The borrowers which Euromoney here hails as the best from across the world are those who have coped best with markets that one moment are closed, and the next eager for new issues, that one moment cry out for credit risk and yield, and the next are hostile to any but the best-rated names. Some issuers have succeeded by timing their entry into the markets shrewdly. Others have had to show abundant flexibility and innovation to raise funds when investors have been at their most risk averse. Sovereign and agency issuers have pursued the trend towards large, liquid deals, though some now fear investors are being saturated. A wide variety of lower-rated and even some high-rated names have pushed the boundaries of securitization technology in an effort to diversify funding sources. And public corporates have learned the importance of strong debt management to their equity valuations.
includes: best borrower – best sovereign borrowers – best corporate borrowers – best high-yield borrowers – best financial borrowers – best agency borrowers – best securitization borrowers
best borrower: freddie mac
freddie mac has had stunning success in tapping the euro market since last september and has become the closest thing to a benchmark for the currency. this has finally allowed the us agency to step out of the shadow of its elder sister, fannie mae. for years the latter was the more innovative in its use of credit markets and in appealing to investors.
that has changed in the course of the past two years as a result of the decision taken by senior executives back in 1999 to revamp operations in the face of fannie mae’s successful switch from opportunistic funding to large, pre-announced superjumbo bond issues.
the most obvious sign of the change in approach came with the appointment in mid-1999 of jerome lienhart as executive vice-president in charge of global funding – he had previously held a similar role at toyota motor credit company.
in the two years since he joined freddie mac he has completely restructured the team, by both bringing in new people from outside, such as his treasurer, louise hearly, from home loan bank, and recruiting from within. “we have been trying to change the thought process here,” says lienhart. “freddie mac was used to the traditional way of issuing, which was to be opportunistic in hunting down sub-libor arbitrages. but the growth in our funding requirements dictated that we take a much more globalized approach to our investor base.”
freddie had a near captive us investor audience, but it had issued very few non-dollar deals and its non-us base was purely supplemental. as a result it was missing out on a potentially huge core market for its paper. “we realized that the introduction of the euro was creating a polarization in the capital markets,” says lienhart. “here was a large block of investors we couldn’t easily access.”
that was not a good starting point for an institution committed to becoming more global. so lienhart and his team decided to look at adapting the reference notes programme it had implemented in the us to sell to european investors.
the reference notes programme was essentially a fannie mae idea, and grew out of investors’ desire for larger, more liquid and more transparent paper, and for a surrogate to replace the diminishing supply of us treasury paper. it has since been adopted by other major agencies and supranationals as well as, in part, by some of the larger corporate issuers, such as ford.
the idea is to publish a funding programme calendar, stating funding needs and the size and timing of each issue. freddie mac started down this path in 1998 when it started issuing super jumbos on a quarterly basis; in 1999 it went monthly, and in 2000 it published its first full monthly programme with exact dates and maturities, issuing $120 billion over the course of the year.
with that in place, taking the international strategy was next. “we had changed from market timing to be as specific as possible on the details of our deals,” says lienhart. “so if we were to issue in euros, doing it in the traditional way would be counter to the way we had reordered ourselves in the us.”
hence the decision to investigate extending the reference note programme to europe. it was, says phillip brown, managing director in debt capital markets for schroder salomon smith barney, “a very courageous move. freddie mac spotted an opportunity to create a truly liquid agency product in the euro market that also, if successful, would suit their needs. while the euro had created a deep, liquid market for government bonds, aaa-rated non-government paper was loosing market focus. freddie sought to bridge the widening liquidity gap which developed as a result.”
as a us agency with almost no outstandings in any of the legacy currencies, let alone the euro, freddie mac was hardly the most natural of issuers to try to make that leap.
however, a variety of factors ensured that the programme succeeded. first, freddie put a great deal of effort into devising and pre-marketing it – lienhart and hearly have been almost constantly on roadshows and investor visits for the best part of a year now. second, freddie gets its investment banks to work very hard on its behalf; the kudos, as well as the league table boost from agency issues, is too much to pass up.
thirdly, lienhart himself had developed a lot of good relationships with european investors while at toyota motor credit. and finally, freddie mac took the initiative in persuading euromts, the dominant and growing electronic trading platform for european government bonds, to allow its paper to trade on the system – the first non-government debt to do so.
