European equity-linked deal of the year — Swiss Re convertible BNP Paribas/Merrill Lynch

  • 28 Jan 2005
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Swiss Re's Eu640m July mandatory convertible was the standout deal in what was a poor year for European equity-linked issuance.

The innovative structure designed by Swiss Re was the first equity-linked issue from a financial institution to get full equity credit from rating agencies Moody's and Standard & Poor's.

Lead managers BNP Paribas and Merrill Lynch faced a barrage of orders when they opened the book at 7am London time. The deal was covered within 30 minutes, though the leads kept it open until 10am, by which time they had gathered Eu5bn of orders.

Swiss Re has long been an innovative user of the capital markets, and with this issue the key achievement was that Moody's agreed to count the deal in its ?E' basket (100% equity credit) while S&P classed it in its hybrid basket, which allows equity issues to constitute up to 25% of total adjusted capital.

Another clever twist to the deal that proved profitable for Swiss Re was that of the 12.7m Swiss Re shares underpinning the bonds, 9.2m were recycled from a $1.15bn 20 year convertible bond it had issued in 2001.

Because that CB is far out of the money there was little danger to Swiss Re in moving the shares to the new bond. However, to protect itself against a conversion of the old bond, Swiss Re bought 9.2m call options on its own stock from BNPP and Merrill.

This enhanced the attractiveness of the bond to Swiss Re. The firm made a profit on the transaction because it bought the call options at a lower price than it had sold the call options embedded in the previous bond. However, neither Swiss Re nor the leads have confirmed how large the gain was.

Merrill Lynch was particularly pleased with the transaction and made it the focus of an advertising campaign featuring a rabbit being pulled out of a hat.

Even if the idea had come from Swiss Re, Merrill Lynch ? along with BNPP, which was chosen for its derivatives expertise ? performed well on the deal, and the bond traded up in the aftermarket, after being priced at an attractive level for investors.

  • 28 Jan 2005

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 416,634.23 1594 9.03%
2 JPMorgan 379,647.36 1732 8.23%
3 Bank of America Merrill Lynch 359,625.73 1304 7.80%
4 Barclays 267,126.92 1079 5.79%
5 Goldman Sachs 267,110.09 921 5.79%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 45,314.03 193 6.64%
2 Deutsche Bank 37,536.19 138 5.50%
3 BNP Paribas 36,532.54 211 5.36%
4 JPMorgan 34,490.59 115 5.06%
5 Bank of America Merrill Lynch 33,700.87 110 4.94%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 22,398.41 104 8.66%
2 Morgan Stanley 19,092.40 102 7.38%
3 Citi 17,812.08 111 6.89%
4 UBS 17,693.89 71 6.84%
5 Goldman Sachs 17,256.05 98 6.67%