It was another stellar period for Morgan Stanley’s financing franchise. The bank’s equity and debt capital markets businesses turned in a strong performance for clients, many of whom were using it to finance deals on which the bank was providing mergers and acquisitions advice. And as it did last year, the firm wins the award for North America’s best bank for financing.
According to capital markets head Mo Assomull, key to the firm’s success was trying to keep one step ahead of what clients might need to be considering at any point in time, even while the bank’s own physical location was being disrupted by the pandemic.
“The beginning of the period was as challenging as we have ever seen, but before our core financing team physically left the office, we discussed how important it would be to stay close and keep thinking about what our clients would need,” he says.
Equity capital markets is a franchise where Morgan Stanley often tops volume or fee rankings in any given quarter, vying with Goldman Sachs for that position. In the 12 months of Euromoney’s awards period it stood out not only by being on some of the biggest transactions but on those that were most critical for the client in question.
They don’t get much more critical than the $6.6 billion that the bank helped raise as active bookrunner for Southwest Airlines through concurrent stock, convertible bond and senior unsecured debt offerings on April 28 and 29, 2020, a time when the airline industry was facing existential questions. The combined financing was the biggest ever for a US airline.
The Southwest deals demanded calmness and clarity of thinking from advisers at a time when the sector was taking a battering. But not all situations were in response to problems and the best firms in this period knew that they must be there for those clients in a position to act opportunistically as well as those that were struggling.
One of the clearest examples of a deal done from a position of strength was the $13.3 billion exit from BlackRock by PNC Financial Services in May 2020, where Morgan Stanley was lead left bookrunner and stabilization agent. The sale was big on every measure, not least in accounting for more than 20% of outstanding stock and some 49 days’ trading. That it priced at a 10% absolute discount and a 2.8% discount to the transaction volume last traded was remarkable.
For Evan Damast, Morgan Stanley’s global head of equity and fixed income syndicate, the BlackRock selldown is one of the best examples of what the firm was able to achieve for clients during the period; and he puts a lot that success down to the long held relationships between the firm’s senior executives.
The longevity within our teams meant that when it came to Covid, we were uniquely suited to work well even when we were remote
Evan Damast
“The longevity within our teams meant that when it came to Covid, we were uniquely suited to work well even when we were remote,” he says. “Working with BlackRock and PNC on the selldown, we spent 10 days together executing that deal, including all weekend with a team that has 20 years of history working with the largest global investors that were critical to an accelerated execution.
“When it came to optimizing the outcome in a difficult market, we were well suited to lead such a transaction.”
Inevitably, the bank was at the forefront of all manner of other ECM transactions, including conventional IPOs and follow-ons, and also including the flavour of the year, special purpose acquisition corporations (Spacs). Its own executives freely admit to have been a little late to the Spac party in its full 2020 incarnation, but think they have made up for that through a more considered approach.
The listing of Health Assurance Acquisition Corp, where the bank was sole bookrunner, was a case in point. The $500 million November 2020 deal was branded a ‘stakeholder-aligned initial listing’ or Sail. The structure gives the Spac sponsor a much smaller initial reward when a merger is completed, shifting it more to the post-merger performance of the company.
Debt capital markets is not a volume play at Morgan Stanley. And while it is much more than a niche player, the bank nonetheless takes a thoughtful approach to the situations where it can add most value.
Often that is most obvious where the firm has a particular industry strength that gives it a credibility that is unsurpassed. The $25 billion debt offering and delayed draw term loan for Verizon Communications would fit that description. As global coordinator, active bookrunner, diversity and inclusion coordinator and billing and delivery agent, Morgan Stanley was everywhere.
The result spoke for itself. Across a highly complex seven-tranche fixed and floating-rate deal, the $114 billion order book was the biggest ever for an investment grade bond.
As with the BlackRock selldown, the story behind Verizon’s deal was a strong one. That wasn’t the case for everyone, however. In the non-investment grade world and earlier in the awards period things were especially tough.
TransDigm, a sub-investment grade aerospace manufacturing firm, was one name that was under pressure. Looking for capital to bolster its liquidity while the backdrop for its business worsened, the company mandated Morgan Stanley as lead left bookrunner on a $1.1 billion senior secured offering on April 2, 2020.
That the deal was not only completed but allowed Morgan Stanley to execute a $400 million add-on at a new issue concession of just 30 basis points shortly after demonstrated the bank’s ability to communicate a complex story to investors – a skill that would be needed time and time again.