that required freddie to commit itself to issuing at least e5 billion ($4.3 billion) for each new issue (reopenings, of course, can be smaller). since inclusion in euromts would virtually guarantee dealer support in giving tight bid-offer spreads on the platform – more than 25 banks post prices on euromts – and thus offer a greater deal of trading stability to investors, freddie was more than willing to offer e5 billion deals, and price them to clear the market.
the first deal, launched in september, proved an instant hit. over 270 investors globally participated. freddie is committed to launching one e5 billion deal each quarter, so raising at least e20 billion a year. thus far e15 billion has been raised, with its next deal due at the end of june.
the measure lienhart and the bankers use to judge the real success of the programme is not just that they can place euro paper, but that their funding programme is truly becoming global.
and in that they have succeeded. “even as recently as the start of last year we would see no more than 20% to 25% of our dollar notes being bought outside the us,” says lienhart. “but that has improved substantially.” over a third of the march 10-year deal in dollars was placed abroad, the majority of it in europe. “they are getting new investors in dollars as a result of the euro programme,” says sarah salih, a vice-president and head of agency debt origination for deutsche bank in new york. “we have seen certain continental funds and pensions, traditionally not large dollar buyers, buying freddie mac dollar reference notes as a result of the information they gained from the euro reference note investor meetings.”
according to lienhart, freddie has added 35 new european investors to its dollar programme as a result of the euro reference programme, and says that “in a reopening of one of our dollar notes in april, 48% of the buyers were international”.
meanwhile, the agency’s dollar programme continues apace, and since the start of the year it has been selling its short-term discount notes and its two- and three-year securities using an auction process. and all this despite the distraction for much of last year of the senate hearings into the fairness of government support for the agencies. fannie mae has been a more proactive participant in the debate, with freddie mac more content to let the politicians do their talking for now.
but it has taken steps to increase disclosure. “freddie now voluntarily discloses its interest rate and credit risk, and has provided portfolio sensitivity information well before any others,” says bill oliva, a managing director in salomon smith barney’s new york office. this allows investors to see how much a one-basis point change in pricing affects its portfolio, or the likely impact on it of qualitative economic change in the us.
but it is the success of the euro reference notes programme that makes freddie mac stand out as best borrower over the past 12 months. it has been innovative, has taken calculated, but large risks, and, although the pricing benchmark is still the swaps market, freddie finds itself as the most popular issuer in the euro market.
antony currie
best corporate borrower: france telecom
in the past year, the european telecommunications industry has been transformed by a storm of deals: costly business and licence acquisitions, disposals, alliances and spin-offs. most national telecommunication companies, which until recently had operated as dull, state-protected utilities, have taken on massive amounts of debt in the process. it has become apparent that those companies that best manage their activities in the debt markets are also the most likely to execute their corporate strategies successfully and to maintain shareholder support. those companies that stumble in the debt markets had better watch out.
none has shown surer footing than france telecom. it has managed its bank relationships nimbly, quickly raising the e30 billion ($26 billion) bank facility it needed to complete the key deal of 2000 – the acquisition of orange that made it the number two wireless operator in europe – and then quickly refinancing much of this costly short-term debt. its two bond deals have been the highlight corporate transactions of the second half of 2000 and the first half of 2001.
the e5.4 billion bond deal last october and the e17.6 billion deal this march were both executed in volatile and unfavourable markets when telecoms companies were being downgraded, their recapitalization plans seemed in doubt and spreads were widening.
that both deals succeeded indicates that france telecom was flexible enough to adapt its capital markets plans to changing market conditions. it also demonstrates that bond investors have kept faith with a well-regarded management team sticking to a consistent corporate strategy and telling a resilient credit story.
a key figure in these deals was jean-louis vinciguerra, executive vice-president in charge of financing and human resources and chief financial officer. a firebrand character, a veteran of aluminium company pechiney and a former banker at bzw and crédit agricole indosuez, he galvanized the company’s finance team, brought a senior management view to its debt capital markets efforts and preached the company’s story persuasively on extensive roadshows. michel poirier, head of funding and treasury, executed the deals.
poirier had a challenging and at times frustrating task. “the bond market offers very specific windows of opportunity and we were always trying to get through those windows. but it is also important for france telecom to be very clear and open with investors,” poirier says. that principle hindered the company’s flexibility over timing.
it would have liked to refinance the orange loan earlier in 2000, perhaps in september, before other telecom companies pushed out their large bond deals, before investors began to take fright at the sector and spreads widened. but even after the orange deal, france telecom was deep in negotiations with equant over a merger of equant and global one, france telecom’s business customer division covering voice, data and internet services. it was also busily restructuring its operations in italy where wind, the company it jointly owned with enel, was preparing to buy infostrada.
