IDB), IDB Invest (the private sector arm of the IDB) and International Finance Corporation (IFC) providing a comprehensive debt financing package for its funding.

The package consists of a $130m IDB Invest A loan (a loan funded via its own resources), a $70m IDB A loan, a $250m IDB Invest B loan (a syndicated loan), and $50m funding from the China Co-financing Fund for Latin America and the Caribbean Region (an IDB administered fund). On the IFC side, it is providing a $200m A loan, a $50 loan through its Managed Co-Lending Portfolio Programme, and a $250 B loan.

A further $147m loan financing is being provided from financial institutions, backed by Finnish export credit agency, Finnvera.

M&A

Winner: Alstom’s acquisition of Bombardier Transportation

Financial advisers to Alstom: Rothschild & Co and Société Générale

Financial advisers to Bombardier Transportation: Citi and UBS

The acquisition of Bombardier Transportation by Alstom has created a worldwide leader in the rail rolling stock and rail services industry, second in size only to China’s CRRC.

According to Alstom, the combined group has a pro forma revenue of €15.7bn with a workforce of 75,000 people and operations in 70 different countries worldwide. For parent company Bombardier, the divestment will enable it to refocus on its world-leading aviation business.

The transaction closed on January 29, 2021, at a value of €5.5bn, after almost a year of preparations, following a memorandum of understanding which had been signed in February 2020. The final sale price was €300m lower than the initial indicative price range of €5.8bn–€6.2bn announced in February 2020, with Alstom renegotiating its offer as a result of difficult market conditions and Bombardier Transportation’s lower than expected financial performance.

An additional complexity in the transaction was that pension fund, Caisse de dépôt et placement du Québec (CDPQ), owned a 32.5% minority stake in Bombardier Transportation. As part of the deal, CDPQ reinvested its stake (worth around €2bn) into the merged business along with additional capital of around €700m, becoming a 17.5% shareholder in Alstom.

The proceeds from the sale were €4.4bn after a €1.1bn deduction, which took into account the application of a cash adjustment mechanism, based on Bombardier Transportation’s negative net cash position as of December 31, 2020, and other contractual obligations. Bombardier received net proceeds of $3.6bn, including €500m worth of Alstom shares.

The acquisition was financed through a rights issue of around €2bn in December 2020, and part of a €750m senior bond issuance in January 2021, along with the shares issued to Bombardier and CDPQ as part of the sale.

Restructuring

Winner: Pacific Gas & Electric’s restructuring

Financial adviser: Lazard

In July 2020, California’s largest utilities company, Pacific Gas & Electric (PG&E) emerged from its second Chapter 11 bankruptcy after collapsing under an estimated $30bn in liabilities from several devastating wildfires caused by its own power lines.

Its bankruptcy ranks as one of the three largest in US history by liabilities settled ($55.5bn) and as a landmark case on account of its complexity and capital raised. Its successful conclusion involved reaching a consensual resolution with multiple disparate parties, such as wildfire claimants, insurance companies, creditors, government stakeholders, regulators and utilities bill payers.

To fund its emergence from Chapter 11, PG&E raised $37bn in capital, which included $21.7bn in debt financing and the largest single issuance of investment grade notes ($8.9bn) by a US utility company.

Lazard coordinated with PG&E’s underwriting banks to structure a $9bn equity offering to fund the company’s plan of reorganisation (POR). In addition, negotiations were held in parallel with more than 60 institutional investors to arrange a $12bn equity backstop commitment to ensure the certainty of available capital for PG&E to emerge successfully from Chapter 11.

An innovative $7.5bn off balance sheet securitisation structure was engineered by Lazard to enable PG&E to monetise the tax attributes of its wildfire settlements. It provided cost-effective financing while remaining rate-neutral to the company’s customers, and enabled PG&E to accelerate and disburse its final payment of $1.35bn to the wildfire victims.

In January 2020, a restructuring agreement with PG&E’s pre-petition creditors settled $21.5bn of pre-existing debt and prevented the noteholders from pursuing a competing POR. By June, PG&E had pleaded guilty to 84 counts of manslaughter. The wildfire claims were eventually settled for $25.5bn, including a combined $6.75bn in cash and $6.75bn in equity for the wildfire victims, $11bn for insurance companies and a further $1bn for municipal entities.

Securitisation

Winner: Golub Capital’s $678m middle-market CLO

Sole arranger: Société Générale

Middle-market collateralised loan obligations (MM CLOs), a segment of the US CLO market based on secured loans to mid-market corporates, have seen significant growth in recent years with the category accounting for 14% of total outstanding US CLOs.

Golub Capital is an established operator within the middle market as both a loan originator and CLO manager. It has issued 40 MM CLOs since 2005, and, as of December 2020, was the largest MM CLO manager in the market, with more than $16bn of assets under management across 24 outstanding MM CLOs.

Following the outbreak of Covid-19, and the subsequent economic disruption, there was significant concern about ensuring both consumers and businesses could access credit. In March 2020, the US Federal Reserve launched a revamped version of its Term Asset-backed Securities Loan Facility (TALF), a programme first created during the financial crisis in 2008, which aimed to boost consumer spending by financing investors willing to invest in certain categories of securitisation, in turn boosting market liquidity and enabling banks to lend more to corporate and retail customers. The new programme was expanded to include CLOs backed by leveraged loans as eligible collateral for the TALF programme.

In October 2020, Golub Capital Partners’ $677.53m TALF 2020-1 LP MM CLO became the first CLO to issue under the TALF programme, as well as being the largest CLO issued in 2020 following the onset of Covid-19.

A key element for the success of the deal was that arranger Société Générale and Golub consulted with the Federal Reserve on modifications to the TALF programme to make it viable for CLOs to comply as eligible collateral. Société Générale also worked closely with rating agencies to design an appropriate structure for the CLO during a period of extreme market volatility.

Sustainable Finance

Winner: Mercado Libre’s sustainability bond issuance

Joint bookrunners: BNP Paribas, Bank of America, Citi, Goldman Sachs, JPMorgan

Mercado Libre is the biggest e-commerce platform in Latin America, comparable to China’s Alibaba. It serves as an integrated provider of online tools allowing businesses and individuals to trade products and services in the region.

In January 2021, this regional titan debuted in the international bond markets, following a year where its chief executive estimated the pandemic accelerated its growth by three to five years. In addition to a $700m 10-year tranche issued for general corporate purposes, it also issued a $400m five-year sustainability bond (a bond to fund both environmental and social objectives).

Commenting on the inclusion of the sustainability tranche, Mercado Libre’s chief financial officer, Pedro Arnt, said: “The growth of our platform demands us to contribute more to the societies where we operate, to be efficient in our energy consumption, to move towards increasingly cleaner mobility, and to innovate in our strategies to mitigate our social and environmental impact throughout the entire value chain.”

It intends to invest the proceeds from the sustainability tranche in three main areas: increasing access to financial services for small and medium-sized enterprises and entrepreneurs; improving the organisation’s energy efficiency and reducing emissions and waste within its operations; and social development and empowerment via promoting greater digital inclusion and improving job prospects for young people.

The deal attracted significant interest globally, with the company receiving $14bn worth of orders from 330 investors from 30 different countries within two hours of its launch. This allowed the company to tighten pricing in both the five- and 10-year tranches, settling at 2.375% and 3.125%, respectively. This result puts the company in line with international peers and ahead of many local competitors.

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