-Banks voted German luxury carmaker BMW Europe's most impressive borrower in the 2003 EuroWeek loans poll. So Loan Market Review's Adam Harper headed to Munich to meet Norbert Mayer, BMW's head of corporate finance, to find out more about how this bluechip borrower looks at the loan market.
Bankers are always singing the praises of BMW as a client, often mentioning the Bavarian carmaker's name in the same sentence as words such as "classy" and "professional".
The company also shows visiting bankers around its famous museum, which features the specialised Z3 and Z8 cars used by James Bond. So it came as no surprise when banks polled by EuroWeek voted the company most impressive borrower for 2003.
Lenders' views were shaped by working with BMW on its blockbuster $7bn deal in November 2003. The A1 rated company underlined the liquidity available to high quality borrowers by raising $10.9bn - a 55% oversubscription - in syndication. Mandated lead arrangers ABN Amro, Barclays Capital, Deutsche Bank, Dresdner Kleinwort Wasserstein, JP Morgan and SG were joined by a further 37 banks at signing.
EuroWeek: What is your reaction to being voted most impressive borrower in the EuroWeek loans poll for 2003?
Norbert Mayer: We appreciate it very much. Looking back, the success of our loan had already showed that the banks liked BMW as a borrower. This is further confirmation - thank you.
EW: Where do syndicated loans fit into BMW's overall funding strategy?
NM: The $7bn facility is back-up for our commercial paper programmes in Europe and the US - it is necessary to support the A1/P1 ratings of our commercial paper programmes. Commercial paper is an important financing tool because our funding needs are concentrated in refinancing our financial services business, so the duration of the assets we have to fund is rather short at a maximum of 36 months.
EW: Bankers feel that you time your entry into the syndicated loan market very well. How closely do you monitor market conditions?
NM: It's like buying anything - you want to catch a bargain, and we were able to catch a good liquidity situation. We follow the market very closely and try to optimise the credit spreads we have to pay. Fortunately, this has worked for us most of the time. Looking back, I think we have done a pretty good job.
EW: Do you think conditions will improve or remain stable for strong borrowers during 2004?
NM: Over the last couple of years, credit spreads have narrowed significantly. Because of that, the market is very attractive for borrowers. This is partly due to banks' liquidity and investors' appetite for risk, but it is also due to the low absolute interest rate.
It doesn't seem likely there would be any room for even tighter spreads. It's very difficult to predict when spreads may widen again because it's also a question of whether the economy picks up here and in the US.
EW: Why did you increase the size of your syndicated loan from $5bn to $7bn?
NM: The BMW group is following a strategy of growth, but profitable growth. We are in the midst of a market and product offensive; changing BMW from a one brand, three model line company to a three band, 10 model line company. On the treasury side, it is our responsibility to ensure that the financial conditions are in place for this expansion.
EW: Was there any particular reason for bringing in two new mandated lead arrangers - ABN Amro and SG - for your last deal?
NM: There was not really any special rationale. We look at the mandated lead arranger bracket and the arranger bracket in almost the same fashion. These two brackets are the preferred core banks of BMW. Other banks in the syndicate are preferred for special products and areas, but the top two brackets are the core banks.
EW: What approach do you take to distributing ancillary business among the relationship banks?
NM: We are aware that the participation of the banks and the pricing of the product is the result of cross-selling and we have a very clear strategy towards that business.
First of all, it's a question of competence in the market place and the ability to execute transactions in the most profitable fashion. Secondly, there is naturally the question of price - we want to achieve an aggressive market price at all times. These two factors are the decisive points. We involve the preferred banking group in the offering phase and discussions about financing through other tools. But banks have to be in the club first of all.
EW: Do you feel that you can ensure a fair distribution of business that involves everyone?
NM: From our point of view, yes - but I am not sure every banker would share this opinion! But it's always a question of competition.
EW: Although banks are unlikely to want to sell BMW paper at the moment, how do you feel about relationship banks transferring your loans through the secondary market?
NM: We expect a commitment to BMW. This is the basis of our bank relationships and the cross-selling aspect we discussed earlier. We want to rely on banks' commitments in the future and would appreciate it if they stuck to the credit arrangements we had on day one. We want to keep the syndicate together as it is.