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The pain felt by a large number of EM sovereigns during a dreadful year for the asset class has sent yields spiking and put the sanctuary of market access well beyond the reach of many, calling into question whether stressed issuers can escape default.
In a sign of the trauma being inflicted on the asset class, JP Morgan’s EMBI Global Diversified, which tracks US dollar bonds issued by sovereigns and quasi-sovereigns, is down more than 24% this year. While in spread terms the index has widened by almost 200bp, to 535bp, over the course of the year, the biggest reason for the terrible performance is because the yield has jumped by 500bp, to 9.4%.
“Volatility in rates is the story of the year. It’s been almost uninterrupted pain, uninterrupted outflows, terrible liquidity,” said Mikhail Galkin, CEEMEA strategist at Goldman Sachs, at an LSEG debt conference panel on Wednesday. “One could argue that, for EM credit, this period is possibly worse than the global financial crisis or Covid because of the longevity. We emerged from those crises relatively quickly.”
Not every member of the asset class is struggling – the wealthier Gulf states, for example, are exporters of capital and, buoyed by relatively high oil prices, have demonstrated their financial power through loans to the likes of Egypt and Serbia. Brazil is another nation whose public finances are in good shape.
In turmoil
However, many others are in turmoil. Certain nations, such as Sri Lanka and Zambia, have already defaulted and taken their first steps towards debt restructurings. Another defaulter, Lebanon, has begun talks with its creditors, though the process appears to have stalled. Meanwhile Ethiopia, which though continuing to service its debt, has had talks with official creditors under the G20 common framework.
Russia’s invasion of Ukraine has also had big consequences. Ukraine is deferring payments on its debts for two years, while Russia and Belarus are unable to make payments to their international creditors because of sanctions.
But beyond these sovereigns are a whole host of others that are on the edge: Argentina, Ghana, Pakistan and El Salvador among them.
Analysts put the number of EM sovereigns with at least one US dollar bond trading at a yield of 10% or higher at between 20 and 30, roughly equating to over a third of the EMBI GD. “Countries that are locked out of the market and have large external financing needs are the most vulnerable, including Egypt, El Salvador, Ethiopia, Ghana, Kenya, Pakistan and Tunisia, among others,” said Patrick Curran, senior economist at Tellimer Insights, an investment research and data platform.
While debate will rage inside these countries about where the blame should lie for their plight, forces outside their control have exacerbated the problems.
“The points of stress this year have been the surge in food and fuel prices, as well as countries with large external financing needs,” said James Wilson, EM sovereign debt strategist at ING. “Markets have been almost entirely shut for high-yield sovereigns this year, so wider current account deficits have been difficult to fund and refinancing risks have come to the fore.”
Vulnerable
Two sovereigns most vulnerable to default are Ghana and Pakistan, said Carmen Altenkirch, emerging markets sovereign analyst at Aviva Investors. “Ghana doesn’t strictly need to default, but a well organised pre-emptive default may well be the best option, particularly if it includes a local debt restructure,” said Altenkirch.
The government is said to be considering a plan to restructure its local currency debt, which prompted Fitch on September 23 to downgrade Ghana to CC from CCC.
As for Pakistan, the country is facing a balance of payment crisis, foreign reserves that cover barely a month’s imports, historic lows in the rupee, inflation exceeding 27% and the aftermath of devastating floods. The country’s finance minister, who has since been replaced, said on September 23 the country was seeking debt relief from bilateral Paris Club creditors, but not from commercial banks or Eurobond creditors.
Both Pakistan and Ghana are engaged with the IMF, but there will be policy conditions attached to any lending, which could include austerity and exchange rate devaluation. And while the IMF is a possible answer, Adam Wolfe, EM economist at Absolute Strategy Research, thinks funding from the institution could be made conditional on debt restructuring.
“I think increasingly defaulting is going to look like the least worst option for several EMs,” said Wolfe. “Many don’t have market access to roll over their bonds, and China is unlikely to restructure its loans without forcing the same conditions on bondholders.”
