striking a balance between bank and capital markets debt · funding whilst employing a sensible...

Striking a balance between bank

DACT Workshop

Striking a balance between bank and capital markets debt

5 November 2009Noordwijk

Rabobank International GFM

Introduction

The credit crisis has changed the funding landscape for Corporatesg g p pdramatically and it has marked the end of cheap bank financing

Faced with bigger solvency constraints and higher liquidity costs banks areFaced with bigger solvency constraints and higher liquidity costs banks arein less of a position to provide cheap financing

This development is forcing Corporates to look at alternative sources ofThis development is forcing Corporates to look at alternative sources offunding whilst employing a sensible strategy with regards to existing bankfinancing

By canvassing recent developments in the bank loan and debt capitalmarkets we want to provide you with a toolset to assist you in addressingupcoming (re)financing requirements and bring you up to date on latestupcoming (re)financing requirements and bring you up to date on latestmarket developments

3

Introduction

This presentation summarises key learning points developed by Rabobankp y g p p yDCM teams through our involvement as lead arranger in many recenttransactions

We look forward to share these learning points with you and we welcomeyour active participation in this workshop

4

Agendag

Introduction

Loan market update

Debt capital markets update

Overview of alternative funding instrumentsOverview of alternative funding instruments

Discussion on financing strategy

Experience of selected transactions

5

Loan Markets

Update

Loan Markets


Loan Markets Update (I)p ( )

Lowest issuance since 1992 limitedLowest issuance since 1992, limitedbenchmark material

Large number of refinancings expected inLarge number of refinancings expected in2010 / 2011

Banks are focusing on home marketsBanks are focusing on home markets

Relationships / Ancillary business are key

Underwrites only in acquisition scenario’s

Reducing Liquidity PremiumsReducing Liquidity Premiums

Scare capital increases Raroc requirements

7

Source: LPC LoanConnectorPlease note that this graph is distorted by:inclusion of rated transactions only, implicating actual pricing levels are higher than shown in the graph itself. Jumbo transactions

Loan Volume and # of dealLowest volume since early ninety’s

8


Pricing for Rated Companiesg pPricings are reducing after the peak in H1 2009

Loan pricing versus Euribor in bpsLoan pricing versus Euribor in bps

9


Loan Markets Update (II)p ( )

Debt buy backs from (sponsor) equityDebt buy backs from (sponsor) equity

Three years tenors are regularTenor 1yr, margin 12.5 bps, 4 bps commitment fee, Rating AANew banks may find the super fine pricing on the

Five year tenors now available for highrated companies, possibly back in 2010

y f p f p gfinancing difficult to justify to credit committees, but the short maturity and the possibility of profitable ancillary business may make lenders keen to tie up a relationship with the borrower

Forward start agreement EUR 3.9 bln Tenor 3yr, margin 225bps. Rating A-Companies that have recently secured liquidity through

Forward starts and maturity extensionshave been popular tools

p y q y gforward starts agreements are contemplating returning to the loan market for cheaper full refinancingLess flexibility in interest periods and

multi currency

Documentation to include defaultinglender and impaired agent

EUR 800 mln ,Tenor 5yr, margin bps. Rating A-The financing raised eyebrows when it was launched in July with a 140 basis points (bps) margin and five-year maturity, but gathered support from the market

10

maturity, but gathered support from the market

Debt Capital Markets

Update

Debt Capital Markets


€ issue volume corporate bond market in Europep pSince the credit crisis the bond market has gained in importance at the expense of the bank market

€ Corporate issuance investment grade credits (IG+MTN, volume € mio and no. per month)p g ( , p )

6060,000

40

50

40,000

50,000

3030,000

10

20

10,000

20,000

002007 Apr Jul Oct 2008 Apr Jul Oct 2009 Apr Jul Oct

12

Source: Daelogic, Bloomberg, Rabobank InternationalLevels per 29 October 2009

Corporate issuance per rating category (in € mio)p p g g y ( )

€ Corporate issuance for investment grade credits

2009 AAA

p g

2007

2008 AA

A

2005

2006 BBB

BB

2004

2005B

CCC-D

0 50,000 100,000 150,000 200,000 250,000 300,000

2003

13

Levels per 29 October 2009

Vix Index

VIXVIX

80

90

VIX Index

60

70

40

50

20

30

0

10

14

Oct-08 Jan-09 Apr-09 Jul-09 Oct-09


iTraxx

iTraxx CDS (Main and CrossOver)

1200

1400600

Main (LHS) Xover (RHS)

iTraxx CDS (Main and CrossOver)