“it would have been much simpler to issue in september. but we had to know the outcome of those deals and their potential impact on our ratings, even though we were confident that they wouldn’t change them,” recalls poirier. “then came the question of whether to issue in october or to wait for better market conditions.” france telecom feared that market hostility towards telecom companies might increase through november and the markets might close by december. so it decided to launch its roadshow in october, with vinciguerra to the fore, and be guided by investor reaction. it knew it needed to do a market-led deal, priced through bookbuilding with a pot system.
“we got a lot of interesting questions on the roadshow,” says poirier, “but most important was that we could issue successfully.”
the first pleasant surprise came in edinburgh. the company had planned a euro deal and was unsure of the prospects for a debut issue in a sterling market where non-british corporate issuers are rare. but it soon realized it could sell sizeable fixed-rate sterling bonds at five and 20 years. it raised £500 million at five years and £450 million at 20 years. “we were generally a little surprised that we had so much success with the longer-dated pieces,” says poirier.
this was also evident in the simultaneous offering of e1.4 billion of three-year, e1 billion of five-year and e1.4 billion of 10-year bonds. even though each single-a rated telecom company that came to the bond markets in 2000 had to offer wider spreads than the last, investor still locked in to longer-dated france telecom bonds.
poirier says: “we had very good demand in the 10-year. clearly investors wanted a profitable deal, though it’s not as though the spreads were exactly tight on the short-dated notes. but i think it showed that investors see france telecom as a good company with a good strategy in which they can invest without too much risk for the long term.”
the company had held back from the dollar bond markets in 2000 pending updates to its us documentation. it was then determined to issue very early in 2001 to take advantage of the traditional january effect, when the primary market is usually very strong. it was particularly so this year, as falling interest rates triggered strong demand for corporate debt. but once again, france telecom was forced to delay while the markets deteriorated.
by now the ipo of orange was centre stage amid a nervous stock market. bond investors told france telecom that they would be much better able to analyze the company’s credit once the orange deal was done. it only just limped home through the equity capital markets, once again heightening fears about the debt reduction plans of telecoms companies generally. oddly, france telecom’s credit was among the least affected. “our story might have been very different had we not been able to ipo orange. as it was, the deal raised more than e9 billion for us, which is not bad at all,” says poirier. “even if we had been downgraded then – because the deal did not raise all the proceeds that had been hoped – at least it would have signaled to investors that france telecom was able to fulfil its commitment.”
but by now the bond market was very tough for telecom companies. in march, france telecom once again launched a roadshow, unsure exactly what messages the market would deliver. it soon realized that it would have to issue bonds that allowed for coupon increases in the event of the company being downgraded. poirier dislikes these. “i don’t think they’re particularly good for investors. they’re difficult to manage and to hedge in the secondary market. we’ve seen spreads widen on telecom bonds with step-ups when the company has been upgraded, which does not seem sensible. but others had given them, so we had to.”
having pinned its hopes on the dollar market, the company now met an enthusiastic reception in euros and sterling. in fact so strong was the demand at the spreads on offer that the company now decided to complete its refinancing operations in one shot, rather than establish a presence in the dollar market and return later in the year. at a stroke it established a dollar yield curve with a $1 billion one-year frn and fixed-rate offers of $2 billion for five years, $3.5 billion for 10 years and $2.5 billion for 30 years. it also issued e3.5 billion of three-year bonds, e3.5 billion at seven years and £600 million at 10 years. the company was pleased that american investors took 85% of the 30-year bond and around 60% of the shorter maturities. there were some huge individual orders. bankers say one account requested $1 billion of bonds across the various dollar maturities.
it had to offer wide spreads: 253 basis points over us treasuries in five years and up to 308bp over at 30 years. demand was huge. the leads reported a $28 billion order book and the borrower could probably have taken $20 billion had it wanted it. but france telecom resisted, only needing to complete the refinancing of the e20 billion drawn portion of its earlier e30 billion bank facility. “spreads were wide but at 30 years they were 30bp inside at&t wireless which had come just before us. spreads were in line with the market,” says poirier. “we will be less active in the primary market now and our spreads should tighten from there.”
the company has left the e10 billion revolving credit portion of its bank facility in place. the game is far from played out in the european and worldwide telecom markets and there’s no telling what might happen next. that’s why it’s been so important for the company to free up its short-term bank lines. “the main objective is to get back to a position where we have very considerable flexibility in our funding resources,” says poirier. read into that what you will.
