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Loans Poll - Syndicated Loans and Leveraged Finance Awards Analysis

22 Feb 2008

Most impressive arranger

For the third year running, the syndicated loan market in Europe, the Middle East and Africa has voted Royal Bank of Scotland its Most Impressive Arranger, reflecting its strength in all parts of the market.

The bank consistently underwrites the biggest jumbo facilities in the region, but it also participates actively on small to mid-sized loans.

Similarly, it is a leader in the investment grade, leveraged, project financing and secondary markets. Testifying to this is the fact that RBS’s peers voted it the best bank in 2007 for all four of these markets.

However, RBS’s strongest presence in 2007 was in investment grade deals. It underwrote many of the year’s biggest loans, including Anglo-Australian mining group Rio Tinto’s $40bn acquisition facility. The senior phase of the deal, which was also arranged by Credit Suisse, Deutsche Bank and Société Générale, was launched in July, at the onset of the credit crunch. Despite this, sub-underwriters committed $53bn.

RBS also found success in the Middle East and other emerging markets. The $5bn facility for Dubai World — led by Credit Suisse, Deutsche Bank and RBS — was voted best emerging market loan.

The best project financing of the year was also an RBS deal — the Eu1.5bn facility for Budapest Airport, also underwritten by BNP Paribas and Sumitomo Mitsui Banking Corp.

RBS’s activity in emerging market loans is likely to grow further this year, once it has consolidated the takeover of ABN Amro, a bank particularly strong in Russia, central and eastern Europe, and Turkey.

The trickiest markets for RBS last year were those for leveraged and secondary loans. Europe’s third biggest leveraged financing of 2007 — German broadcaster ProSiebenSat.1’s Eu7.9bn facility — was signed at the end of June.

The deal was successful enough to warrant a reverse flex in pricing following its syndication. But it immediately began to trade below par in the secondary market, signalling the beginning of the leveraged loan market’s decline.

Other leveraged deals mandated in the first half of the year had to be restructured before being launched in the second. An example was Austrian telecoms group One’s Eu1.325bn deal, arranged by Morgan Stanley, RBS and SG. That had to be structured with more covenants and less leverage at the senior debt level when it was launched in November.

RBS, like most other banks, reduced its activity in the second half of the year, but not drastically.

Its underwriting in the leveraged market dropped about 75% by volume. But the overall fall was not as steep, demonstrating the bank’s ability to innovate and be flexible with the structure of its deals. RBS underwrote about Eu315bn of loans last year, according to Dealogic, Eu145bn of which came in the second half.

Best arranger, W European loans

It is difficult to predict what the state of the loan market will be in a year’s time. Many banks have decided that the riskier leveraged financings are off the radar and are finding their credit committees ever more resistant to all but the safest investment grade transactions.

But one thing bankers and observers of the market all agree on is that BNP Paribas will remain one of the market’s benchmark banks.

While some institutions push hard for recognition in certain markets or locations, BNP Paribas is a key participant across the board, with rightful claims as a specialist in the leveraged finance sector, emerging markets, investment grade, project finance and infrastructure. Few can claim this spread of activity and expertise.

But this should not lead to allegations that the bank is a jack of all trades and master of none. In EuroWeek’s annual Loans and Leveraged Finance Awards Poll in December, the bank was voted Best Arranger of French Loans — an accolade it habitually scoops. But it also won Best Arranger of Western European Loans — one of the most prestigious titles available. And the bank can count itself unlucky, or can curse the success of Royal Bank of Scotland, that it did not win the Most Impressive Arranger award — a cast of many were tied in third place, but BNP Paribas alone was voted second.

Successful deals across the board in 2007 will ensure that when borrowers have mandates to dole out this year, BNP Paribas will be one of the first on the list to receive the RFP.

Already the bank has made a strong start to 2008. According to Dealogic’s EMEA bookrunner league table, dated February 7, the bank heads the competition with 8.2% of the market. This includes a number of successful transactions. The bank is a bookrunner on the Eu7.2bn facility for French cement maker Lafarge and the biggest ever syndicated loan, BHP Billiton’s $55bn deal backing its hostile bid for rival miner Rio Tinto.

In emerging markets BNPP is arranger on just about everything in Russia, including the $4.5bn facility for aluminium company Rusal, and the $1.1bn loan for supermarket group X5.

The bank has been less active in leveraged loans — but then so has everyone else, given the state of the sector. However, as a leader last year, BNP Paribas is likely to be a leading player again when the market returns to health.
Most improved market profile

2007 was probably the most difficult year that most syndicated loans bankers can remember. It was a time that most banks were happy to see the back of, and hardly one for venturing into the unknown. But this is what UniCredit did, to the extent that it won EuroWeek’s award for Most Improved Market Profile.

UniCredit has long been a strong player in Italy and Germany, where its HVB subsidiary is based. Through the latter it participated as a mandated lead arranger on most of Germany’s biggest deals last year, including those for HeidelbergCement (Eu16.2bn), E.On (Eu15bn), Continental (Eu13.5bn) and Volkswagen (Eu10bn).

But the highlight of UniCredit’s year was being a bookrunner on Italian utility Enel’s Eu35bn jumbo facility, voted the third best EMEA loan of 2007. The loan followed an intense takeover battle with German rival E.On for control of Endesa, the Spanish utility. Together with Intesa Sanpaolo, Mediobanca, Santander and UBS, UniCredit structured a deal that was attractive enough to receive about Eu40bn of commitments in senior syndication.

