The best deals in Europe over the past year are celebrated.
Corporate bonds
Winner: LafargeHolcim’s €850m sustainability-linked bond
Structuring advisors and bookrunners: ING, Société Générale
Active bookrunners: BNP Paribas, HSBC, Santander
There is widespread acceptance that in order to hit global targets for reducing greenhouse gas emissions set out in the Paris climate agreement, high emitting industries will have to transition to far more sustainable ways of operating. Construction is one such example of a high-emitting sector, with the industry accounting for an estimated 10% of global carbon dioxide emissions, according to the Global Alliance for Buildings and Construction.
LafargeHolcim is one of the world’s largest manufacturers of building materials, including cement, which has a particularly carbon-intensive manufacturing process. The company has been at the forefront of efforts to reduce emissions within the industry. This includes innovative solutions, such as manufacturing its concrete and cement products using circular economy principles and with reduced carbon emissions.
To further underline its climate commitment, LafargeHolcim launched its first sustainability-linked bond for €850m in November 2020. The bond commits the company to achieving targets on its carbon dioxide emissions; specifically no more than 475 kg of net carbon dioxide emissions per tonne of cementitious material manufactured by 2030. If it does not meet the target, it will pay an additional 75 basis points (bps) interest on maturity of the bond.
The 10-year offering was launched on Tuesday November 17 and was multiple times oversubscribed, enabling pricing to be tightened from initial guidance of midswap plus 110bps to midswap plus 77bps, with a final orderbook of €2.6bn.
The deal provides a positive example of how issuers within carbon-intensive sectors can access financing that will enable them to adapt their business models and clears a pathway for further issuers to print similar bonds.
Sovereign, supranational and agencies financing
Winner: Germany’s €6.5bn inaugural green bond
Joint lead managers: Barclays, Commerzbank, Crédit Agricole, Deutsche Bank, JPMorgan and UniCredit
Sole structuring advisor: Crédit Agricole
Germany, the eurozone’s benchmark issuer, is a big borrower, typically printing circa $200bn in bonds each year, and its development bank, KfW, is a sustainable finance pioneer. So, its debut into the sovereign green bond markets has long been anticipated, and it did not disappoint.
In September 2020, its Finance Agency sold €6.5bn of 10-year notes with a 0% coupon, after accumulating €30bn of demand less than two hours after launching. A stellar result by any measure.
Although the timing of the debut transaction seemed strongly correlated to strong market conditions post-summer, and following recent government announcements committing the country to climate neutrality by 2050, it was also the result of 18 months of planning. The debut deal is the first of an ambitious plan to build up an entire yield curve of green securities of up to 30-year maturities.
The sovereign was also keen to introduce new innovations to the green bond market, something which it achieved with its ‘twin bond’ issuance approach. This method means each green bond Germany issues will have the same maturity and coupon as an earlier issued conventional bond, providing an easily referenceable benchmark rate for its green notes and vice versa, as well as for other issuance across the eurozone.
The deal was launched on September 2, 2020 and was five times oversubscribed, ultimately priced at 1 basis point tighter than its conventional twin.
Germany will use the proceeds from the bond to finance projects across green transport, international co-operation (assisting emerging market and developing countries in their transition towards a more environmentally friendly economy), research innovation and awareness raising, renewable energy transition and the promotion of biodiversity, natural landscapes and sustainable agriculture.
Equities
Winner: Ozon’s $1.4bn IPO
Bookrunners: Citi, Morgan Stanley, Goldman Sachs, Renaissance Capital, Sberbank, UBS, VTB Capital
E-commerce company Ozon, sometimes referred to as the “Amazon of Russia”, launched its $1.4bn initial public offering (IPO) in November 2020, marking the largest IPO out of the Commonwealth of Independent States since 2017. Ozon was able to capitalise on strong market conditions for tech IPOs, as well as an operating environment during the pandemic months resulting in its sales volumes increasing considerably.