peter lee
best financial borrower: abbey national treasury services
abbey national treasury services (ants) has grown in the 12 years since it was set up to provide wholesale capital markets funding for the uk’s abbey national banking group into a diverse and sophisticated operation. it earns profits for the bank from investment management, especially in asset-backed securities, from providing risk management to third parties through abbey national financial products, from asset financing and from wholesale lending.
it is best known, however, as one of the most active borrowers in international capital markets. as at the end of 2000 it had £50.2 billion ($71 billion) of debt securities in issue. and in the past 12 months it has been particularly active and innovative in several markets. it issues plain-vanilla bonds in a wide range of currencies and maturities, it is a very active issuer of money-market instruments including commercial paper and certificates of deposits, with £20 billion outstanding at the end of 2000. it is a creative and responsive issuer of structured private placements and mtns. and it has most recently taken a leadership role in developing the bank capital securities market as well as in securitization, particularly of residential mortgages where it has opened up the european market.
“we’ve spent a lot of time, money and effort building a funding franchise globally,” says alex braun, director of funding and asset management. the group is preparing to set up in new york in an effort to improve access to domestic money-market investors in the us. it already has an $8 billion us commercial paper programme, but some lenders can only invest in the paper of us entities and it wishes to expand. it found when it set up a branch in hong kong that it was able to raise cash from asian funds it would not otherwise have been able to tap.
“it is our job to talk to investors, liaise with investment banks that know our targets, get a feel for what to issue and then be very discriminating in what to issue or not,” says braun. the funding group is very conscious of its strategic role for abbey national. “we’re looking at the overall liquidity mix of the bank and we’ve basically got retail funding, wholesale markets and securitization to fund our portfolios. at any given moment we’re playing these off against each other, running one down and another up, looking at relative prices and thinking about how much outstandings we want in any of these.”
it requires high maintenance. but there have been many times when the acute strategic and tactical management of this diversity of funding sources has clearly benefited the bank. it did not have to pay up for cheap retail deposits when new uk internet banks forced up the price in 1999 and 2000. and in 1998, when some continental european banks suffered from a very tight wholesale money market in the wake of the russian crisis, abbey national had other sources to draw on.
as an aa-rated issuer, even one with a good track record and the insights into the capital markets that come from being a big investor as well as a borrower, abbey faces stiff competition from other banks and from other large issuers including sovereigns, supranationals and agencies. braun worries that “some borrowers have over-egged it a bit both in terms of sizes and price. we always look for diverse sources because you can’t push too much product down one pipe.” as an issuer it insists on key rules of engagement from underwriters. it wants to place public bonds at market clearing prices and forbids its underwriters ever to discount bonds at full fees and unload them.
in recent months, as the big issuers have sought to position themselves as government substitutes, wooing institutional bond investors with huge liquid deals, and with wider spreads on credit paper, ants has taken a different track, selling retail-targeted euro and dollar bonds. “i’m looking for where i can get good value. this year we’ll do more in the way of securitization, so i don’t need to focus on the institutional market and i can focus on retail deals which add most value,” says braun. “abbey is a name that sells very well in euros to retail buyers and even when it issues close to or even through its existing secondary levels, its deals tend to do well over time,” says a syndicate head. and the borrower regularly seems able to find a fresh market – most recently turning to sterling floating rate notes.
another fixed rule at ants is to separate simpler, public deals that it does in its own name from more structured deals where investors may be taking credit or market risks very distinct from the underlying credit of abbey national. many of these deals are privately placed and other derivative-linked issues are sold through a special vehicle an structured issues ltd (ansil). “we don’t want some abbey national paper that’s aa and some that’s single-b. we want to ensure that investors can easily differentiate between the different credit risks they are taking,” says braun.
though abbey is flexible, it recognizes that innovative structures come in waves. many issuers will try to sell the same instruments at the same time – long-dated callable yen deals are popular right now, as are various plays on the steepness of the dollar yield curve.
abbey’s in-house analytical skills enable it to make decisions quickly and issue before markets become saturated. “there’s a lot of competition between the investment banks to show us interesting deals. hopefully we can turn even fairly complex ones around quickly while investors still have appetite,” says brian morrison, director of treasury services and international. “but we are also very choosy.”
