Euromoney 30th anniversary: Heroes and villains
It's surprising how little the leading lights of the international markets can remember about the markets' past, or even their own careers. Perhaps it's merely because investment banking stresses such a forward-looking attitude.
The markets are so fast-moving that anything that at the time seemed innovative or groundbreaking is soon overshadowed by the latest sensational deal. Trying to find "biggest" landmarks is a particularly troublesome pursuit in these days of ever-increasing liquidity. What stand out in people's memories are the trends that a handful of deals helped to establish, and then the factors that made the trend a commonplace part of the market. Ultimately the markets lack a sense of history because history is not what they are about.
But there are some interesting stories to be unearthed in the Euromarket's past; some of these landmark deals are still famous and some have been over-looked. Everybody knows that the first Eurobond was the 1963 Autostrade deal, but what other deals have made an impact over the past 30 years? We asked some of today's market leaders to select a few interesting chapters from their past.
1969/1970: first ever Eurodollar FRNs - Dreyfus/Enel
Over the last 30 years there has been much speculation about who invented the floating-rate note. Euromarket legends from Sir Siegmund Warburg to Evan Galbraith of Bankers Trust to Stanislas Yassukovich of White Weld have been given the credit. Each of them is said to have dreamed up the idea while taking a bath. FRNs were launched at a time of rising interest rates when bond deals were difficult to market. They were designed to give investors protection against sudden interest-rate increases and bridge a gap between long-term Eurobonds and medium-term syndicated loans for issuers.
Whoever's was the original idea, two deals vie for the title of first Eurodollar FRN. In May 1969 a deal was launched for the Dreyfus Offshore Trust that bore all the signs of a FRN. The $14.7 million deal was listed on the London and Luxembourg stock exchanges but was not registered with the Securities & Exchange Commission or made available to US investors. Dreyfus offered an interest rate floating at 0.25% above six-month Libor and included a common stock offering. The deal was managed by Kuhn Loeb, Kidder Peabody and Wertheim.
Dreyfus may have been first but the deal that really kicked off the FRN market came a year later for Italian electricity utility Ente Nazionale per l'Energia Elettrica (Enel). This $125 million 10-year deal was launched in May 1970 and lead-managed by SG Warburg, BTI and White Weld. The notes were guaranteed by the Republic of Italy and paid interest of 0.75% over six-month Libor.
The deal was a hit and four more issues followed before the end of 1970. Progress was slow for the next few years, but by the end of the 1970s FRNs had become the fastest-growing sector of the Eurobond market.
February 1986: first jumbo Eurobond - Canada, $1 billion
Although there had been $1 billion FRN and zero-coupon deals for several years, when Canada's $1 billion deal was launched early in 1986 it was the first fixed-rate Eurobond of its size - the first true jumbo.
Deutsche Bank Capital Markets was the bookrunner for the deal, and bankers who were involved claim that there was never any doubt that a deal of this size could be pulled off. "Canada was one of the premier issuers in the Euromarket at the time," says Walter Henniges, head of debt capital markets at Deutsche Bank in Frankfurt. "Everything in the market was in the deal's favour." The deal had a maturity of 10 years and a 9% coupon. "The initial demand was very strong," says Henniges, and it sold well to institutional and retail investors across Europe.
The size of the deal, its tight pricing and its liquidity in a market much less conducive to liquidity than today has given it lasting significance. "A terrific deal. It was the first real benchmark bond, the first real treasury surrogate," says Paul Richards at Merrill Lynch. "It is probably the only Eurobond issue which has had an active secondary market throughout the whole of its life," says Henniges. In fact it was the deal that many of the traders who lead the markets today cut their teeth on.
The deal is unusual in that most people in the market have good memories of it, and few would begrudge it its success. When the bond matured in 1996, RBC Dominion in London even threw a party. As for the team who executed the deal, there was little chance to rest on their laurels. "I didn't have time to go to the party," says Henniges.
September 1989: first global bond - World Bank, $1.5 billion
The World Bank had always been an agenda-setting borrower. When it issued its first Eurobond in 1979 it brought legitimacy to the market. "The World Bank had always had a cynical attitude towards the Euromarket," says a syndicate head. "Its debut Eurobond deal was an important signal that this was a serious market for serious issuers." And with its global bond in 1989 the World Bank launched a product that has become an integral feature of today's debt markets, and one that is soon to celebrate its 10th anniversary.
The $1.5 billion 10-year deal was announced on September 18 1989, with a coupon of 8.375%. The bookrunners were Deutsche Bank and Salomon Brothers, a combination that the World Bank put together to ensure maximum distribution with investors in the US and Europe. "At the time, the theory was that if you wanted to cover all the markets you needed a strong European firm and a strong US firm to provide complementary distribution," says Charlie Berman, head of European debt capital markets at Salomon Smith Barney.
The concept of global bonds aimed to take advantage of marketing over three time zones and to iron out differences in pricing across investor bases. It was inspired by a problem the World Bank had in getting US domestic investors to accept deals priced as aggressively as those bought by investors in Europe and Asia. "The World Bank had much better market acceptance in Europe than in the US, where they had to pay quite substantially over the agencies," says Walter Henniges, head of debt capital markets at Deutsche Bank in Frankfurt. "Their problem was how to have access to funds in times of difficulty in the European market and not be held hostage by the US domestic cartel," he says.
