The Deals of the Year 2017 winners from Europe.

Bonds: corporate 

WINNER: AB InBev’s €13.25bn six-tranche bond

Global coordinators: BNP Paribas, Deutsche Bank, ING, Santander 

Bookrunners: Banca IMI, Mizuho, Rabobank

Anheuser-Busch InBev’s £78bn ($99.7bn) acquisition of rival SABMiller made waves in the merger and acquisition (M&A) market in 2016. But it also spawned some precedent-setting capital markets transactions to take out the $75bn syndicated loan that funded the deal. 

This included a €13.25bn six-tranche senior unsecured notes issuance on March 16, 2016, which consisted of four-year floating rate notes alongside four-, six-, nine-, 12- and 20-year fixed notes. As the largest euro-denominated corporate bond issuance in history, it proved the depth of the euro market and European investor demand for jumbo M&A deals. 

It was announced at 8am as a benchmark-sized deal, with the market expecting less than €9bn. Within three hours the books showed Ä26bn of orders, which allowed pricing to be tightened across every tranche and the size set at €13.25bn with orders peaking at €31bn.  

One factor in the deal’s success was its perfect timing. Some had expected AB InBev to issue the euro deal straight after its $46bn dollar-denominated issuance in January, but it decided to wait until optimal market conditions. That proved to be mid-March, one week after the European Central Bank announced that investment-grade euro-denominated corporate bonds would become eligible for purchase under the bank’s quantitative easing programme. That provided a very supportive backdrop for a benchmark-sized deal. 

The €13.25bn transaction reinvigorated Europe’s bond market, which saw minimal issuance over the first two months of the year. It has redefined the liquidity that is available in Europe at a time when EU authorities are trying to grow regional capital markets and reduce reliance on capital-constrained banks. In addition to encouraging local borrowers to tap the bond markets, it caught the attention of US issuers. So-called ‘reverse yankee’ deals have been a theme of European bond markets for some time, but AB InBev’s deal prove that jumbo acquisition financings can be issued in Europe alone.

Bonds: SSA 

WINNER: Republic of Austria dual-tranche €5bn bond

Bookrunners: Barclays, Goldman Sachs, HSBC, Nomura, RBI

EU governments’ borrowing costs have hit historic lows in recent years thanks to the European Central Bank’s (ECB’s) efforts to jump-start the ailing eurozone economy. Its €60bn to €80bn quantitative easing programme, combined with its decision in March 2016 to cut interest rates to zero, have pushed some sovereign bond yields into negative territory.

Many governments seized the opportunity to lock-in cheap funding for as long as possible by issuing ultra-long-dated bonds. Throughout 2016, Italy, France, Belgium and Spain all issued debt with 50-year tenors but they were trumped by Austria on October 25, 2016, when it issued a €5bn dual-tranche deal with seven-year and 70-year tenors. The €2bn long-dated tranche will mature in 2086 and pays a coupon of 1.5%. 

Earlier in the year, Belgium and Ireland sold 100-year notes but these were private placements, meaning they are less scrutinised by regulators and are often tailored to satisfy just a handful of buyers. Conversely, Austria’s deal was syndicated by the five lead managers among more than 200 investors. The 70-year tranche is the longest ever syndicated European government bond, and its Ä5.4bn final order book established ultra-long-dated bonds as a viable way for governments to raise funds from high-quality investors.   

For the Austrian government, the transaction was a huge success. The €13.2bn in total orders was bigger than any of its previous deals and the 70-year coupon is the same it pays for a 30-year bond it sold earlier in the year. It also diversified its investor base with the addition of many first-time buyers, and extended its curve beyond its existing January 2062 maturity.

The deal’s success is a credit to the banks that brought it to market, namely Barclays, Goldman Sachs, HSBC, Nomura and RBI. They managed the price discovery process and marketed the 70-year tranche despite there being no direct comparable.

Capital raising: FIG 

WINNER: Nykredit Realkredit €500m senior resolution notes

Bookrunners: BNP Paribas, Goldman Sachs, Morgan Stanley, Nykredit Markets

In late 2016, continental European banks started issuing a new style of debt to satisfy their obligations under the global total loss-absorbing capital (TLAC) standards and its EU equivalent MREL, or minimum requirements for own funds and eligible capital. It is known as senior non-preferred or Tier 3, because it sits between Tier 2 regulatory capital and senior unsecured debt, and has been championed by the French banks which have issued the majority of volumes to date.