Societe Generale has picked Slawomir Krupa as its next chief executive, to succeed Frederic Oudea, who has been in the post for more than 14 years. Krupa is currently a deputy chief executive responsible for global banking and investor solutions, which includes its investment banking activities. Oudea said in May that he would stand down next year, and the French bank’s board on Friday agreed to propose Krupa as his successor from May 23. The board said it had used an independent consultant and reviewed a panel of high calibre candidates of both sexes, both internal and external as well as French and international. Chairman Lorenzo Bini Smaghi said Krupa’s first mission would be “to finalise the vast transformations in progress, such as the merger of the French [retail] networks, the acquisition of LeasePlan by ALD, the expansion of Boursorama, and the continued development of the corporate and investment bank, re-centred on its core businesses”. Krupa joined SG in 1996 before a three-year spell founding an e-finance start-up in Eastern Europe. He returned to the group in 2002, joining the CIB in 2007 and becoming deputy director of financing in 2012, across all primary markets businesses. In 2016 he was appointed chief executive of SG Americas, before taking his present role in January 2021. Since then he has executed a new strategy for the division, which outperformed in the second quarter with an 18% rise in revenues to €2.56bn.
Barclays sustained tens of millions of pounds in losses on its UK government bond trading desk on Wednesday, according to sources, after the Bank of England’s extraordinary intervention in Gilt markets blindsided traders across the market and hugely complicated the key role Barclays was playing in smoothing the UK DMO’s sale of debt that day. The DMO’s £4.5bn syndicated tap of its 30-year green Gilt was caught in the crossfire of the BoE’s shock intervention to buy long-dated bonds on Wednesday morning, causing the price of the outstanding bond to leap from around 45% of face value at the start of the day to more than 52% when the deal was priced. The dramatic price swings sparked speculation among rates desks about the impact on Barclays, which was duration manager on the trade. The duration manager handles orders for the debt sale that are made on “switch”, when investors swap old bonds for the new one rather than stumping up cash. Syndicate managers involved in the green Gilt tap said the majority of the deal was conducted this way. The sharp move in bond prices made Barclays’ job all the harder and sources said its Gilts trading losses following the BoE announcement ran into the tens of millions of pounds. “If I was the duration manager on this, I would have been swearing or crying. Nine out of 10 times, you would be going in short into a syndication,” said one senior UK banker. Many other bankers shared this view, while noting it was difficult to calculate the extent of losses precisely without direct knowledge of Barclays’ hedging strategy. A spokesperson for Barclays declined to comment. Gilt markets had one of their most volatile days in history on Wednesday. The yield on the 30-year note peaked at more than 5.1% prior to the BoE’s announcement, before sinking below 4% later in the day following a furious market rally. The whipsawing moves left traders across the market gasping for breath. Average daily trading volumes in Gilts more than doubled from the previous week to £45bn, according to market-wide data from bond trading platform MarketAxess, as investors scrambled to adjust positions. The BoE’s unexpected intervention also caused havoc for bankers trying to underwrite the DMO’s tap of its 2053 green bond – and particularly for Barclays acting as duration manager. Not normal While in normal times duration managers are often positioned short going into a syndication to hedge potential orders on switch, liquidity in the Gilt market has been terrible lately with bid-ask spreads widening significantly amid the volatility. That may have prompted Barclays to take a more cautious approach to keep risk as low as possible around the syndication, traders say, potentially limiting the scale of its losses. “Being long or short, you’re running a risk that you can’t cover your short at a decent price [because liquidity has been so poor]. Even if you’re right on the direction,” said one trader. Duration managers will typically sell the bond being switched or futures to hedge the spread between the new issue and the switch. Traders note that the bank managing the process will often be able to offset some of the orders on switch with other investors that are using the additional liquidity provided by the syndication as a way to buy the bonds at a better price than they might otherwise find in the market. That can help the duration manager keep its net risk closer to neutral. One senior syndicate banker said he’d be surprised if Barclays was running a large short position heading into the auction. “They would be hedged with a benchmark,” he said. Another said he thought the duration management exercise seemed to go smoothly. “It’s not the sort of role where the prestige of getting it right outweighs the downside of getting it wrong. No one wants to lose money. You’re not going to say ‘well we lost millions today but we were duration manager’. They did a better job than very many other firms would have done and i