Its shares were listed on Nasdaq in New York via American depositary receipt, as well as via a secondary listing on the Moscow Exchange (MoEx). Thirty-three million American depositary shares were floated at $30 per share, above price guidance of $22.50-$27.50 due to significant investor interest ahead of launch. The company also reportedly upsized the transaction from an initial planned listing worth $500m based on expected high demand.
Ozon opted to include a secondary listing on MoEx to enable it to tap additional pockets of investor demand from local retail and institutional investors. Trading on the MoEx tranche launched simultaneously with trading on Nasdaq – the first time that the trading of a Russian company’s shares has opened simultaneously on the two exchanges.
Following a positive market response – on the first day of trading the price increased by 40% – Ozon also opted to take advantage of its 15% overallotment (greenshoe), issuing a further 4.95 million shares. This led to the total offering of 37.95 million shares, worth around $1.139bn being listed, representing a free float of 18%.
Alongside the main IPO, an additional private placement of $135m was also executed, with existing major shareholders BVCP and Sistema each subscribing for $67.5m worth of stock at the same pricing as the IPO.
Financial institutions group financing
Winner: Allianz’s dual-tranche €1.25bn and €1.25bn inaugural RT1 issuance
Joint lead managers: Deutsche Bank, Bank of America, BNP Paribas, Citi, HSBC
The concept of loss-absorbing capital is probably most associated with the banking sector in the shape of Additional Tier 1 (AT1) bonds, which are written down or convert to equity if the issuing bank’s capital drops below a certain level.
But insurers, too, are required to hold loss-absorbing capital. In Europe, under the Solvency II directive, insurers must issue convertible debt known as Restricted Tier 1 (RT1). But since the first transactions in 2017, this market has been slow to develop.
However, in November 2020 Europe’s biggest insurer made waves when it issued its first RT1 deal: a perpetual non-call 5.4-year $1.25bn and perpetual non-call 10.4-year €1.25bn dual-tranche offering. The way was cleared for the issuance when the German Ministry of Finance clarified long-debated rules over whether RT1 issuances counted as equity or debt for German tax purposes, with it confirming it would count as debt in October.
Demand for the deal was exceptional, with orders quickly building throughout November 10 after its launch. The orders on the US dollar tranche and euro tranche peaked at almost $10bn and more than €6bn respectively, with orders received from more than 1400 investors across both tranches.
Even after final pricing was announced, with substantive tightening of more than 60 basis points on both tranches, both books remained multiple times oversubscribed. The $1.25bn tranche priced at 3.5% and the €1.25bn at 2.625%.
The deal was a blockbuster in several respects, not only was it the first RT1 deal out of Germany, it was also the largest Tier 1 issuance of 2020 and the only dual currency regulatory capital issuance of 2020.
Infrastructure and project finance
Winner: Northvolt’s $1.6bn project financing
Mandated Lead Arrangers: APG, BNP Paribas, Danske Bank, Danica Pension, IMI - Intesa Sanpaolo, ING, KfW IPEX-Bank, PFA Pension, SEB, Siemens Bank, SMBC, Société Générale, Nordic Investment Bank, Export-Import Bank of Korea
Financial Advisers: BNP Paribas, Morgan Stanley
Northvolt, a Swedish developer and manufacturer of lithium-ion vehicle battery cells, was founded in 2016 with the aim of accelerating Europe’s transition to a low-carbon economy. The company is targeting a 25% market share in Europe by 2030, which equates to an estimated 150 gigawatt-hours (GWh) of annual production capacity.
In July 2020, Northvolt secured a major cash injection of $1.6bn in debt financing from a consortium of commercial banks, pension funds, as well as the European Investment Bank, the Nordic Investment Bank and the Export-Import Bank of Korea.
Northvolt’s new funding more than doubled its capital and will be used to complete production of its first gigafactory, Northvolt Ett, in northern Sweden. The issuance is the world’s first project financing of its kind for a greenfield lithium-ion battery manufacturing plant.