But the real trailblazer of this burgeoning new asset class is Danish mortgage provider Nykredit Realkredit. Last June it issued Ä500m of three-year notes described as ‘senior resolution notes’. They have the same ranking as senior non-preferred in the bank capital structure and can be bailed in under the same conditions – only once the bank has reached the point of non-viability. 

Nykredit has no obligations under TLAC, which applies only to the world’s biggest banks, but it does have debt buffer requirements under the Danish framework for non-deposit-taking mortgage banks. The senior resolution notes satisfy this and the loss-absorbing criteria used by Standard & Poor’s in its rating methodology.

One of the biggest hurdles with this new style of debt is ensuring investors understand that its bail-in risk is different to regulatory capital. However, the banks that led this first-of-its-kind deal – BNP Paribas, Goldman Sachs, Morgan Stanley and Nykredit Markets – did a sterling job. It was heavily oversubscribed, drawing about Ä2.5bn of orders, which allowed pricing to tighten to 15 basis points less than initial price thoughts. It attracted more than 160 orders with a strong showing by real money investors. Buyers from France and UK/Ireland took the most orders, accounting for 24% and 20% of the notes, respectively. 

Some expect the EU TLAC debt market, which consists of senior non-preferred notes and senior holding company debt, to reach €200bn to €300bn. If it does, Nykredit Realkredit should be credited with laying the groundwork.


WINNER: Innogy’s €4.6bn IPO

Joint global coordinators and joint bookrunners: BNP Paribas, Deutsche Bank, Goldman Sachs 

Joint bookrunners: Bank of America Merrill Lynch, Credit Suisse, UBS 

Co-lead managers: Banco Santander, Berenberg, RBC

Independent financial adviser: Rothschild

It has been a lacklustre few years for European initial public offerings (IPOs). Cheap debt, flat growth and a buoyant market in mergers and acquisitions (M&As) are among the many factors that have stopped companies going public. However, in 2016 there were some bright spots, the most notable being Innogy’s €4.6bn listing on the Frankfurt Stock Exchange. The October flotation of Innogy – which is the renewable energy, grid and retail business of German utility RWE – is impressive for a number of reasons. 

Despite the weak equity market backdrop, it was the biggest IPO in Europe, the Middle East and Africa since 2011 and the biggest in Germany since 2000. Thanks to extensive marketing, an effective roadshow and compelling equity story, the listing priced at the upper end of guidance at Ä36 per share, resulting in a €20bn market capitalisation. A €940m cornerstone commitment from BlackRock also shored up investor appetite.

The listing was preceded by a complex restructuring by RWE to create Innogy as a standalone entity. German policy-makers’ move away from fossil fuels and nuclear prompted RWE to spin-off not only its green business, but also the associated grid and customer supply operations to create Germany’s first fully integrated green utility. It required a huge number of carve-out transactions, including more than 60 internal mergers, spin-offs, change of legal form, acquisitions and sales, reassignments of debt and transfers of pension obligations. About 40,000 employees and a turnover of €46bn were pooled into Innogy. This mammoth task was announced in December 2015 and wrapped up before the October 2016 listing.

In creating Innogy, emphasis was placed on it being separate to its controlling shareholder RWE from a governance and economic perspective. It has a two-tier board structure with a supervisory board that consists of 10 shareholder representatives and 10 employee representatives.

The company’s listing is a symbol of Europe’s recuperating equities market, and the public and private sectors’ efforts to reduce greenhouse emissions.

Green finance 


Republic of France’s €7bn green bond

Bookrunners: Barclays, BNP Paribas, Crédit Agricole CIB, Morgan Stanley, Natixis, Société Générale

Since early 2016 there has been much speculation about which government would issue the world’s first sovereign green bond. Poland claimed that title in December with a €750m deal, but it was the €7bn green bond sold by the French government in January 2017 that signalled the opening of the green sovereign bond market. It is a benchmark deal that will provide a vital reference for other governments looking to follow suit. 

