Issuer: EBRD
Amount: Dm1 billion
Maturity: 5 years
Launched: Monday January 29
Lead managers: BZW, Nomura
“You want to make sure your leads are awake, sweating at night, and we knew they would be.” This was how Mark Cutis, treasurer of the European Bank for Reconstruction and Development (EBRD) justified picking a decidedly odd couple of banks to launch its benchmark foray into five-year Deutschmarks, its first benchmark for two years. As speculation grew about the EBRD move, few expected the names of BZW and Nomura, houses with little Deutschmark track record, to appear together on the winning ticket. No-one was more surprised than the banks themselves. And, like parties to an extreme form of arranged marriage, they did not discover their partner’s identity right up until a final planning conference call on the Friday evening before the Monday night launch into Asia.
At first, Nomura’s syndicate head, Andrew Asbury, suspected a Swiss house would be involved to provide a mix of Asian institutional buying and European retail. When his opposite number at a Swiss firm said nothing much was going on, his curiosity grew. Meanwhile, BZW thought a German house would be involved, if only for political reasons. But with an American sitting at the EBRD treasurer’s desk, and one who had spent 10 years at Merrill Lynch and a year in Germany, a gutsy rather than political approach arose. But as Cutis commented to the leads: “It will be political if the deal is a failure.”
In fact, Cutis picked Nomura and BZW because these houses needed to establish a presence in the Deutschmark sector and so had a lot at stake. He, too, had a lot at stake, the issue being his debut benchmark as treasurer following the departure of René Karsenti to the European Investment Bank (EIB). This way he could rely on total commitment – of both firms’ balance sheets – as well as highly attractive terms, including a promise to ensure liquidity by making a bid/offer spread of one basis point (in yield) on institutional trades of over Dm25 million for the first six months.
But, as with every deal, personal relationships were as crucial to the birth as the technical details. Although Nomura and BZW were not familiar with each other, the EBRD had a long-standing relationship with Nomura. And while BZW had never won an EBRD mandate before, its did have its foot in the door. Last summer, two BZW executives – origination head, Yann Gindre, and Jean-Louis Ebelin, a director in the bank’s origination group – were part of a yachting crew, together with Jean-Marc Debricon, one of the EBRD’s four-strong funding team. Their joint efforts on that occasion proved rather less than successful; they came in third in a three-boat race. Six months later they fared much better in what turned out to be a fully-sold deal, coming in flat to a recent EIB offering that in the previous two weeks had widened out to 25 basis points over the Bobl 116, the German government five-year benchmark. Un-like most five-year Deut-schmark deals, spreads on the EBRD issue did not widen. The action began on Thursday morning, January 25, when Ebelin spotted a swap opportunity, provided the credit was of high enough standing to be noticed in the overcrowded area of five-year Deutschmarks. He asked Rob Jolliffe, BZW’s joint head of syndicate, what he thought of five-year Deutsch-marks. The market being heavily oversold, Jolliffe gave the appropriate reply but asked who the issuer was – at which point he became interested. “Any other name with the market in this shape, I would probably have dismissed out of hand,” says Jolliffe.
The EBRD’S borrowing programme is relatively small at Ecu 1.5 billion, giving it rarity value. So, the next thing was to convince the EBRD. Ebelin and Jolliffe put the proposal to Debricon, who took it to Cutis and the head of funding, Ayesha Shah. Cutis was understandably cautious and became even more nervous as, over the next couple of hours, the EIB spread widened a further 2bp. EBRD told BZW “thanks but no thanks”.
Next morning, however, swap spreads widened and Cutis began to have second thoughts. But, when he picked up the phone to sound out market opinion, his first call was not to BZW. Instead, he talked to Ian Annand, the senior origination officer at Nomura, a bank with which EBRD had often dealt. Coincidentally, Nomura had been suggesting a similar Deutschmark deal – the idea being to launch into Asian hours. “We knew Nomura could handle this transaction,” says Cutis.
By contrast, BZW was something of an unknown quantity so Cutis and former Nomura swaps trader, Shah, wanted to meet the team. Debricon invited them to make a presentation the following Monday afternoon. That wasn’t soon enough for Ebelin and Jolliffe who could see the deal slipping away from them. On Friday afternoon at 3.30 pm they said they would visit straight away.
At EBRD’S offices, Cutis said to Jolliffe: “I’m an Asian central bank. Sell this bond to me.” Jolliffe, a former salesman, had no trouble giving a pitch. At the end, Jolliffe, who along with Steve Hones had joined BZW in the summer from JP Morgan, asked Cutis if he would he buy these bonds if he were an investor. Cutis said yes. Nomura was told about the decision and that the two banks would get together on a conference call at 6pm. Then came a surprise over what Cutis admits was a “non-traditional” combination of leads. But Jolliffe and Asbury were soon on the same wavelength. Another conference call was agreed for 2pm on Sunday. Both lead managers drew up a preferred syndicate list and found, once again, that the EBRD team was interested in market suc-cess not politics. Shah said: “They asked us if we had any political considerations and we asked them to define what this meant.” On Monday morning, the EBRD told the leads to arrange the whole thing and fax them what was going to be put on the screens – a spread of 27bp over the Bobl was announced at 11am.
The deal got off to a slow start on Monday afternoon, but overnight the Asian demand went crazy. Cutis came in at 7am on the Tueday morning and was “pleasantly surprised” by the numbers. Nomura had predicted 60% placement in Asia which seemed bold.
But this prediction was more than realized: Nomura had placed 70% and BZW positioned 35% of its allotment overnight, with one ticket alone being for Dm50 million. Then Europe “kicked in”. At the close on Tuesday, Nomura had sold well over its allotment of Dm375 million; by this time, too, BZW also had very little paper left.
Unlike most five-year Deutschmark deals this one did not widen, indicating that the pricing was correct. Cutis had turned down the tempting offer of one of the leads to take some punishment and price at 25 over the Bobl. In fact, the issue subsequently tightened to trade at 26bp over, and on the day following the payment date it was bid at 25 over.