In an unorthodox move to ease its path to public markets, short-video app Triller revealed on Thursday that it had secured up to US$310m of contingent equity capital it will be able to access after its planned Nasdaq listing early in Q4. The TikTok rival confidentially filed in June and expects to submit its final S-1 upon closing of the equity facility, though the company’s statements do not make it entirely clear whether it is planning a direct listing or a traditional IPO. Triller is leaning towards the US listing after raising US$200m at a US$3bn valuation from a private round in August and after mutually terminating a US$5bn reverse merger with Nasdaq-listed minnow SeaChange International in June, according to Refinitiv data. “The current market demands clear and disciplined thinking,” Triller CEO Mahi de Silva said in June of the decision to scrap the SeaChange union. “A Triller IPO is a cleaner transaction, allowing us greater control of our destiny.” Luxembourg-based private investment firm Global Emerging Markets is providing the US$310m equity facility, which Triller can draw down in part or in whole at its discretion over three years once it is public. The company did not disclose the valuation/price at which GEM is investing or the size of the stake it would end up with. GEM will be issued stock at each drawdown and will also receive warrants. While such facilities are common for cash-strapped publicly-traded biotechs, Triller’s “share subscription” facility is a new twist on the concept. The new equity facility could help Triller fund more acquisitions. Already this year it bought Bare Knuckle Fight Championship (a deal that closed in August and was funded with a mix of cash and stock), Pillow Fight Championship and Fangage, according to Refinitiv data. Triller’s de Silva revealed last week that the company is on track to top US$100m of revenues this year and that its app has been downloaded more than 350m times. Eight of its 10 business lines were break-even or profitable and its 750m of quarterly “customer engagements” were “monetisable transactions … in the future”, he said in a release. Triller expects to go public “virtually” debt-free.
The sustainability-linked bond market is evolving into a more global diversified market but the debate around the quality of KPI targets that are being set is still holding it back, according to NatWest. The SLB market was around 4% of the overall sustainable debt market in the third quarter, down from just over 6% in the second quarter and 15% in the first, but that rises to around 20% in the corporate market, according to the bank’s research. “The SLB market is definitely evolving and we’re still trying to find our feet. The KPIs are still moving around and the conversations with investors are around what is robust, material and ‘stretching’,” said Caroline Haas, head of climate and ESG capital markets at NatWest Markets. “That to some extent is what is holding this market back because you have a full spectrum of buyers that are interested.” Investors are asking more searching questions about KPI targets, including historical performance, alignment with the Science-Based Targets initiative as well as the ambition of targets, how they link to company strategy and how they will change over time. This year US$52.9bn of SLBs have been issued, down 15% from US$62.3bn at the same time last year, and an annual total of US$91.2bn in 2021, according to Refinitiv data. Arthur Krebbers, head of corporate climate and ESG capital markets, described SLB growth as “significant considering the range of views on SLBs three years ago and the fact that the ICMA principles only recently had their two-year birthday”. The International Capital Market Association’s sustainability-linked bond principles were established in June 2020 and are widely viewed as the leading market standard. Significant SLB growth is being seen in the US market as the product becomes less Eurocentric with greater uptake in emerging markets, but although the market is expanding, issuance is still concentrated in the energy and utilities and industrial and materials sectors, NatWest said. Dollars make up around 40% of SLB issuance in the year to-date, euro issuance is 58% and sterling makes up only 2%, according to the bank’s research. “There is a lot of dollar