november 2011 - london stock · pdf filerbs “global growth ... 6,000 8,000 10,000 12,000...
TRANSCRIPT
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The World today…. An increasing problem on raising debt
“Global growth fears sink world stocks”
“European banks under pressure as corporate
bond markets dry up”
“Europe’s debt problems hit markets”
“Difficulty in refinancing diminishes low rates
appeal”
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10
20
30
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50
2009 2010 2011
£ bn
Volume GBP Issuance
Q1
Q2
Q3
Q4
0
200
400
600
800
1000
1200
1400
Bps
Sovereign 5 Yr CDS
Spain
France
Germany
Ireland
Italy
United Kingdom
0
50
100
150
200
250
300
350
400
450
Bps
Bank 5 Yr CDS
Lloyds
Santander
Barclays
RBS
4
“Our investors want household
names like John Lewis or
Nationwide”
“We have seen overwhelming
demand by retail investors”
“Retail bonds are performing
strongly in the secondary market”
“Investors finally have the
opportunity to lock in a secured
income with upside potential”
Source: Evolution Securities survey of retail stockbrokers
“Thanks to the Tesco Bank retail
bond we have won 91 new
clients and taken another £1m
under management”
Retail Bond Market – a new source of borrowing
► September 2011 - National
Grid became the first ever
company to launch an
inflation-linked retail bond
► February 2011 - Tesco Bank
first ever corporate to launch
a retail bond
►March 2011 - Provident
Financial second retail bond
– doubles amount raised
► June 2011 - Places for
People first Housing
Association to launch a retail
bond
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A Seismic Shift in Savings post 2008
► Retail investors are looking for new ways to save
Impact of low deposit rates
Diversification away from the banks
Need for greater yield
Protection against inflation
Shift from equity to debt
UK Retail Savings Market
Retail Investment £’bn Source
NS&I 99 NS&I 2011
Term Deposits* 275 BoE April 2011
Bond Funds 107 IMA 2011
Stock ISAs 178 ONS Jan 2011
Cash ISAs 172 ONS Jan 2011
SIPPs 90 (e) Pension
Management
* £92bn worth fixed rate deposits accounts are
maturing in 2011, HSBC Research
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2,000
4,000
6,000
8,000
10,000
12,000
14,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Re
tail
sale
s in
to b
on
d f
un
ds
(GB
P M
illio
ns)
FTSE
10
0 In
de
x
Retail sales into bond funds FTSE 100 Index
ISA Sales 2010-11
Retail £’bn
Cash ISA 32
Stocks ISA 13
TOTAL ISA 45
► Impacted by rising marginal rates of tax
Increased use of tax efficient vehicles –
SIPPs and ISAs
Shift towards high yielding products in SIPPs
and ISAs
► While Bond Funds have gained from this move
Many investors are looking for direct investment in
Bonds, often for the first time
• Certainty of income
• Capital repaid at par on maturity
► London Stock Exchange responded to this move
with the ORB
Increased profile for retail bonds
Improved access for retail investors
Transparent pricing in the secondary market
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An exciting new opportunity for Borrowers
► A new market for debt, providing
Diversification
• A new group of investors
• A different attitude to credit
• A different view of value
Greater flexibility on size
• New Issues for £25m plus
Predictability
• Steady demand
• Impact of market movements limited