Northvolt Ett is expected to begin producing batteries in 2022, starting with an annual production capacity of 16GWh, with the potential to scale to 40GWh. A second plant, Northvolt Zwei, planned for construction in Germany, is projected to begin its commercial operations in 2024.
Among Northvolt’s industrial partners and customers are ABB, BMW Group, Scania, Siemens, Vattenfall, Vestas and the Volkswagen Group, which recently announced a $14bn contract with Northvolt to supply it with batteries for the next 10 years. Volkswagen’s agreement with Northvolt brings the company’s total order book to $27bn.
The $1.6bn transaction is set to create the foundation of a new European battery supply chain, establishing the region as a major global player in battery production and, notably, reducing Europe’s dependence on imports from China.
Islamic finance
Winner: Zorlu Enerji’s Tl50m sustainable sukuk issuance
Sole arranger: Industrial Development Bank of Turkey (TSKB)
Zorlu Enerji is one of Turkey’s largest energy providers and it has ambitious plans to increase its provision of renewable energy. In June 2020, the company established a sustainable sukuk programme, allowing for issuance of up to Tl450m ($55m) to fund its investment in this area. The first sukuk offering under the programme of Tl50m was printed on June 3. As of the end of February 2021, four further issuances had been made under the programme, with total issuance reaching Tl250m. The programme represents a new financing opportunity for Zorlu Enerji, a frequent issuer of conventional bonds.
It was the first sustainable sukuk issuance in Turkey and a key aim of the programme from the standpoint of arranger, TSKB, was to increase awareness of sustainability issues within the Turkish capital markets. It believes it has been successful in this objective, with a similar transaction already completed later in 2020 and more underway and due to be finalised in the second quarter of 2021.
The programme, which will fund investments in renewable energy, clean transportation, sustainable energy supply and sustainable infrastructure, has also moved the sustainable sukuk asset category forward more broadly, at a global level, as previous sustainable sukuk issuances have often been solely linked to renewable energy projects.
Leveraged finance
Winner: Thyssenkrupp Elevator’s jumbo leveraged buyout financing
Bookrunners: Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, Intesa Sanpaolo, RBC, Société Générale, Sumitomo Mitsui and UBS
The eagerly anticipated €17.2bn acquisition of Thyssenkrupp Elevator by private equity firms Advent International and Cinven in July 2020 was Europe’s largest leveraged buyout (LBO) in more than a decade and Germany’s largest-ever LBO.
An equally impressive financing package was put together to support the purchase worth the equivalent of €10.25bn in total, comprised of 10 different issuances and credit facilities: a €1.15bn term loan B, a $2.875bn term loan B, €1.1bn senior secured notes, $1.56bn senior secured notes, €500m senior secured floating rate notes, a €2bn revolving credit facility and guarantee facility, €650m senior unsecured notes, $445m senior unsecured notes, €50m privately-placed floating rate senior unsecured notes and €600m-eqvivalent (in US dollars) privately-placed floating rate senior unsecured notes. In addition, the sponsors made an equity contribution of €8.4bn, including a €2bn equivalent payment in kind issuance bond across euro and US dollars.
Achieving success in the financing, and subsequent acquisition, became a bellwether moment for the health of the high yield, leveraged loan and merger and acquisition markets following the outbreak of Covid-19. The deal was originally structured and underwritten in February 2020, but market activity largely ground to halt in March 2020. The financing activity for the deal restarted in June, closely watched by other market participants who knew the success, or not, of this deal would indicate the likelihood of others following.
Despite the difficult market backdrop, fundamentally the deal remained attractive to investors.
Although the exact structure and make-up of the financing was adjusted to reflect current market appetite, a largely similar financing was secured as planned in February.
The financing successfully wrapped on June 30, 2020, with every tranche pricing at or tighter than guidance following a one-week marketing process and with orderbooks peaking at approximately $23bn.
