Euro-MTN programmes are updated once a year on average and the possibility of being ejected from them keeps dealers alert to the needs of their clients. Programme arrangers used to be able to sit comfortably, safe in the knowledge that their work in overseeing programme updates meant that their position was secure. But not anymore. In the past 12 months, 16 arrangers have been replaced on Euro-MTN shelves. Some feel that this reflects a trend that many MTN houses are not placing as much emphasis on arrangerships as previously. Deutsche Bank is the top arranger in the market and has been since the turn of the millennium. It also has a strong track record for replacing other arrangers. Robert Mohamed is head of Euro-MTN origination at Deutsche Bank and he believes that some houses no longer value the long-term benefits of being an arranger. He says: "Arranging programmes is not a money-making business and certain houses do not see its real value. They view the labour intensity as too laborious and view the updates each year as a drain on resources." But even the best are becoming vulnerable. Just this month, Imperial Tobacco Finance replaced Deutsche Bank with JPMorgan as the arranger off its debt issuance programme. John Jones, group treasurer at Imperial Tobacco Finance, justifies the switch as JPMorgan is the global co-ordinator for its jumbo euro/sterling tranche. Jones says: "We felt by having JPMorgan as arranger we would ensure that this - our biggest deal of the year - would be handled in an efficient and co-ordinated manner." Over the course of the couple of months spent negotiating, a close relationship is often built between arranger and borrower. But, over the past two years, many houses have begun to believe that there is little advantage in being an arranger when all dealers seem to be treated equally from the dealing perspective. Added to this is the rise in popularity of reverse enquiry. JPMorgan has been dropped off MTN programmes in the past, but none in the last 12 months. And it has had an impressive start to 2002, having arranged three programmes so far (excluding SPVs and self-arranged programmes). Miles Hunt, Euro-MTN trader at JPMorgan, thinks that the arranger can gain a closer relationship with the borrower than that of any other dealer. "Being given the opportunity to act as arranger can give the arranging house the opportunity to gain exposure with senior management within the issuer's firm that they would not otherwise get as a dealer," says Hunt. If a unique relationship is built between arranger and dealer, what leads to that arranger being replaced? Underperformance will play a role. But Kari Kukka, head of funding at Nordic Investment Bank (NIB), believes that a long-term outlook needs to be considered. NIB dropped Morgan Stanley as its arranger in February this year, replacing them with Salomon Smith Barney. Kukka explains that the changeover, which was amicable, was down to coverage. He says: "Our major activity over the past year has been in Asia and sterling and we wanted an arranger who would give us the best coverage here. Morgan Stanley was not actively providing us with funding in these areas." The change has encouraged Morgan Stanley to work harder. Despite also being dropped from the dealer panel off NIB's shelf, it has led more trades for the borrower since February than in the previous few years. Kukka believes that this justifies his long-term outlook. He says: "We always try to look forward, not just to the coming year, but to the next few years, at where we will be active. I believe that this is the right policy to take when making changes to your dealer panel and to your arranger." And the leading arranger in the market has further advice to give on keeping hold of an arrangership. "Keep the Euro-MTN facility on the radar screen if funding is required," says Mohamed, at Deutsche Bank. "It is important that the client feels that once arrangerships are mandated they are not passed to a blind spot of the bank."
May 31, 2002