• Preference for frequent issuance
Price
• Price savings for the right borrower
• Strong wish for named Corporates
• No requirement for ratings
Brand enhancement
• Increased profile for the business
• Opportunities for retail “cross-selling”
Retail Bond Distribution
A B C D
Distributors 57 47 47 82
Underlying
Clients 7,000 5,000 6,500 12,000
Average
Ticket £13,000 £10,000 £21,000 £21,000
% ISAs/SIPPs 55% 50% 57% 53%
Source: Evolution Securities
Key Stats and Guestimates from Recent Deals
£125m
5.2% 7 ½ years
Senior Retail Bond
Joint Bookrunner & Distributor
£50m
7.5% 5 ½ years
Senior Bond
Sole Bookrunner & Distributor
£140m
5% 5 ½ years
Senior Unsecured Bond
Sole Bookrunner & Distributor
£260m
1.25% 10 years
Inflation-linked
Joint Bookrunner & Distributor
This has created a unique opportunity for borrowers
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In a sector where demand currently far outstrips supply
Shortage of eligible issues in the secondary market
Generally well above par
Only 8 major new transactions to date
Usually heavily over-subscribed
All bar one trading at a substantial premium to par
Secondary Trading Performance
0
20
40
60
80
100
Gilts Corps Supras
Number of Issues on ORB
Aug-10 Aug-11
-
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
Aug-10 Aug-11
£
ORB Corporate TurnoverRetail Bonds
Borrower Maturity Issue
Size £'m Coupon
% Rating
Market Price
Yield
National Grid 2021 282.5 1.25 RPI Baa1 101.5 1.22%
Places for People 2016 140 5.00 Aa3 104.7 3.92%
Tesco Bank 2018 125 5.20 None 106.8 3.99%
Lloyds 2015 75 5.38 A+ 100.0 4.85%
Lloyds 2016 150 5.50 A+ 100.8 5.32%
Provident Financial 2020 25 7.00 None 101.0 6.68%
Provident Financial 2016 50 7.50 None 107.0 5.77%
EIB 2016 350 3.25 AAA 105.8 1.98%
RBS 2018 15 3.30-
8.55 None 95.1 6.33%
10 10
► Retail demand has always accounted for between 10-15%
of the secondary market for Sterling Bonds
► Traditionally it has been dominated by:
Ultra High Net Worth individuals and family offices.
• Located offshore in the Channel Islands and Switzerland, as
well as the UK, and
• Serviced by the Private Banks and the UHNW Wealth
Managers, with
• Typical investments of between £100k-£2.5m
► Over the last two years they have been joined by an increasing group of:
Traditional bank depositors and smaller individual investors
• Located Onshore
• Serviced by the retail stockbrokers and wealth managers
• Often buying for ISAs and SIPPs
• With typical ticket sizes of GBP £5k-£30k
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Distributor Total Asset under Manament £ (bn)
Number of UK offices Number of advisors
in UK
Brewin 24.8 41 630
Rathbones 14.6 11 170
Investec 12.6 11 206
Charles St 10.1 33 500
Collins Stewart 7.9 1 37
Wdb
6.1 7 100
Redmayne 2.9 37 119
Killik 2.6 10 67
These investors are accessed by a wide range of Distributors, such as
TOTAL 81.6 151 1,829 Source: Money Guide, Private Client
Wealth Management, FT 18 June 2011
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Development of the Market in 2011
► UK Retail Bond market currently consists of
Debt issues with minimum denominations of £100/£1000
Tradable through the ORB
► In 2011, there has been 9 New Issues for over £750m. This compares with 3 New Issues for £100
million in 2010
► In addition there have been a number of unlisted issues totalling £75 million for borrowers like John
Lewis.