interest in SLBs, US investors tend to be technocrats and like their technicals and these structures work very well. The problem is that we still don’t have the volumes to actually quantify the different elements of an SLB and its pricing implications for statistical analysis,” Haas said. SLL rethink? To ensure the quality of the targets that are being set on SLBs in the public market, a rethink may be required on the KPI targets that are being set in the private sustainability-linked loan market that has been seen as an initial (and often soft) step into sustainable finance. “We need to almost go back into the SLL market and ensure that standards are raised because once a corporate sets its KPIs in the SLL market, it’s a lot more challenging to set different ambitions in the bond market,” Haas said. The three regional loan market associations are currently working on a global update of the green, social and sustainability-linked loan principles to align more closely with ICMA’s sustainability-linked bond principles, after previously adopting ICMA’s work on KPI targets. The low level of penalties of around 2.5bp–5bp in the SLL market is also giving cause for concern as offering insufficient motivation to companies to improve their ESG performance, a criticism that is also being levelled at the higher standard step-up payment of 25bp in the bond market, particularly as interest rates rise. “Obviously in the SLL market where there’s only 2.5bp–5bp at stake, the materiality is less. We know that even 25bp in a rising interest rate environment is going to become less material, especially when we think about the trajectory,” Haas said. Loan step-ups and step downs are currently curbed by an SPPI test under accounting standard IFRS9 that all
EdenTree has launched a “unique” green infrastructure fund that the £3.7bn UK fund manager says will allow investors to play three key current themes – energy security, the green transition and natural capital – while achieving low correlation with stock and bond markets. To be managed by Tommy Kristoffersen, a member of EdenTree’s £1.7bn multi-asset and European equities teams, the “rigorous and uncompromising” new fund will invest in sectors such as alternative energy, energy storage and the circular economy, as well as sustainable forestry and agriculture. The firm already manages £100m of green infrastructure assets. The sterling-denominated fund will also hold companies seeking to provide solutions to “wider societal challenges”. Examples include social housing, care homes, and green logistics and warehousing. It should provide exposure to the asset class’s inflation-linked income streams. These help explain its low correlation and give it what EdenTree says is a “favourable” risk/return profile. EdenTree expects the fund to hold 15 to 20 companies in total, though this could increase later. Before EdenTree, Kristoffersen was an investment analyst in the alternatives team at Jupiter Asset Management and a member of its stewardship committee. “There is a gap in the market for investments with this level of ESG integration and focus,” he said, noting that EdenTree believes it to be the first of its type. The fund “meets increasing demand for access to real assets that contribute to a greener, more sustainable economy delivered by companies with a track record of responsible and ethical excellence,” added Charlie Thomas, chief investment officer at EdenTree. Separately, the firm’s new global impact bond fund is shunning sustainability-linked bonds. “Should you want to evidence impact, as is going to be increasingly demanded of us, you’re still better off with use of proceeds rather than on the sustainability-linked side of the equation,” said David Katimbo-Mugwanya, senior fund manager. He continues to question SLBs’ transparency and integrity. Despite potential take-up by further sovereigns after Chile, “we’re not really as enthused by that instrument, granted it will play a part in their decarbonisation journey or their journey towards sustainability”. Launched this January, the £21m fund takes at least 80% exposure to what it defines as impact instruments. It focuses on “tangible sustainable outcomes” and emphasises alignment with the United Nations’ sustainable development goals. The fund’s largest exposure is to the vaccination supranational International Finance Facility for Immunisation. Another key holding is the sustainable bond that UK water utility Severn Trent launched in February. It is the subject of a case study for the Principles for Responsible Investment. Katimbo-Mugwanya also manages the venerable Responsible and Sustainable Sterling Bond Fund, which EdenTree launched in 2008, and a more recent (2017) shorter-dated sister that has almost doubled recently as investors have sought more defensive exposures. The two now total £285m and £435m, respectively.