The 22-year notes are the largest and longest green bonds issued to-date, and the largest ever single-tranche French government bond to be syndicated. The 1.75% coupon is similar to what the government is paying for conventional debt with a similar maturity. Green initiatives are often shunned by investors due to their expense, but in this case the French government can fund initiatives aimed at mitigating and adapting to climate change, protecting biodiversity and controlling pollution without having to pay a significant premium. 

It built momentum for European green bonds in a number of ways. It attracted about Ä23bn in orders from a mix of high-quality investors, revealing that there is no shortage of buy-side appetite for the burgeoning asset class. It is also the first deal to be subjected to a so-called ‘ex-post impact report’ which will assess the efficiency and success of the use of proceeds. This will be overseen by a newly established independent committee of experts. 

It also pushed the boundaries regarding use of funds. Initially green bond proceeds financed capital expenditure, but this deal will go towards a broad range of budget items including tax, investment, operating and intervention expenditures, plus academic research on the transition to renewable energy. Nonetheless, its ‘green’ credentials are flexible enough to encourage other sovereigns to follow suit. 

In issuing this bond, the French government had two objectives: to deepen liquidity in the green bond market, and to strengthening its green standards. It achieved both, cementing its status as a leader in the global effort to tackle climate change. 

Infrastructure and project finance 

WINNER: Tees Renewable Energy Project 

Financial adviser and equity underwriter: Macquarie

Syndicate banks: Lloyds, Natixis, Sumitomo Mitsui Banking Corporation, Shinsei Bank, Banco Santander, Hastings City Bank, Finnvera, Macquarie

Over the past few years, successive UK governments have pushed for wider adoption of biomass energy as a way to reach the country’s renewable energy goals. However, many big projects have failed to reach financial close, often because debt providers could not get comfortable with the huge volumes of fuel – be it wood pellets, crops or even rubbish – needed to keep the plant running.   

However, the sector received a significant boost in 2016 when the Tees Renewable Energy Project, the world’s largest new-build biomass power station, reached financial close seven years after it was first proposed. The £920m ($1.18bn) project consists of a 299-megawatt combined heat and power plant which is located in North Yorkshire. It will provide low-carbon electricity for the equivalent of 600,000 homes, making it an important contributor to the UK’s green energy target.

Macquarie led on its structuring. Given the huge amount of capital required to build such a large-scale biomass project, it quickly realised that the crux of the deal was an innovative commercial and financial structure that permitted the project debt to be deemed investment grade. 

The result was an 18-year, fixed-price and investment-grade fuel supply agreement, and a market-first offtake agreement pursuant to which the pricing is aligned with the government support Tees will receive under the UK Contract for Difference (CfD) scheme. These contracts significantly de-risk the project during its operational phase and increased the deal’s bankability. 

Macquarie also developed a robust financing structure via which the project company raised £700m across seven tranches of debt from a combination of banks and institutional investors. It included a novel inflation-linked note that provided triple exposure to the consumer price index (CPI), which effectively hedges Tees’ CPI-linked revenue under its CfD. It also put in place a nine-year currency hedge with a notional value of $300m to cover its dollar exposures under the fuel supply arrangements. 

Leveraged finance and high yield 

WINNER: Virgin Media’s £350m receivables financing notes

Global coordinator, structuring agent and bookrunner: Credit Suisse

Bookrunners: Banca IMI, Citi, Deutsche Bank, ING Bank

Led by Credit Suisse, this deal is a true example of innovative structuring to meet a client’s objective. The Swiss bank was sole structuring agent and sole global coordinator on a novel £350m ($447.4m) receivables financing transaction for Virgin Media last September. 

It is regarded as the world’s first receivables financing notes (RFN) and offers a unique opportunity for investors to obtain exposure to the UK cable company via supply chain financing. The notes mature in September 2024, have a three-year non-call period and were issued in 144A/Reg S format. 

The RFNs are yet another example of capital markets stepping in to provide services traditionally offered by banks. It is based on the concept of vendor finance, whereby companies sell their payables to a bank, thereby extending the debtor’s payable days and facilitating earlier payment to suppliers. However, in this case institutional investors have purchased newly created notes which are issued by a special purpose vehicle and secured by receivables that Virgin Media owes to its suppliers. 