Announced 2011
Borrower Maturity Issue Size £'m Coupon % Bond Rating
Places for People 2016 140 5.00 AA-
Tesco Bank 2018 125 5.20 None
Lloyds 2016 150 5.50 A+
Provident Financial 2016 50 7.50 None
EIB 2016 350 3.25 AAA
RBS 2018 15 3.30-8.55 None
RBS 2017 10 2.00 (FRN) None
National Grid 2021 282.5 1.25 RPI Linked BBB+
RBS 2018 20 2% fixed coupon None
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► All of the New Issues met or substantially exceeded borrowers initial objectives on size
Borrower MaturityIssue Size
£'m
Coupon
%Rating
Market
PriceYield
Spread to
Mid Swap
Spread to
Wholesale
National Grid 2021 282.5 1.25 RPI Baa1 101.5 1.16% N/A 29
Places for People 2016 140 5.00 Aa3 104.7 3.87% 203 20
Tesco Bank 2018 125 5.20 None 106.8 3.93% 181 N/A
Lloyds 2015 75 5.38 A+ 100.9 4.53% 289 -39
Lloyds 2016 150 5.50 A+ 100.0 5.15% 335 7
Provident Financial 2020 25 7.00 None 101.0 6.53% 415 -253
Provident Financial 2016 50 7.50 None 107.0 5.71% 391 -277
EIB 2016 350 3.25 AAA 105.8 1.98% 14 N/A
RBS 2018 15 3.30-8.55 None 95.1 6.19% 421 N/A
Retail Bonds
► All have subsequently traded at a significant premium to their issue price
► All have outperformed their equivalents in the Wholesale Market
Development of the Market in 2011
100
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105
106
107
108
109
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-Fe
b
07
-Mar
21
-Mar
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-Ap
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-May
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-May
30
-May
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g
22
-Au
g
05
-Se
p
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-Se
p
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-Oct
17
-Oct
31
-Oct
Tesco Bank 5.2% 2018
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105
106
107
108
109
25
-Mar
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-Ap
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22
-Ap
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-May
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-Au
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-Se
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-Se
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-Oct
21
-Oct
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-No
v
Provident Financial 7.5% 20162011 UK Retail Bond League Table
Bank Underwriting Volume £’m
# of deals
Evolution Securities 388 5
Barclays 193 2
Lloyds 75 1
RBC 75 1
RBS 25 2
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Accessing the Market
► New Issues in the Sterling Bond Market have traditionally been designed for efficient distribution to a small group of
Wholesale investors
Extensive pre-sounding but only with a limited group of buyers
Restricted road show
Short formal sales process, generally 2/4 hours
Indicated terms during the sales period
No protection on orders
Price fixed/Stock only allocated after the close of the sales period
► Retail Distributors/Wealth Managers have generally struggled to gain access to Bonds in the New Issue Market
► In any case the process is ill suited to the needs of the Retail Market
Fixed Price
Certainty on allocation
Time required to communicate with investment advisors/end clients
Broad dissemination of information on the borrower/the transaction
► Evolution has developed a mechanism designed specifically to empower the Retail Distributors in the
Issue and provide time for retail Investors to buy
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► There are 50-80 individual Distributors/ Wealth Managers involved in any new issue
► They are drawn from 4 distinct groups of operators
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Execution Only Broker
Execution Only Accounts
10-15% of demand
Stockbroker
Discretionary, Advisory and
Execution Only Accounts
50% of demand
Wealth Manager
Discretionary and Advisory
Accounts
20 -30% of demand
Private Banks
Discretionary, Advisory Accounts
15-20% of demand
Accessing the Market
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Borrower
Joint
Bookrunner(s)
Evolution
Securities
Bookrunner
Market Maker(s)
Evolution
Securities
Market Maker
Wealth Managers Wealth Managers Retail
Stockbroker
Third Party Distribution Group
Electronic
Trading Platform
ORB, Bondscape,
Bloomberg
Execution only
stockbroker Private Bank
Retail
Stockbroker
The borrower appoints a bookrunner for the “Retail Bond issue or Programme”
The Bookrunner provides information on the appetite of investors
A two tier distribution group is generally used
It encourages competition among the group to place bonds
It encourages long term support for a programme
Wealth Managers Wealth Managers Retail
Stockbroker
Execution only
stockbroker Private Bank
Retail
Stockbroker
Formal Price Makers are appointed to the issue
A mix of different distributors are appointed
Accessing the Market
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Evolution Retail Bond Team
► Dedicated to the development of a transparent and orderly retail market
► Committed to connecting sources of capital to companies looking for diversification
► Experienced investment and sub-investment grade bond specialists focused on advice and
origination for large and mid size corporates, housing associations, local authorities and SSAs
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Credentials
£125m
5.2% 7 ½ years
Senior Retail Bond
Joint Bookrunner & Distributor 2011
£350m
3.25% 5 ¾ years
Senior Bond
Co-Lead Manager 2011
£140m
5% 5 ½ years
Senior Unsecured Bond
Sole Bookrunner & Distributor 2011
£50m
7.5% 5 ½ years
Senior Bond
Sole Bookrunner & Distributor 2011
£260m
1.25% 10 years
Inflation-linked Retail Bond
Joint Bookrunner & Distributor 2011