it takes a similar approach in regulatory capital. ants was quick to spot the opportunity to raise upper tier two funding to finance the acquisition of scottish provident last year. it raised the equivalent of £1.24 billion through four tranches of perpetual sterling bonds callable after 10, 15, 20 and 30 years, with high coupon resets after the call dates and a euro tranche callable after 10 years. “we had looked at dollars, sterling and euro,” recalls morrison. “the book started building strongly in sterling, but you still want some price tension. you want to keep investors hungry, not overload them.”
perhaps the most impressive work ants has done in recent months has been in residential mortgage-backed securitization, where it has been a pioneer in europe through its holmes financing deals.
ants’s early deals had been traditional pass-through mortgage-backed securities with cashflows from a portfolio of mortgages servicing payments on bonds. but last year it developed a new concept: entering large numbers of mortgages into a master trust structure that would then issue bonds. the master trust allows for the substitution of underlying assets. new mortgages can be put in.
abbey, itself a large investor in securitized bonds, asked other investors what they required to keep confidence in the quality of the underlying assets. it sought ratings from all three major ratings agencies, and it undertook monthly reports on the whole trust, which contained £6.5 billion of mortgages for the breakthrough £2.25 billion holmes financing (no 2) deal.
after much internal debate over the required time and effort, ants undertook full sec registration and documentation for its next deal. “we decided that if we wanted to be a benchmark issuer we should submit to the strictest standards of documentation,” says chris fielding, head of treasury advisory services. investors appreciated the effort. “one account told me it was the most impressive prospectus for such a deal he had ever read and the only one about which he did not have at least one major question,” says fielding.
the master trust structure allowed a much more precise tranching of underlying cashflows into securities targeted at specific investors.
the residential mortgage deal came to look much more like a deal backed by credit-card receivables, the ultimate in securitization technology.
that allowed ants to issue bonds with soft-bullet maturities, where the buyer has the security of the underlying assets and the certainty of full principal repayment on a specified maturity date. conventional pass-through mortgage bonds leave investors with hefty interest rate risk because principal repayments accelerate and decelerate as interest rates fall and rise. actual maturity may be much sooner than the final legal maturity date. conventional mortgage backeds tend to have negative convexity, giving holders less duration in rallying bond markets when they want more, and more duration in falling markets when they want less.
by coming out with the bullet pieces and using a global structure, abbey attracted huge orders from large us accounts and tightened in its pricing. the £2.4 billion deal last december comprised two series of dollar and two of sterling notes each divided into three tranches paying from libor plus 9 basis points on the $1 billion aaa tranche to libor plus 135bp on the $49 million bbb dollar tranches.
by this may, abbey had enlarged the master trust to £12 billion of mortgages. analyzing an annual payment rate of 25% on the underlying mortgages gave abbey £3 billion of principal cashflows to play with. the bank launched holmes financing (no 3) last month, raising £2.2 billion from two series of dollar notes and one of euros, each series being further divided into three tranches, with the larger tranches rated aaa and the riskier bbb, paying from euribor plus 24bp to euribor plus 150bp.
“this is now a benchmark,” says fielding “we now have a yield curve in holmes paper. we’re seeing many investors who never came into our deals before and they are turning over and switching in big lots of £50 million and £100 million,” says fielding. as well as providing funding for abbey’s £65 billion mortgage book, these mortgage-backed bonds are an excellent capital management tool.
spreads may look wide compared with conventional frns, but each deal frees up capital that can then be leveraged up to support new assets paying well over libor.
ants is considering another deal in the next couple of months and, ever on the look out for a new angle, is looking at the swiss franc market.
pl
best asset-backed borrower: citibank credit card services
“i think the english word is ‘chuffed’,” says chuck wainhouse, head of citicorp’s credit-card securitization programme. “that’s how i describe how i feel at seeing other good issuers using the abc structure.”
this unassuming name hardly does credit to the way it is revolutionizing the issuance of asset-backed credit-card debt in the us. but it is, in principle, as simple a concept as the name implies, allowing issuers of such paper to offer a more acceptable series of securities to a broader array of investors. the structure, waxes wainhouse by way of explanation, “is built around exquisite alchemy”.
by this he means that he and his team have taken the often useless tranches of a deal and transformed them into the asset-backed equivalent of gold.
the problem was that under the old deal structure, which was limited by mindset as well as by a series of tax-treatment clauses, the subordinated debt tranches of a2/a-rated and bbb-rated securities would be pitifully small as its size was limited to being an exact percentage of the aaa deal.