Loans
Winner: DenizBank’s $435m diversified payments rights debt financing
Joint mandated lead arrangers: Credit Suisse and Emirates NBD
DenizBank is one of Turkey’s largest private banks. Recently acquired by Emirates NBD, it had been owned by Russia’s Sberbank between 2012 and 2019. DenizBank has a stated goal of supporting projects with both social and environmental objectives.
In February 2021, the bank secured a sustainability-linked $435m equivalent debt facility based on diversified payments rights (DPR). DPR financing is based on receiving future flows from offshore payment sources, such as personal remittances or export payments.
Proceeds from the facility will be used for a range of sustainability-linked objectives such as energy efficiency and renewable energy projects, and to support businesses and sectors with limited access to funds, such as farmers and female entrepreneurs.
The deal attracted a broad investor base, with 13 investors including multilaterals, commercial banks and institutional investors from Europe, Asia and the US participating. This included anchor investment from the International Finance Corporation and European Bank for Reconstruction and Development, which contributed $150m and $100m, respectively.
The deal was DenizBank’s first DPR issuance in the past seven years, an area it was previously active in, and historically an important method by which Turkish banks more broadly can raise liquidity. It is hoped that this deal will pave the way for similar transactions in the future.
M&A
Winner: London Stock Exchange’s $27bn acquisition of Refinitiv
Advisers to the London Stock Exchange Group: Goldman Sachs, Morgan Stanley, Robey Warshaw, Barclays and RBC Capital Markets.
Advisers to Refinitiv: Evercore, Canson Capital Partners and Jefferies
In January 2021, London Stock Exchange Group (LSEG) completed its much-anticipated acquisition of Refinitiv, a global provider of financial market data and infrastructure, in an all-share $27bn transaction. This marked the culmination of more than a year and a half of complex negotiations, tackling regulatory hurdles and other complications from when the planned takeover was first reported in the press in July 2019.
Refinitiv had only been operating as an independent entity since October 2018; prior to this it had been a part of Thomson Reuters, which had spun off the unit. For LSEG, acquiring Refinitiv presented a ready-to-go opportunity to expand its data services, an area with significant long-term growth potential, particularly when packaged up with LSEG’s other offerings. For Refinitiv, too, the potential synergies between the two businesses made for a compelling transaction.
The market also seemed to agree on the deal’s potential merits, with LESG’s share price jumping 15% when the deal leaked to the press on July 21, 2019, followed by an additional 7% jump when the deal was formally announced on August 1.
An unexpected challenge to the acquisition came in September 2019, when Hong Kong Exchanges publicly announced an offer to acquire LSEG for £31.6bn ($44bn), which was conditional on LSEG dropping its plans to acquire Refinitiv. LSEG’s board unanimously rejected the offer within a matter of days and Hong Kong Exchanges dropped its bid in October 2019.
However, the path still was not entirely clear for the deal to proceed, with LSEG needing to undertake a number of measures to ensure any potential antitrust concerns were mitigated, given the overlapping nature of the two businesses. This included LSEG agreeing to divest of Borsa Italiana to rival Euronext, with this deal agreed in principle in late 2020.
Restructuring
Winner: Swissport’s €2.4bn debt restructuring
Financial adviser: Houlihan Lokey
Swissport International is the market leader in airport ground handling and cargo services, boasting historical revenue figures of nearly double that of its closest competitors and employing more than 45,000 staff across 47 countries worldwide.
In March 2020, the Covid-19 pandemic severely impacted the global aviation industry, resulting in ground handling business volumes falling by as much as 90%. Despite holding in excess of €300m in cash reserves, Swissport’s financial position rapidly deteriorated as revenues took a nosedive and significant strain was placed on the company’s liquidity.
Initial projections indicated a funding need of €700m, but due to cost-mitigation efforts and an additional $170m in funding secured from the US Treasury under the Coronavirus Aid, Relief, and Economic Security Act, the figure was revised down to €450-570m.