The withdrawal of a US$3.9bn financing package for Brightspeed has signalled that the US leveraged buyout market has crossed the Rubicon for deals structured before financial markets floundered, and that few new LBO underwritings will follow. Banks have absorbed hundreds of millions of US dollars in losses as they struggled to find buyers for leveraged loans committed to before rate hikes and recession fears caused a global selloff across asset classes. The likelihood of a recession hitting the US now suggests that equity values could drop, shutting down banks’ appetite to lend – and private equity sponsors’ willingness to buy companies – before there is more clarity on a path to recovery. Higher rates will make borrowing more expensive and defaults are forecast to rise. “It’s dawning on people that we’re likely to have a really hard landing, some significant recession, and declining earnings, which will, in turn, reduce equity values. That’s painful for the credit markets,” said a senior banker. The loan and bond financing supporting Apollo Global Management’s US$7.5bn acquisition of telecoms and broadband assets from Lumen Technologies to create Brightspeed was removed from the market on Thursday after bookrunners including Bank of America and Barclays could not place the debt with investors – even at deeply discounted terms. The financing included a US$2bn term loan and a US$1.865bn bond. The loan was offered at a steep discount of 92 cents on the dollar. Bleak times The landscape has been bleak for loans underwritten before the market started to turn in the first quarter after Russia invaded Ukraine, the US Federal Reserve began to hike rates and inflation fears soared. In the past week, indices across markets tumbled as the British pound came crashing to a record low against the US dollar on growing concerns about the stability of UK government finances and Russia’s announcement of its plans to annex Ukraine’s territory. The LPC 100, a cohort of the most liquid US loans, dropped to 91.6 cents on Thursday, the lowest average bid since May 2020 when markets were impacted by the uncertainty of the Covid-19 pandemic. The significant jump in interest rates – the Fed hiked rates another 75bp last week – will lead to higher expenses for companies, which may cause some to struggle to repay their debt. S&P said leveraged loan default rates could rise to 2% by June 2023 from 0.43% in July amid slower growth, higher expenses and a more restrictive primary market. A risk-off mentality has been a headache for banks that have been forced to fund the loans at deep discounts. Investors have pulled more than US$13.5bn from loan funds in the third quarter, according to Refinitiv Lipper. “We will not see the leveraged finance market get inundated with new deal underwriting this year since M&A is weak,” Sandeep Desai, co-head of leveraged capital markets at Deutsche Bank, said in an interview before it was announced that Brightspeed had been pulled. “That’s just the environment we’re in and an expected trend moving forward.” Brightspeed’s financing comes on the heels of a debt package to back the purchase of Citrix Systems by Vista Equity Partners and an affiliate of Elliott Investment Management. It included a US$4bn bond that printed at 83.56, while a US$4.05bn term loan and a US$500m-equivalent euro-denominated term loan B were sold at 91 cents on the dollar, among the steepest discounts this year. The US term loan has since traded down and was quoted at 89.5–90 on Thursday. “Investors that just bought Citrix at 91 are now seeing it trade at 89 and are asking ‘why would I buy the new issue?’,” the first banker said. “New issues won’t get done until the market firms up.” Other recent loans have had to make concessions as well. On Wednesday, online luxury fashion retailer Farfetch widened the OID on a US$400m loan to 93.5 after it was guided at 95. Earlier in Se
Vaccine firm Valneva has raised €102.9m after more than doubling its original follow-on target. Launched on Wednesday evening as a US$40m-equivalent deal to be marketed for one day, it ended up raising €102.9m as US biotech fund Deep Track Capital committed to anchor 50% of an enlarged deal. The deal comprised 375,000 Nasdaq-listed American depositary shares, each equivalent to two ordinary shares, and 20.25m ordinary shares on Euronext Paris. Pricing was set at €4.90 per share – US$9.51 per ADS – a 3.9% discount on Thursday’s close of €5.10. A banker involved said Deep Track’s involvement was desirable as a large top-tier biotech fund and it had been talking to the company for a while. Commitments also came from French state-backed investor Bpifrance, which bought just under 5% of the offer and whose stake falls slightly to 6.97%, while Deep Track will hold 7.6%. Beyond those commitments demand largely came from shareholders across the US and Europe. Another banker on the deal said the company was continuing to execute well on its plans and shareholders were supportive of the capital increase. The final size was still oversubscribed despite market conditions. The top 10 orders took 90%. Valneva expects net proceeds of around €96m after underwriting fees of €6.2m and expenses of €0.8m. Bryan Garnier, Goldman Sachs, Guggenheim Securities and Jefferies were joint bookrunners. Proceeds will be used to fund development and marketing of vaccine candidates with around half allocated to a vaccine against Lyme disease and 40% to a vaccine against chikungunya virus. Two pre-clinical vaccine candidates will receive 5% of the proceeds with the remaining 5% reserved for general corporate purposes. Shares in Paris remained above issue on Friday and were up 2.9% at €5.25 going into the close.