RFNs are a significant development in the world of supply chain finance. The structure allows companies to effectively lengthen the maturity of their uncommitted financings. In Virgin Media’s case, this represented an extension from 12 months to eight years. It is a scalable instrument that has the potential to lay the groundwork for a new asset class.

The first-of-their-kind high-yield notes – which were rated BB- by Standard & Poor’s and Fitch, and Ba3 by Moody’s – carry a 5.5% coupon and were designed by Credit Suisse and Virgin Media’s parent Liberty Global. Its success is in no small part due to the extensive marketing effort, which continued after the deal’s launch, to ensure investors understood the new instrument.   

Alongside the securitisation of handset receivables seen in Europe and the US in 2016, Virgin Media’s RFNs are a good example of the recent innovation sweeping the technology, media and telecoms sector’s funding models.


WINNER: Shire’s $18bn bridge loan to acquire Baxalta

Bookrunners: Barclays, Morgan Stanley

Behind every landmark merger or acquisition (M&A), there is an equally impressive financing package. Shire’s $32bn purchase of Baxalta is a case in point. The tie-up between the two pharmaceutical companies was announced in January 2016 and completed just five months later. 

Dublin-headquartered Shire paid via a combination of $18bn in cash and the remainder in newly issued American depository shares. For the all-important cash portion, it turned to Barclays (which also advised Shire on the M&A transaction) and Morgan Stanley, which fully underwrote an $18bn bridge facility ($9bn each) that closed in February 2016. 

It consisted of a $13bn term loan to be used as consideration and for transaction costs, and a $5bn revolving credit facility intended to be used to redeem $5bn of Baxalta’s outstanding senior notes taken on by Shire. The syndication of the bridge loan launched soon after the transaction was announced, was materially oversubscribed and effectively opened Europe’s syndication loan market for 2016. 

There were some potential hurdles in bringing the deal to market. As a first-time issuer in the senior public markets, Shire needed to obtain a credit rating before the bridge loan was signed. The new facilities had to be tailored around the borrower’s outstanding bank facilities, and had to account for its enlarged operations following the acquisition of Baxalta. 

The one-year bridge facilities were taken out by a four-tranche bond in September 2016, in which Barclays and Morgan Stanley were instrumental once again. Some $12.1bn was raised with maturities spanning from three years to 10 years, making it the biggest bond issuance by a UK-listed corporate. 

The combination of Baxalta and Shire has created a global leader in pharmaceuticals for rare diseases. It could not deliver on this important mandate without the financing capabilities of Barclays and Morgan Stanley.


WINNER: AB InBev’s £78bn acquisition of SABMiller 

Advisers to AB InBev: Barclays, BNP Paribas, Bank of America Merrill Lynch, Deutsche Bank, Lazard, Standard Bank 

Advisers to SABMiller: Centerview Partners, Goldman Sachs, JPMorgan, Morgan Stanley, Robey Warshaw 

Adviser to Altria: Credit Suisse

When Anheuser-Busch InBev (AB InBev) announced in September 2015 that it would be making a takeover offer for rival SABMiller, many deemed it impossible. Combining the two beer giants would create the world’s biggest drinks company, and as their businesses spanned the entire globe, such a large number of anti-trust regulators would never sign-off.

Thirteen months later, the sceptics were proved wrong. The £78bn ($100bn) public takeover reached financial closure on October 11, 2016, giving AB InBev operations in virtually every major beer market in the world. Getting the world’s third largest merger and acquisition deal over the line took a huge effort by an army of financial and legal advisers.

To obtain sufficient shareholder support, the deal was structured in three steps: an English court-approved scheme of arrangement followed by a Belgian offer and then a Belgian merger. But the key to its success was the series of divestitures it commenced from the date of the deal’s announcement, to appease competition authorities. 

SABMiller offloaded the Miller brand and its stake in the MillerCoors joint venture for $12bn. AB InBev sold Peroni, Grolsch and the Meantime families to Asahi for Ä2.55bn. SABMiller’s 49% interest in China Resources Snow Breweries was sold for $1.6bn, while its Panamanian business was transferred to Brazil’s Ambev in exchange for Ambev’s operations in Colombia, Peru and Ecuador. Thanks to these and other disposals, the global beer market was redefined in a matter of months.