1000

1200

400

500

600

800

300

400

600

200

0

200

0

100

O t 08 J 09 A 09 J l 09 O t 09

15

Oct-08 Jan-09 Apr-09 Jul-09 Oct-09


Corporate credit spreads have droppedp p pp

A – and BBB-rated corporate credit asset swap spreads

6004.50

bps%

EUR 10y Bund EUR A EUR BBB

A and BBB rated corporate credit asset swap spreads

400

500

4.00

3003.50

200

3.00

0

100

2.50

16

02.50Sep-08 Dec-08 Mar-09 Jun-09 Sep-09


Bond issuance throughout the credit crunchWhat a difference a sector makes

g

Bond issuance of KPN (Baa2/BBB+) and BMW (A1/A+, downgraded to A3/A)Bond issuance of KPN (Baa2/BBB+) and BMW (A1/A+, downgraded to A3/A)

BMW 8 875% 2013

600600

iTraxx (lhs)

KPN 7.50% 2019

BMW 8.875% 2013

BMW 6 125% 2012400

500

400

500KPN CDS (lhs)

BMW CDS (lhs)

KPN bonds (rhs)

KPN 6.25% 2014

BMW 6.375% 2012BMW 6.125% 2012

300300

BMW bonds (rhs)

KPN 6.50% 2016

KPN 6.25% 2013

KPN 5.625% 2024

BMW 4.00% 2014

200200

KPN 4.75% 2014KPN 5.00% 2012

BMW 4.25% 2014BMW 4.875% 2012

BMW 5.00% 2015

0

100

0

100

J 07 A 07 J l 07 O t 07 J 08 A 08 J l 08 O t 08 J 09 A 09 J l 09 O t 09 J 10

17


Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10

Cost of funds banksFunding conditions returning to normality

European senior, unsecured bond spreads

260

Credit Suisse 2017 / 5.125% (Aa1/A+/AA-)

Intesa Sanpaolo 2013 / 5.375% (Aa2/AA-/AA-)

Commerzbank 2014 / 5% (Aa3/A/A+)

European senior, unsecured bond spreads

220

Commerzbank 2014 / 5% (Aa3/A/A )

Deutsche Bank 2017 / 5.125% (Aa1/A+/AA-)

HSBC France 2013 / 4.875% (Aa3/AA/AA)

Credit Agricole 2013 / 6% (Aa1/AA-/AA-)

140

180 Svenska 2014 / 4.875% (Aa2/AA-/AA-)

BNP Paribas 2013 / 5% (Aa1/AA+/AA)

Rabobank '14/ 4.375% (Aaa/AAA)

100

20

60

Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09

18

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09


Alternative funding instruments

Overview

Alternative funding instruments


Overview of funding instrumentsgBank lending

Bank loan markets

Until Further Notice

Products

Bilateral

Distribution Process

None

Refinancing Method

+ + +- -

Ancillary Club Deal Straightforward

ty

Com

ime

# o

f r

Term Loan

Revolving Credit Facility

Underwritten

Syndicated

Maturity Extension

Forward start

Fle

xib

ilit

mm

itmen

t

Mn

gt

Ti b

an

ks T

en

or

Sub Term Loan

+

+

-

- -

20

Overview of funding instrumentsgDebt capital markets

Debt capital markets

Public bonds

p

Non - Public Commercial Paper Securitisation

Recei ables Sec ritisationEUR / USD / GBP / CHF

Rated / Non-rated

US Private Placements

MTN/European Placements

Euro CP

Domestic CP

Receivables Securitisationthrough conduit

Term Securitisation

Institutional / Retail

Liability Management

Schuldschein

21

Financing strategy

Discussion

Financing strategy


Financing strategyg gy

Relationship Bank lender is different than investor

Key dynamics to consider

Relationship. Bank lender is different than investor

Timing. Do not wait until the very last moment. Remain flexible by keepingoptions openoptions open

Consider other products to alleviate pressure on one single market. Pricingpressure and risk of market shutdownpressure and risk of market shutdown

Wallet sizing. Keep in mind prospective bank’s cross-sell products in relationto your own business when selecting banksto your own business when selecting banks

Find the right balance between complementarity and competitiveness ofyour banking group Different banks can offer complementary servicesyour banking group. Different banks can offer complementary serviceshowever competition supports best price execution

23

Financing strategyg gy

Do a liquidity analysis – which banks in your current group will be there

Loan market

Do a liquidity analysis which banks in your current group will be theretomorrow

Avoid collusion amongst the banks no all Lender callsAvoid collusion amongst the banks, no all Lender calls

Self arrange the deal, but appoint a coordinator chosen amongst the banks

A smooth process will improve your conditions, the longer you talk the moreconditions you will get

Avoid using non bank advisors to coordinate the process

Choose the real consensus of indicative term sheets not the best of allChoose the real consensus of indicative term sheets, not the best of allworlds