The resilience of private debt funds that cater to retail investors has come into question as the US economy enters a recession. Perpetual business development funds – unlisted, evergreen private credit vehicles that offer semi-regular liquidity – and similar vehicles such as interval funds that target individual investors have become increasingly popular over the past few years as an entry point to the asset class. Such vehicles may be tested if a downturn triggers mass redemptions and forced asset sales. Equity markets tumbled in the past week after the US Federal Reserve raised rates 75bp for a third consecutive time. The bond market also sank, with the S&P 500 Bond Index recording almost 17% losses year-to-date. Perpetual BDCs are relatively new and have not been tested in a downturn. The first perpetual-life BDC was not introduced until January 2021. The first credit interval fund was launched in 2016, according to the earliest available data from Interval Fund Tracker. Investors with a lower tolerance for risk and a greater need for liquidity may pull money out of these vehicles during economic duress. According to a 2021 Natixis Investment Managers survey, most global retail investors want stable, low-risk investments. Three-quarters of the 8,550 individual investors surveyed said they preferred safety over performance and 40% of them listed volatility as a critical concern. In addition, 35% said having to cover unexpected costs was a key concern, indicating these investors may need access to a high level of liquidity. Investors searching for yield found perpetual BDCs and interval funds attractive when rates were low, said Kunal Shah, managing director and head of private equity solutions at alternatives fintech platform iCapital. Private credit yielded a 12-month annualised return of 8.9% for 2021, compared with the 4.2% return for high-yield credit during the same period, according to an April Blackstone report. Perpetual BDCs reported a return of 6.05% during the first three quarters of 2021, according to an iCapital report. The S&P US High Yield Corporate Bond Index returned 4.9% between December 31 2020, and September 17 2021, and the Morningstar LSTA US Leveraged Loan 100 Index returned just 3% for the same period. “Part of the reason why many of these products have become more popular [is] the quarterly redemption,” Shah said. Publicly traded BDCs are more likely to have price fluctuations, like exchange-traded funds, as they allow investors to buy and sell shares regularly at market prices. Meanwhile, closed-end BDCs will lock up investor capital until the investments are harvested or the vehicle goes public. Perpetual BDCs offer a more hybrid approach offering both redemptions and pricing stability. Safeguards Private debt managers catering to retail investors are confident they’ve put enough safeguards in place to ride out choppier markets. For instance, interval funds must meet liquidity standards – usually 5% of total assets – at any one time through cash or assets easily reduceable to cash, according to Rajib Chanda, a partner at law firm Simpson Thatcher & Bartlett. BDCs are not required to promise minimum liquidity holdings under regulations, but many do in order to meet market demand. Unlike interval funds, BDCs can use any source of available capital to fund redemptions. Managers can match inflows against outflows, use cash on hand, sell assets or even borrow money. “Most funds have bank facilities, and BDCs, in particular, are allowed to borrow quite a bit of money,” Chanda said. “Banks are happy to lend against these assets.” The challenge is to stay disciplined and provide downside protection to match monthly capital inflows, said Grishma Parekh, managing director at HPS Investment Partners, which runs the perpetual BDC HPS Corporate Lending Fund. “Maintaining significant liquidity . . . and having adequate cushion o
Credit Suisse has lost one of its most loyal big name investment bankers after Jens Welter quit after 27 years at the Swiss bank to join Citigroup. Welter has been a long-time adviser to Nestle and other core clients, largely in the consumer goods sector. Welter’s departure was added to by other senior bankers departing the bank, adding pressure to chiefs before they set out a major strategic review. That is due from Credit Suisse’s new chief executive Ulrich Koerner on October 27, alongside third-quarter results. Welter stuck with the Swiss bank despite mounting problems over the last few years. In January, he was appointed global co-head of banking with David Wah, in addition to his role as head of investment banking and capital markets for Europe, the Middle East and Africa. Wah will now be sole head, according to a memo seen by IFR and confirmed by the