The regulatory approvals started to roll in from May 2016. Australia’s competition commission was one of the first, followed by the European Commission, the Competition Tribunal of South Africa, the US Department of Justice and China’s Ministry of Commerce. 

This truly global transaction has given AB InBev about 27% of the global beer market and an expanded footprint in high-growth regions including Africa. In a year of megamergers, AB InBev and SABMiller is the clear highlight and shows that with the right advisers and a flexible mindset, no merger is too ambitious.


WINNER: Codere’s restructure

Creditor committee adviser: Houlihan Lokey

Spanish gaming group Codere’s first ran into problems in 2012, when its financials were hit by a difficult economic backdrop and regulatory changes in its major markets. Things became worse the following year when a group of hedge funds acquired its revolving credit facility and refused a request to extend its tenor. That promoted Codere’s senior noteholders to form a committee and bring in Houlihan Lokey as a financial adviser, signalling the beginning of the company’s three-year restructure.

Codere filed for preliminary insolvency proceedings in Spain (pre concurso) in 2014 as it could not pay coupons that were due. However, the country’s bankruptcy framework has a dubious track record when it comes to helping companies return to health – the vast majority that enter pre concurso are eventually wound up. To avoid this, the company and noteholders executed a number of agreements to reach a consensual restructure.

The result was a cash injection of Ä400m, and the exchange of about Ä592m of senior notes for 78.6% in equity. Some 19.2% of Codere’s equity was also sold to key executives at fair market value, and its net leverage reduced from 6.1 times earnings before interest, tax, depreciation and amortisation to 3.3 times.

It was a long road to get that point. Codere was a family-owned company and negotiations were led by its founder and CEO, who was also a significant shareholder. Advisers had to navigate the convoluted structure of a payment-in-kind loan, which was held by an entity owned by the founding family, to avoid a default due to Codere’s change of control. Differences of opinion among the noteholder group had to be ironed out, while governance considerations were raised by the new board’s eclectic mix of the founding family, its former bondholders and hedge funds. 

Nonetheless, Codere was returned to health thanks to a UK Scheme of Arrangement that closed in April 2016. To minimise Spanish insolvency risk going forward, its capital structure was transformed into a so-called ‘double Luxco’, whereby the ultimate holding company is based in Luxembourg.

Securitisation and structured finance 

WINNER: Hawksmoor Mortgages 2016-1

Joint lead managers: Citi, HSBC

In the months following the surprise outcome of the UK’s referendum on EU membership, many predicted a dearth of UK transactions. Yet in August, after only one public sterling-denominated issuance post-Brexit, a record-breaking £2.25bn ($2.87bn) UK residential mortgage-backed securitisation (RMBS) deal hit the market. 

Known as Hawksmoor Mortgages 2016-1, the notes are backed by a portfolio of non-conforming UK residential mortgages originated by GE Money Home Lending and held by consortium consisting of Blackstone, TSSP and Carval. It was the country’s largest ever non-conforming RMBS transaction and the second biggest sterling issuance since the global financial crisis.

There were concerns about market volatility and investors harboured some uncertainties about the future of the UK economy. To reduce execution risk, the joint lead managers conducted extensive discussions with key accounts pre-launch and the transaction was placed over a short period of time. The strategy worked; the notes were heavily oversubscribed by a wide range of high-quality international investors, and books closed in under 24 hours after hitting £3.4bn.

Hawksmoor Mortgages 2016-1 consists of nine tranches, the four most junior of which were retained. The A tranche received AAA ratings from the three major credit rating agencies, had a weighted average life of 2.5 years, and priced at 170 basis points over three-month Libor, which was marginally less than initial price thoughts. Tranches B and C priced in line with initial price thoughts. 

Hawksmoor Mortgages 2016-1 stands out from other large asset-backed securities deals in that it was a truly public sale: no notes were pre-placed, and the transaction was not designed around a sole investor order. That is an achievement in itself, but the fact Hawksmoor is backed by exposure to UK non-conforming mortgages, and hit the markets during the biggest economic upheaval faced by the UK in a generation, makes it the clear winner of Europe’s securitisation of the year.


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