A t l ti k t th i it d b ti

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Accept lower tickets than invited, be pragmatic

Financing strategyg gyEurobond market

Strong growth of the market offering deep pool of fundingStrong growth of the market offering deep pool of funding

Strong demand now allows less obvious candidates to tap the market,including un-rated and high yield corporatesincluding un rated and high yield corporates

Stand alone documentation most efficient for infrequent borrowers. IFRSreporting required for EU Prospectus Directive compliant documentationreporting required for EU Prospectus Directive compliant documentation

Can be used to satisfy core funding need, allowing relief of bank lines

Execution time from preparation to settlement can be swift

Market dynamic Correct timing of launch can have big pricing implicationMarket dynamic. Correct timing of launch can have big pricing implication

25

Financing strategyg gyUS Private Placement market

The US Private Placement market offers an alternative source of funding toThe US Private Placement market offers an alternative source of funding tothe bank market

Reliable tried and tested market for terming out debt beyond bank marketReliable, tried and tested market for terming out debt beyond bank marketcomfort

Size is tailored to issuer needs also in terms of redemption profileSize is tailored to issuer needs also in terms of redemption profilemanagement (tranching)

Additional stakeholder group of sophisticated investors able to analyse unAdditional stakeholder group of sophisticated investors able to analyse un-rated debt

26

Financing strategyg gySecuritisation markets

Attractiveness of ABCP financing from strong sponsors has gained as aAttractiveness of ABCP financing from strong sponsors has gained as aresult of higher bank loan costs

Covenant relief Securitisation funding is non-recourse therefore often notCovenant relief. Securitisation funding is non recourse therefore often notincluded in calculation of bank covenant of senior debt / EBITDA

The liquid Asset Backed Commercial Paper markets currently offer a betterThe liquid Asset Backed Commercial Paper markets currently offer a betteralternative for funding than the illiquid ABS market

Term securitisation activity placed with third party investors low in 2008Term securitisation activity placed with third party investors low in 2008and 2009 because of credit crisis

27

Financing strategyg gyInterest rate and currency rate management

Interest rate management can be addressed through cash and derivativeInterest rate management can be addressed through cash and derivativemarkets

Think about your objectives Low coupon or low spreadThink about your objectives. Low coupon or low spread

Currency. When accessing funding in other currencies be aware of creditlines / solvency issueslines / solvency issues

Aim for transparency. Hedge syndication!

With increased volatility comes wider bid / offer spread

Higher credit spreads also impact risk pricing in swap marketsHigher credit spreads also impact risk pricing in swap markets

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Selection of transactions

Experience

Selection of transactions



Top 10 Corporate Bonds

EUR 750mln notes due 2013

AB Inbev(Belgium)

EUR 750,000,000

Alliander(The Netherlands)

EUR 700 000 000

KPN(The Netherlands)

EUR 750 000 000

AB Inbev(Belgium)

EUR 500 000 000

DSM(The Netherlands)

EUR 700,000,000

Air France - KLM(France)

p

EUR 750mln notes due 2013EUR 600mln notes due 2017 GBP 550mln notes due 2024

January2009

Joint Lead Manager

EUR 750,000,0005.5% notes due 2016

EUR 500,000,000 4% notes due 2012

April 2009

Joint Bookrunner

EUR 700,000,0005.625% notes due 2024

September 2008

Joint Bookrunner

EUR 750,000,0006.57% notes due 2014

February 2009

Joint Bookrunner

EUR 500,000,0005.75% notes due 2014

March 2009

Joint Bookrunner

EUR 700,000,0006.75% notes due 2016

October 2009

Co-Lead Manager

No. 1 Syndicated Loans

EUR 550,000,000 Syndicated Loan

Enexis(The Netherlands)

Co-ordinating Mandated Lead Arranger & Bookrunner

EUR 1,000,000,000 Syndicated Loans

Friesland Campina(The Netherlands)

Mandated Lead Arranger, Bookrunner & Facility Agent

EUR 350,000,000 Syndicated Loans

NS Groep N.V.(The Netherlands)

Co-ordinatingMandated Lead Arranger

EUR 390,000,000 Senior and Subordinated

Credit Facilities

Gamma Holding N.V.(The Netherlands)

RestucturingCo-ordinator

EUR 350,000,000 Syndicated Loans

Royal Boskalis Westminster N.V.(The Netherlands)


EUR 130,000,000 & EUR 50,000,000 Syndicated Loans

Arcadis(The Netherlands)


No. 1 Financials –Senior Unsecured Senior Unsecured

EUR 1,000,000,000

Aegon(The Netherlands)

Senior UnsecuredEUR 2,000,000,000

Rabobank(The Netherlands)