bank. The memo said Cathal Deasy and Giuseppe Monarchi will succeed Welter as co-heads of IBCM EMEA, and both will retain their roles as global co-head of M&A and co-head of EMEA coverage, respectively. They are based in London and report to Wah. Welter’s departure will be a big blow, as Credit Suisse had been determined to rebuild its presence in capital markets and advisory under a plan by former CEO Thomas Gottstein last year. That has since been superseded by Koerner’s review. That could see parts of the investment bank spun off. Credit Suisse has said it is seeking third-party capital for its structured products division and it has not denied reports that its advisory and capital markets arm could be spun off as a First Boston boutique. Reuters reported that the bank could raise capital and set up a bad bank to house unwanted assets. The bank said it was “well on track” with the review, which will create “a capital-light, advisory-led banking business and more focused markets business” partly through “potential divestitures and asset sales”. Investors are unimpressed, however. Credit Suisse shares fell to an all-time low of SFr3.70 on Wednesday. By Friday afternoon they had recovered to SFr3.94, still down 55% this year. Revolving door? Some senior debt capital markets bankers are also leaving the bank, including Charlie Morin, head of DCM for France and the Benelux countries, who joined from HSBC in 2015. Another leaver is Benjamin Heck, head of the Swiss France bond syndicate. The bank declined to comment on those exits. Wenceslao Bunge, global chairman of real estate, and Jaime Riera, head of real estate investment banking for EMEA, left last week to join surveyor JLL. Bunge will be global co-chair of real estate investment banking and Riera head of M&A and corporate advisory for EMEA. Daniel McCarthy, head of global credit products, has also left. He joined Credit Suisse in 2007 from Citigroup’s high-yield trading desk and will be replaced by Joel Kent, chief risk and strategy officer for credit. Kent will be based in New York and report to Jay Kim, global head of credit at the investment bank. Diego Discepoli has been appointed head of global credit products for EMEA, reporting to Kent, and David Jones, who Discepoli replaces, will become head of credit front office risk, reporting to Kim. Kent’s replacement as chief strategy officer will be Kristi Sue-Ako. Other recent departees from the credit team include Geoff Drayson, managing director of EMEA credit sales; Simon Johnson, head of UK, Nordic and hedge fund credit sales; Ruchir Sharma, head of Asia-Pacific FX trading; Jonathan Moore, co-head of credit trading; and Paul Bajer, head of credit structuring. Sharma, Moore and Bajer have all moved to Deutsche Bank. At Citigroup, Welter will become co-head of banking, capital markets and advisory for EMEA, alongside Nacho Gutierrez. Welter will be based in London and start in December. He will also be chairman of global consumer and retail for BCMA to help build that business further, as we
US ECM could struggle again in the fourth quarter as US Federal Reserve hawkishness and recession talk overshadow all else and as tight funding windows restrict issuance opportunities. Syndicate desks closed another slow week as volatile markets, earnings blackouts and public holidays kept most issuers sidelined, a dismal end to another poor quarter for the capital-raising business. Only two companies stepped forward to raise capital in the past week. Net-lease REIT Agree Realty (a US$334m forward sale) and Altus Energy (a US$80.5m secondary) both priced overnight stock sales late on Wednesday. The combined US$415m of proceeds raised this week padded a third quarter that saw US$18.4bn raised across 110 deals, a steep 74% drop off in proceeds versus the same quarter a year ago, according to Refinitiv data. As the US economy teeters on the brink of a recession and the Fed toes a hawkish line on interest rates, ECM activity seems destined to remain slow heading into the fourth quarter. The US ECM calendar is empty for now with no IPOs or follow-ons expected to price next week. Still, bankers believe the fourth quarter should see more IPO pricings than the third, a low bar given only three companies of size went public on US exchanges during the period (Corebridge Financial, Third Harmonic Bio and AMTD Digital). American Healthcare REIT, which filed for a NYSE IPO on September 16, is one deal that could theoretically launch in the coming week, though the prospect appears unlikely. Publicly traded healthcare REITs cratered 16% in September, according to Nareit data. Issuers will also look to avoid marketing across Wednesday’s Yom Kippur Jewish holidays and the following Monday’s Columbus Day federal holiday.
