 |
|
Deutsche Bank GECC GlaxoSmithKline EEB/TGI Bank of America |
Judging from GECC’s fund-raising in the debt capital markets over the past 12 months, one might question whether there had been a credit crisis at all. In 2007, GECC raised $90 billion, half of it in the latter part of the year. Already this year, it has issued $52 billion in bonds globally. There is no doubt that GECC’s triple-A status has helped. Its bonds have offered investors a haven as confidence in other financial borrowers has faltered.
To attribute the success of the firm’s consistent visits to the bond market solely to its triple-A status, however, would be to do GECC’s fund-raising committee an injustice.
Kitty Yoh, GECC’s deputy treasurer, recognized that the funding strategy would have to be altered to fit the environment early on. “Like most other individuals in the marketplace, we cannot claim to say we saw the credit crunch coming, but in 2007 we began to notice problems on the horizon, and so became a little more conservative,” she says. “When there were good opportunities to issue and when we saw investor demand, we would take advantage. We weren’t trying to second-guess the market. Spreads might have been wider, but we thought, let’s pay the higher levels and get a good transaction done before there is even greater deterioration.”
At the beginning of August, for example, GECC launched a $2 billion 30-year bond priced at 125 basis points over treasuries. “GECC recognized that the markets were going to change for the worse and got out in front of that,” says a syndicate official. “Other financial issuers thought they would sit and wait or do a front-end transaction which never materialized, but GECC knew it was the right time to get some term transactions out of the way. That deal really reopened that market and a number of other issuers jumped in after them.”
Another syndicate official offers a further example of GECC’s foresight. “GECC did a $2.5 billion deal in November just ahead of when the banks would be announcing write-offs,” he says. “They got in before the banks and before the agencies entered the market.”
Timing has been incredibly important, says Yoh. GECC is regarded as one of the most effective borrowers at spotting issuance windows. “There have been times when the market would react to news in a way that would make doing a deal very difficult or that would hinder performance in the after market,” she says. “We’ve just paid a lot of attention to when certain announcements are going to be made to avoid days where too much information would be out together. And we talk to the dealers all the time to gauge the secondary trading going on. The two weeks leading up to the JPMorgan/Bear Stearns finalization were the most challenging. Frankly though, it becomes a judgment call on whether you think there is enough stability on a particular day. We have been pretty fortunate and have mostly gone into markets where the tone has been strong or where there has been good stability.”
Yoh also recognized the need to change issuing strategy. Before the credit crunch developed, GECC would typically issue US dollar and euro benchmark deals of about $2 billion every quarter, alongside opportunistic smaller deals and one-off reverse enquiries. “We moved to bigger benchmark transactions, then staying out of the market to allow those deals time to perform. It is preferable for our buyer base. They know the size of the deal being put into the market, and they know we will stay away long enough to let those deals tighten in,” says Yoh.
This change to less frequent transactions separates GECC from the pack, says one syndicate official. “In January, for example, GECC came with a $6 billion deal, a euro deal the next day, and while they came back to euros later in smaller size, GECC remained out of the dollar market for the first quarter. Other financial institutions and broker dealers came too often to the market in the first quarter. GECC realized that being very frequent out the curve would affect investors’ willingness to buy in big blocks.”
Demand maintained
This consideration of investors’ appetite and requirements is a quality that GECC has perfected, say bookrunners, and ensures that the demand is maintained.
“Many corporates have well-defined marketing efforts to enhance equity shareholder relationships. It is much more rare to see a corporation with a sophisticated investor relation programme on the debt side. GECC is unique in that they value and continually build upon investor relationships with debt investors,” says Jim Esposito, global head of investment-grade financing and syndication at Goldman Sachs. GECC is also proactive in developing its bond investor base.
“Not outside of the supranationals does an issuer have the kind of global distribution network that GECC has,” says Jim Probert, head of high-grade syndicate at Bank of America.
Their breadth of investors is impressive, says Fred Zorzi, head of syndicate at BNP Paribas in London. “On the €2 billion deal in May we had 230 investors on the order book. There is no arrogance from GECC in terms of which investors they speak with. They work hard with the top institutional investors but also with smaller accounts including asset managers and retail banks across Europe that allows them to keep returning to euro and borrow at the right price.”
While it has been a challenging 10 months, Yoh says there is an air of “cautious hopefulness” now. “People appear hopeful that the worst of the conditions that caused market volatility are now over. We aren’t expecting to return to tighter spreads but we are hoping for stabilization, and money seems to be coming back in.” The $8.5 billion deal GECC launched in April offers further encouragement. “We anticipated demand would be solid,” says Yoh. “But subscription was much bigger than we had thought. That was a pleasant surprise.”