One month after the onset of the Covid-19 pandemic, Houlihan Lokey was appointed by Swissport to engage in negotiations for a comprehensive restructuring plan with the company’s multiple stakeholder groups.
By August, Swissport and its stakeholders had agreed to a €300m interim facility to provide the company with ample liquidity to trade through the remainder of 2020. A debt-for-equity swap extinguished €1.9bn of the company’s liabilities, while an additional €500m long-term facility was secured to refinance the €300m interim facility and give Swissport the resources to invest in its business.
After nine months of complex negotiations, the restructuring plan was finally concluded. Swissport became one of the first global companies to agree to a comprehensive restructuring following the impact of the Covid-19 pandemic. The transaction achieved a significant deleveraging of the company’s balance sheet, placing Swissport in a strong financial position to win new business and take advantage of opportunities brought on by the disruption of the aviation industry.
Securitisation
Winner: Sage Housing Group’s £220m securitisation
Sole arranger, bookrunner and ESG structuring adviser: Deutsche Bank
Sage Housing Group is a registered provider of affordable housing across England, providing housing eligible for shared ownership and low-cost rental schemes.
Increasing the availability of high quality and affordable housing is a key issue within the UK market. Within this context, in October 2020, Sage, which is majority owned by Blackstone group, engaged in the UK’s first social housing securitisation transaction, to support its growth ambitions. The inaugural Sage AR Funding No 1 Plc transaction raised £220m ($308m) for the housing provider, across 5.1 year notes issued in seven tranches.
The deal also has wider significance, providing a funding template and approach for other entrants into the social housing sector, particularly from the private sector, on how to raise capital for investment in business goals while operating within the parameters of social housing requirements. It was also linked to International Capital Market Association’s 2020 Social Bond Principles – the first transaction with alignment to the updated principles.
The transaction was structured based on a hybrid of commercial mortgage-backed securities (CMBS) and secured corporate issuance, a novel structure within the securitisation markets. It creates an alternative and flexible source of funding for UK social housing providers, who are typically financed via longer-term fixed rate debt.
Demand for the issuance, which had tranches rated from AAA down to B, came from a broad range of international investors, including many that would not typically invest in the UK social housing sector. Pricing for the senior tranche in particular was tight, at 45 basis points lower than the last UK CMBS deal. It was also priced in a particularly rapid timeframe of two weeks, marketing and investor education for the new asset class.
Sustainable Finance
Winner: AB InBev’s inaugural sustainability-linked loan
Sustainability Coordinators: ING, Santander
Bookrunners and mandated lead arrangers: Barclays, BNP Paribas, Citi, Deutsche Bank, JPMorgan, Mizuho, MUFG, SMBC, Société Générale
Mandated lead arrangers: Intesa Sanpaolo, NatWest, Rabobank, Toronto Dominion, Wells Fargo
AB InBev is the world’s largest brewing company by some considerable margin, with a presence in 150 countries and sales of $52.3bn globally in 2019. Therefore, when it acts it has a big impact.
In February 2021, it successfully closed a $10.1bn sustainability-linked revolving credit facility (RCF), to replace a previous conventional RCF.
This milestone facility is the largest ever sustainability-linked RCF and the first arrangement of its kind among publicly-listed companies in the alcohol beverage sector.
The pricing structure of the loan incorporates key performance indicator targets in four broad areas: improving water efficiency during production; reducing its greenhouse gas emissions; increasing its use of recycled plastic in its packaging; and souring electricity from renewable sources. These are aligned to the company’s broader 2025 sustainability goals. AB InBev needs to hit the goals otherwise it will pay a higher rate of interest on the loan.
The facility has an initial five-year term, which may be extended by an additional two years.
The jumbo transaction was supported by a total of 26 lenders, testament to the attractive structuring of the deal and AB InBev’s appeal and position in the syndicated loan market more broadly.