Multi Tranche MTNEUR 383,000,000

FMO(The Netherlands)





Senior UnsecuredEUR 750,000,000

Eureko(Netherlands)

October 2009 August 2009 August 2009 July 2009 July 2009 July 2009

Senior Unsecured

N 1

7% notes due 2012

April 2009

Co Lead

4.75% notes due 2016

April 2009

Joint Bookrunner

April 2009

Sole Bookrunner

4.75% notes due 2018

January 2009

Joint Bookrunner

4.375% notes due 2014

January 2009

Joint Bookrunner

7.375% notes due 2014

June 2009

Joint Bookrunner

No. 1 Financials –Government Guaranteed Senior Unsecured

EUR 2,500,000,0003.375% notes due 2014

Fortis Bank Nederland(The Netherlands)

Joint Bookrunner


3.375% notes due 2014

ING Bank(The Netherlands)

Co-Lead


3.125% notes due 2012

NIBC Bank(The Netherlands)

Joint Bookrunner

Dual Tranche Senior UnsecuredUSD 2,750,000,000

3.2 % notes due 2014USD 500,000,000

3M L +35 notes due 2014

Achmea Hypotheekbank(The Netherlands)

Joint Bookrunner


2.875% notes due 2012

SNS Bank(The Netherlands)

Joint Bookrunner


3.5% notes due 2014

SNS Bank(The Netherlands)

Joint Bookrunner

30

May 2009 February 2009 February 2009October 2009 January 2009February 2009


No. 1 Perpetuals/ Hybrid Capital

Euro Retail

Fortis (The Netherlands)

Euro Retail Hybrid

Eureko(Netherlands)

Euro Retail Hybrid

KBC(Belgium)

Euro Retail

ING(The Netherlands)

Fixed Rate

Aegon(Netherlands)

Hybrid Tier 1

Deutsche Bank

(Germany)

p

Euro Retail Hybrid Capital Tier 1

EUR 625 Million

2008

Co-Lead Manager

Euro Retail Hybrid Capital Tier 1EUR 225mln

2008

Joint Bookrunner

Euro Retail Hybrid Capital Tier 1EUR 1.25bn

2008

Senior Co-Lead Managerand Listing Agent

Euro RetailHybrid Capital Tier 1

EUR 1.5 bn

2008

Co-Lead Manager

Fixed RatePerpetual Capital Securities

EUR 200 million

2006

Joint Bookrunner

Hybrid Tier 1EUR 1,300,000,000

9.5% coupon

August 2009

Co Lead Manager

No. 1 Asset Backed - RMBS

RMBSStreAM 2008

EUR 4,167,000,000

ABP(The Netherlands)

Sole Bookrunner & Arranger

RMBSSTRONG 2008

EUR 1,000,000,000

Obvion(The Netherlands)


RMBS Holland Homes 2007-II

EUR 580,000,000

DBV(The Netherlands)

Joint Bookrunner & Arranger

RMBS Acier 2009

EUR 582,150,000

Staalbankiers(The Netherlands)


RMBSBest 2007

EUR 30,000,000,000

BEST(The Netherlands)


RMBS Citadel 2009

EUR 1,950,000,000

Van Lanschot(The Netherlands)


No. 1 Asset Backed – CMBS / SME

2008 2008 2007

CMBSSkyline 2007

FGH Bank(The Netherlands)

CMBSQuality Parking 2007

Q-Park(The Netherlands)

June 2009 2007

SMEBest SME 2008


SMEBest SME 2007


Hybrid CMBSLancelot 2006

Van Lanschot(The Netherlands)

January2009

CMBS Rec 7

Rothschild(UK)

N 1

EUR 3,000,000,000

June 2007


EUR 300,000,000

April 2007


EUR 10,763,000,000

2008


EUR 7,500,000,000

2007


EUR 600,000,000

November 2006

Bookrunner & Arranger

GBP 446,000,000

2008


No. 1 Liability Management

Exchange Offer & Consent SolicitationHybrid Capital Securities

EUR 650,000,000

ASR Nederland(The Netherlands)

Joint Dealer Manager

Tender Offer Storm 2003-2007-IEUR 804,900,000

Obvion(The Netherlands)

Sole Manager & Arranger

Tender OfferSundial 2004-I

EUR 199,000,000



Tender OfferSkyline 2007

EUR 3,000,000,000

FGH Bank(The Netherlands)


Buy Back US Private Placement Notes

USD 125,000,000

Heijmans(The Netherlands)

Joint Advisor

Tender OfferEUR 1,000,000,000

KPN(The Netherlands)

Joint Tender Agent

31

July 2009 July 2009 June 2009 May 2009 2009 November 2006

striking a balance between bank and capital markets debt · funding whilst employing a sensible...

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