Belgian staffing firm House of HR has allocated the first-lien term loans backing its acquisition by private equity firm Bain Capital, giving the market a much-needed boost of confidence to absorb a sizeable deal in the European loan market. The debt package includes a seven-year loan split into a €1.02bn first-lien term loan and a €125m delayed draw first-lien term loan that finalised at 575bp over Euribor and a 0% floor, unchanged from guidance. The OID is set at 92, widened from 94 at launch. They carry 101 soft call protection for six months. A €310m eight-year second-lien term loan will be priced subsequently. It was marketed at 900bp over Euribor with a 0% floor and 94 OID and call protection of non-call 1, 102, 101 and par thereafter. Market sentiment has been mixed since the summer break, with some deals receiving a decent reception from investors but others downsizing. House of HR represents the first billion-sized, euro-denominated LBO financing completed via the syndicated loan market since February this year, when Russia invaded Ukraine and threw the European leveraged loan market into turmoil. Barclays, JP Morgan and SG were the joint physical bookrunners. Belfius and Rabobank were mandated lead arrangers. JP Morgan is admin agent. There is also a €425m senior secured debt as a part of the financing. Proceeds will also be used for refinancing existing indebtedness and paying transaction-related fees and expenses. Corporate and first-lien ratings are B2/B.
Follow-ons for so-called “de-SPACs” or former SPACs are fraught exercises, in part because many of these names are poorly covered and under-owned. Shares of Altus Power, which went public by merging with CBRE Acquisition late last year, dived 23.7% to US$10.86 in Thursday’s session after private equity firm Blackstone sold 7m shares or about 4.5% of the solar project developer and owner via a US$80.5m wall-crossed overnight stock sale. JP Morgan, Citigroup and Evercore ISI priced the all-secondary offering at US$11.50, the middle of the US$11.25–$12.00 range and a wide 19% discount to last sale. The offering enabled Blackstone (via its alternative credit unit) to cut its stake to 14.1% from 18.6% previously. Blackstone took Altus public via a US$1.6bn combination with CBRE Acquisition (backed by commercial real estate firm CBRE) in December last year. After struggling for much of this year, Altus shares had (prior to the offering) more than doubled from around US$6.00 in mid-July to a high of US$14.00 earlier in the week, making this one of few deSPACs trading above the original US$10.00 SPAC IPO price (when CBRE went public in late 2020). Blackstone and Altus were likely cognisant the stock needed to trade well above US$10.00 before bringing the secondary, the wide discount highlighting the pound or more of flesh that investors are extracting from deSPACs considering a return to ECM. On Tuesday, Altus agreed to buy 97MW of operating solar assets located in nine states for about US$220m funded by cash on hand and assumed liabilities. The assets include rooftop, ground and carport-mounted solar arrays, delivering power under long-term contracts to commercial and industrial customers and growing Altus’s portfolio to 466 megawatts in 22 states. JP Morgan holds a December 2023 price target of US$11.00 on Altus shares, noting the company’s unique focus on commercial and industrial, public and community solar markets and its appeal to tech, energy and ESG investors. This was offset by risks associated with project delays and supply chain disruptions, and Altus’s “mixed execution” so far as a public company, the firm’s analysts said.
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