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Best Leveraged finance house: Credit Suisse |
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Also shortlisted: Goldman Sachs and Deutsche Bank |
Leveraged finance was the asset class most affected by the excess liquidity in the credit markets over the past year. As the search for yield among credit investors intensified it was to the high-yield and leveraged-loan markets that many of them turned. It was therefore of little surprise that many houses intensified their efforts in high yield. But in order to really read this market you need longevity, and Euromoney’s best global leveraged finance house is one that sticks with this market through thick and thin – Credit Suisse.
It was that deep market knowledge that enabled it to anticipate one of the key themes of the year – the switch in investor appetite from bonds to loans and convergence of the credit product – more effectively than many of its peers.
It is Credit Suisse’s strength across both high yield and leveraged loans that has really borne fruit this year. This was perhaps best exemplified by the $5 billion covenant-lite term loan B arranged for Australian iron-ore producer Fortescue Metals Group last September. The firm, a house account of JPMorgan and Bank of America Merrill Lynch, was facing falling iron-ore prices and there were a large number of equity shorts out against the stock. It had bridge financing in place from BAML that incorporated maintenance covenants and needed to be replaced.
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| David Miller, managing director and co-head of global credit products at Credit Suisse in New York |
“We had to get rid of the bridge in order to get rid of the covenants – the firm really did not want to bust a covenant,” explains David Miller, managing director and co-head of global credit products at Credit Suisse in New York. “We proposed a $4.5 billion covenant-lite loan, and at that time there was no precedent for that at all. Other firms were advising Fortescue that they would need bonds as well, but we had felt the loan market out in advance and said it could get done in loans.” Miller attributes this to the insight that running two separate sales forces, one for loans and one for high yield, affords the firm. “We had a view that we could move it,” he says. “We went to the market and saw that it was moving from unsecured to secured, from fixed rate to floating rate. In the end it attracted $11 billion of orders and was upsized to $5 billion with reduced pricing.”
This was a first-time client for Credit Suisse, and it led directly to other first-time business: for example, the Swiss house left-led $2.6 billion equivalent dollar and euro covenant-lite facilities for Alcatel Lucent in January this year. In a market that is 40% to 50% secured high-yield product, the firm concentrates on sponsor-driven, covenant-lite, second-lien and story credits where it can really add value. “We are not a double-B commoditized flow product house,” says Miller.
But it is also there on the benchmark deals, being sole global coordinator and lead left bookrunner on the $8 billion Virgin Media transaction backing Liberty Global’s acquisition of the UK-based cable group. “At the time this was the largest M&A situation post-crisis, and we working on Dell at the same time,” recalls Miller. “We led the loans and bonds on both continents and distributed the risk in eight days – eight yards in eight days. The two biggest deals in the market prior to Heinz were Liberty Virgin and Dell and we were left lead on both of them.” Credit Suisse is financial adviser to Silver Lake Partners and lead arranger and active bookrunner on all new financing facilities in the Dell deal.
Muscle such has this has attracted attention, and Credit Suisse has been criticized by some of its peers for being aggressive – something that Miller says underestimates investors and issuers in this market. “In the first quarter of this year we left-led 55 deals in the US and during the second quarter we have left-led 53 deals to date. We wouldn’t have issuers putting us on left lead if the deals didn’t trade well. We have to take a view that not only does a deal work in today’s market, it will work tomorrow too: we committed to Dupont [Carlyle Group’s $4.9 billion acquisition of Dupont Performance Coatings] in September last year and did the deal in January. We are very cognizant that markets can move and we have to have credit conviction. It is our responsibility to put out a product on which we do due diligence and which we price correctly to trade well. It is not our responsibility to tell people not to buy things.”
In Europe, Credit Suisse has also been at the forefront of innovation. It is the market leader in FRNs, with over 50% of market share since 2011 and has also been involved in 75% of all European-currency-denominated PIK Toggle transactions. But it is on the benchmark trades that it has really shown what the franchise can do this year. “We received outstanding execution in a deal with many moving parts under a compressed time frame,” says Charlie Bracken, CFO at Liberty Global. “This transaction pushed all boundaries of what has been done since the crisis.”