“if you issued $1 billion of senior aaa-rated notes, the b class [the a2/a portions] would be about $64 million, while the c class [bbb] would be no more than $70 million, and that’s assuming you even did that part,” says wainhouse.
unsurprisingly, as the markets increasingly favoured large liquid deals, the tiny subordinated tranches became very difficult to place.
but about a year before citicorp issued its first abc structure last september there were some changes made to the tax treatment of the owners trust, which is the framework for credit card securitizations. “they now work much more like the master trusts used by the auto companies for their deals,” says wainhouse.
the upshot of this was that credit-card deals could now be treated much more like straight corporate debt issues and the paper itself could be called a proper bond rather than trust certificates. with some restructuring of both the deals and the mindset of those doing the deals, there could also be larger tranches of the lower-rated paper issued.
not that it could happen overnight. “we’d been working on this for over two years,” says wainhouse. “we had to make sure that the new deal structure was suitable for tax, accounting and legal purposes, and that the rating agencies and the market would understand and accept it.”
what helped was that the general principle behind the structure was already well accepted in the credit markets – that issuance belonged to part of a programme rather than being deal specific. “essentially what we’ve done is to transform this part of the market from a vertical perspective focusing on the individual deals to a horizontal one that is programme specific,” wainhouse says.
the various tranches can now be treated as individual bonds within a broader, well-defined programme, and do not have to be issued at the same time; they simply have to tally at the end of the time period allotted to the programme.
and that allows the junior tranches to issue in decent amounts. “the b and c notes can be issued in sufficient bulk to be stand-alone deals,” explains wainhouse. “so they now clear the size hurdles put in place by the lehman and salomon smith barney bond indices [$150 million and $200 million respectively].”
now these previously insignificant tranches can take on benchmark status, be owned by index funds, are more liquid, and easier to account for on a risk basis.
thus far wainhouse’s team has issued $15 billion since the first deal last september. $12.1 billion of that is aaa. of the rest, there have been three tranches of b class debt, averaging $283 million each (so $850 million in total), and five c class tranches averaging $410 million ($2.05 billion in total).
the most recent deal was in mid-may, when citi issued $500 million five-year of class c paper. “that frees us up to issue $6 billion of senior securities without having to worry about the bbb paper for a while,” says wainhouse.
as for the competition, mbna issued its inaugural version of the abc in early may, and first usa is examining one.
ac
best borrower of high-yield debt: echostar
echostar might find itself being remembered by the general public as the company which was brave enough to challenge rupert murdoch to a duel over the fate of hughes’ electronics’ directv. whether it is remembered as the winner or loser remains to be seen.
to bankers in general it might be better remembered as the cause of a spat at the end of last month between rival banks, ubs warburg and morgan stanley, over the issuance of $1 billion in notes to help fund the bid.
but to a certain group of bankers echostar is one of the best high-yield credits around. not that it’s had a stellar year; that would be difficult given the environment it operates in.
being a sub-investment-grade borrower during the last two years has hardly been fun, and even worse if your business is in any way related to telecoms, tech or the media. admittedly the near-continual rate cuts by the fed this year have made life a lot easier, if only for the more palatable names.
before that, 2000 was the year when high-yield bond spreads reached their worst level for years, trading at an average of over 900 basis points over treasuries at one point, much wider even than the spreads in the wake of the russian meltdown in 1998.
that’s no easy environment to come to market in, and only a few tried. echostar was one of them. it’s a provider of direct service broadcast television products and services, which went live in 1995 but whose origins date back to 1980 when the company’s founder and ceo, charles ergan, started distributing c-band television systems.
echostar has tapped the high-yield market several times before, the first time being in 1994 “when all it had was a licence,” says tripp smith, managing director in leveraged finance at csfb. and it is, he says, “one of the best high-yield stories i’ve worked on”.
so last september, one of the few relatively decent windows of opportunity in the us high-yield market, echostar was one of a handful of borrowers able to bring a deal. it sold a $1 billion bond issue, which for a cable sector credit is no small feat in itself.
but the deal was also priced aggressively, with a coupon of 10.375%, several hundred basis points inside where the average high-yield credit was trading at the time. and by a deft piece of legal work, the bankers – dlj at the time, csfb now – organized it such that the holding company issued the bonds, not the operating company. “the operating company which was to use the proceeds was prevented from issuing them at the most optimal spreads because it had high-yield covenants with occurrence tests limiting their use,” says smith. issuing bonds through the operating company saved the borrower 50 basis points.
it wasn’t the only company able to issue high-yield debt last year – aes was another last september for example – but echostar wins this year’s award because of its long-term commitment to and use of the market.
ac
