It is difficult to believe now that 2020 opened with all the talk at Davos focused on environmental, social and governance issues, sustainability and the transition to a low-carbon economy.
Just weeks later, the markets were thrown into disarray as Covid-19 spread and the US commercial paper market seized up, forcing corporates to draw down credit lines or ask for new facilities in breath-taking volumes.
This was one of those periods of market panic that fully tests banks’ ability to serve their clients.
“In the first seven months of this year we have had three markets,” Doug Adams, global co-head of equity capital markets at Citi tells Euromoney. “In the first 45 days everything was on fire. Everything was working and investors were very active. Then Covid spread in March and April and everything traded down materially, given the uncertainty, and there was mass panic. Support from the ECB and the Fed was unprecedented, and even though there is still significant uncertainty, markets feel good and we are almost back to the first 45 days.”
With its large balance sheet and global reach, Citi has stepped up to the plate. “We came into the crisis in a very good position capital-wise. Even with huge revolver draws we could get capital to clients,” says Rich Zogheb, global head of debt capital markets. “Being in that flow gave us the confidence to go to Boeing, Southwest, American.”
Getting finance to sectors that were most impacted was the key challenge for all banks this year. Citi has led more than half of aggregate dollar DCM volumes in the US, including a bankruptcy-emergence financing for PG&E Corporation and a raft of deals for companies in challenged sectors, such as General Motors, AerCap and eight real-estate investment trusts, including Avalon Bay, Brixmor and Duke Realty, many of which were in the midst of store closures and rent deferrals.
Citi was also lead left bookrunner and adviser on the $4.7 billion capital raise for American Airlines in June and lead left bookrunner for Boeing’s $25 billion seven-tranche bond deal in the teeth of the crisis in April, the largest non-M&A-related bond deal ever.
We came into the crisis in a very good position capital-wise. Even with huge revolver draws we could get capital to clients
Rich Zogheb
Talking about the American Airlines deal, Zogheb points out: “This financing was arranged in a sector that was in the epicentre of the crisis. It was very structured and centred around delivery. All airlines are in different situations from each other, and it is important to come up with solutions that are unique to each one rather than following a blueprint.”
The deal demanded both scale and confidence.
“All airlines have different capital structures and different asset bases,” he recalls. “This took enormous coordination; we were marketing to three separate pools of investors remotely. This was more a case of us being confident that we could deliver. If you get the offering wrong, it is going to taint the company. We had to be highly confident that we would get it done.”
Commitment
This kind of commitment was in evidence globally. In Europe, Citi advised the French government on its Covid-19 response for Air France and completed the €512 million rights issue for Finnair. In the early stages of the crisis it was active in ‘quick-to-market’ primary deals and equity-linked transactions as issuers opted to react swiftly and monetize higher volatilities.
Citi led the first jumbo recapitalization in the Europe, Middle East and Africa (EMEA) region, helping Spanish travel technology company Amadeus raise €1.5 billion across a primary deal and convertible bond.
In DCM, it raised funding in 33 different currencies for issuers from 56 different countries during the awards period, including DP World’s $1.5 billion offering, which involved an $8 billion bridge financing for a very structured take-private deal in the middle of the pandemic. It was also the largest hybrid issuance ever in the emerging markets
“There were headlines suggesting that US banks were retreating from European clients: of the 40 euro syndications that have closed to date, Citi participated in 26 of them – more than any other US bank,” insists Phil Drury, EMEA head of banking, capital markets and advisory. “This is a global health pandemic that touches everyone everywhere. But the solutions are regional. Citi has the differentiated capability to provide global strategic advice and execute on the ground.”
Negotiating the future could prove to be just as challenging as the last extraordinary six months has been. It will test the relationship between banks and their clients to the limit.
“The key thing is to try to spend time with clients and to make sure that they are not getting complacent,” says Zogheb. “What happens if there is another lockdown? It is hard to imagine it would be as bad as in March. But if it looks like April, then only the best names will be able to come to market. Are clients ready for that?”
More M&A will be the obvious fallout from Covid-19, and the bank is seeing clear signs of this already.
“There has been a big increase in acquisitions and LBO discussions, but how much of this will turn into transactions? Dialogue has increased substantially,” reveals Zogheb.