More impressive was the fact that Enel lived up to its promise to reduce the deal rapidly through the bond market. The deal was signed in December as a Eu19.5bn facility after a general syndication and several bond issues.

UniCredit’s activity last year increased across all areas of EMEA’s syndicated loan market, however. This is shown by its nominations for Best Arranger of LBO Financing, Project Finance Loans, Russian Loans and Turkish Loans. These were all categories in which it was not nominated last year.

In 2008 UniCredit made its strongest foray yet into leveraged finance, an area in which it was previously a small player. The biggest LBO deal it underwrote was the Eu3.1bn facility for German forklift truck maker Kion Group, signed in March.

There was enough demand from investors to allow the bookrunners — Barclays Capital, Credit Suisse, Goldman Sachs, Lehman Brothers, Mizuho and UniCredit — to cancel the 10 year mezzanine piece and load that debt into more senior tranches. This reduced the overall cost of the debt for the financial sponsors and ensured the deal was voted as last year’s Best LBO Loan.

This year promises to be a tough loan market for all banks involved in it. But there is no reason to suggest UniCredit cannot continue raising its profile throughout EMEA.

As one of the few leading European or American banks to come through the credit turmoil largely unscathed, it is well positioned to do just that.

Most impressive loan

One former UK prime minister famously said that "events, dear boy, events" dictated the fortunes of his government. The event that dictated the fortunes of the investment grade loan market at the end of last year was the Eu13.5bn jumbo loan for German tyre maker Continental.

The success of the deal, voted Most Impressive Loan of 2007 in EuroWeek’s annual polls, as well as Best Western European Loan, showed that the European syndications market would remain robust even as the collapsed US subprime mortgage sector left a string of distressed markets in its wake.

The timing of the transaction was important. When the facility closed in October, speculation was rife that the market would soon begin to feel the pressure from subprime and margins would begin to soar.

But Continental became a byword in the later part of last year for success and stability. It set the tone for investment grade deals to come — the market is now preparing two roughly $50bn transactions for mining companies BHP Billiton and Vale. Even though there has been an upward pressure on prices, many subscribe to the idea that a market calmed by Continental paved the way for other jumbo deals to be brought.

"It’s essential that this deal went well," said an official from a bank which did not participate, at the time the deal closed. "It was clearly tough to syndicate, but we are glad it was OK in the end. This should help the market."

The transaction, which was the biggest new money syndicated loan in the second half of last year, backed Continental’s takeover of Siemens’ car parts manufacturing business, VDO. Bookrunners Citigroup and Goldman Sachs decided to omit a sub-underwriting phase and go straight into general syndication — judging that with markets nervous, it was better not to test lenders’ sub-underwriting capacity.

The ploy worked, leaving some bankers surprised how much support the deal attracted. "Frankly, I’m shocked they even got Eu13bn," said an official from a bank that participated in the deal. "This deal had a lot of things going against it with the market like it is. It was especially remarkable that 13 banks committed to the top ticket. Eu600m is a lot for lenders to provide."

The deal comprised four tranches. The Eu2.5bn term piece has a 364 day maturity with a one year extension option and a margin of 42.5bp over Euribor. The Eu3.5bn three year term loan pays a 47.5bp margin. There is a Eu5bn five year tranche paying 52.5bp — and a Eu2.5bn revolver with a five year-plus-one-plus-one tenor.

Best project finance loan

The EMEA project finance loan market was strong throughout 2007, despite the credit crunch and the turmoil it inflicted on the leveraged finance market. Bankers’ belief that infrastructure deals would remain good investments was such that they were ready to rubbish bad news about the sector.

An example of this came at the beginning of September when Standard & Poor’s released a report warning that $34bn of infrastructure debt could be left on arrangers’ balance sheets. Most loans bankers thought this highly pessimistic, and these reactions proved prescient.

Testifying to the market’s strength is the fact that two of the three deals nominated for Best Project Finance Loan were syndicated during the worst period of last year’s credit crunch.

The deal voted that won the category — the Eu1.5bn facility for Budapest Airport — was launched in late August and signed in November. Despite this and the fact that it was Hungary’s biggest project financing to date, the loan was oversubscribed early in syndication, with about 20 banks committing. The loan was arranged by BNP Paribas, Calyon, Royal Bank of Scotland and Sumitomo Mitsui Banking Corp, and backed a Hochtief-led consortium’s acquisition of a 75% stake in the airport from BAA.

The debt backing the buyout of UK utility Southern Water also closed successfully with all tranches oversubscribed. The £731.2m loan was arranged by Dresdner Kleinwort, HSBC, JP Morgan and Royal Bank of Scotland. Although the £225.6m junior debt had to be sold at an original issue discount of 98.00, the lead banks were more than happy with the outcome.

The Middle East’s importance keeps growing, and the $3.3bn deal for Marafiq was voted last year’s second best project finance facility. BNP Paribas, Gulf International Bank and Samba arranged the loan for the building of a water plant in Saudi Arabia. General syndication was cancelled after about 30 banks joined the deal as MLAs.

The infrastructure finance market did face problems last year. But these mostly centred on so-called hybrid deals — those which are marketed as infrastructure deals with high leverage but in other respects resemble leveraged loans. They often back assets that some bankers say cannot be classified as infrastructure, such as motorway service stations. The Eu2.27bn facility backing the acquisition of a 50% stake in German group Autobahn Tank & Rast typified this problem. Barclays Capital, RBS, Société Générale and UBS arranged it with net debt about 11 times Ebitda. It struggled in syndication as a result.

22 Feb 2008