- Corporate Funding – Where do we go from here? Lestocq Orman Head of Debt Capital Markets Dutch and Nordic Corporates Noordwijk November 8 th 2013 Financial Times – 1 Nov 13 Financial Times – 30 Oct 13 Financial Times – 8 Sep 13 Europe bond rush brings in $29bn Financial Times – 4 Nov 13
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- Corporate Funding – Where do we go from here?
Lestocq Orman Head of Debt Capital Markets Dutch and Nordic Corporates
Noordwijk November 8th 2013
Financial Times – 1 Nov 13
Financial Times – 30 Oct 13
Financial Times – 8 Sep 13
Europe bond rush brings in $29bn
Financial Times – 4 Nov 13
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Today’s Agenda
1. What does the Dutch Corporate Funding Landscape Look Like? 2. Funding Options – Unrated to Rated 3. A Review of Heineken’s and Corio’s Capital Markets History 4. Rated vs. Unrated – What is the Benefit? 5. Rating Considerations and The Process 6. Documentation Considerations
But First….What Does the Broader Landscape Look Like?
The Rally Since Late September has Brought Spreads Near Multi-Year Lows
Key Market Data
10-year EUR Swap Rate still at Historically Tight Levels
Source: Bloomberg 4th November 2013
Source: Bloomberg 6th November 2013
Market technicals are still in great conditions : Investors are cash rich and starved for new issues Lack of corporate supply has allowed issuers to push pricing
significantly tighter from IPTs UST yields and German Bunds remain low The October FOMC statement was neither hawkish nor dovish,
but FOMC policy is still data dependent – still waiting on solid economic momentum to pull the taper trigger
The latest inflation reports show that inflation is below the targeted levels, increasing the likelihood of an ECB rate cut
The risks to waiting are: The US debt ceiling issue has not been resolved, and will
resurface in either late Q1 or early Q2 Tapering will come back to the table, and the UST yield curve is
expected to steepen once again Should the Eurozone take another leg down, or geopolitical risks
spike, market access could be spotty
Current 1 week 1 month 1 year
10yr € Mid-Swap 2.019 2.019 2.075 2.394
10yr Bund 1.684 1.697 1.727 1.876
10yr Treasury 2.632 2.493 2.611 1.597
iTraxx Main 84 84 104 173
iTraxx Xover 345 341 407 755
Dow Jones 15,618 15,680 15,130 12,218
Dax 9,047 9,022 8,594 5,898
Nikkei 14,337 14,326 14,456 8,455
EUR/USD 1.351 1.375 1.353 1.296
Gold 1,318 1,345 1,329 1,565
WTI 94 98 102 95
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1. What does the Dutch Corporate Funding Landscape Look Like?
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How are Corporates in the Netherlands Thinking About Funding?
Access to (long-term) debt funding is essential to be able to execute the corporate strategy and ensure growth ambitions can be explored
Large corporates have a balanced mix of bank vs. capital markets financing with RCF’s in place while also accessing the bond markets
Mid-caps active in bank market but have relied on USPP market rather than public bond markets Trend likely to continue as strong appetite for these names in the US market and the USPP investor base continues to look for supply
Companies reluctant to access the USPP market are selectively looking at private/public opportunities in Europe as the market evolves but at a slow pace
Bank lending back on the rise after a temporary slowdown due to Basel III requirements Banks with excess balance sheets, both European and especially non-European, are looking to lend at aggressive levels
Will a domestic bond market develop for Dutch corporates ? Markets exist for unrated domestic corporates in Finland, Norway, Sweden, Germany and now Denmark, France
The USPP Market has Been a Stable and Consistent Source of Funding for Dutch Corporates
Year-to-date volume about 25% below the record setting prior comparable period supply/demand imbalance
Investors compete for allocations and higher yields increasingly aggressive in pursuing structured transactions and those from new jurisdictions and sectors
Investors also have been more receptive to delayed funding and floating rate notes
As rates have increased, investors are more eager to invest in shorter maturities as evidenced by the recent BNPP-agented transaction for Essilor
Despite the volatility in the public market, the private placement market has once again demonstrated impressive resiliency
We expect this to persist for the remainder of the year and hopefully into 2014
Marketing Roadshow in Paris + Calls European Roadshow (Paris, London, Germany & Switerland) Roadshow in Frankfurt + Calls 2 to 4 days roadshow: US / (UK) +
Calls Execution (weeks) 6 to 8 4 to 6 6 to 8 6 to 12
Applicable law To be Confirmed French German US
Listing Paris / Luxembourg Paris/Luxembourg No No
Documentation Prospectus Prospectus Schuldschein loan agreement Standard USPP under Section 4(2) or RegD
Financial covenants Flexible but more and more in line with banks documentation Usual HG covenants Similar to any existing loan
covenants Yes: Usually 1 or 2
Roadshow - €20/30k €10/20k €50/100k
Lawyers €50/100k €50/100k €20/50k €100/200k
Key aspects Growing club of French investors
Private marketing
Public documentation
Established European base of investors
Public marketing
European Roadshow
Light legal process
Flexible on currency and terms
Delayed funding
Multiple currencies
Long maturities
MARKET
STRUCTURE
EXECUTION
LEGAL FRAMEWORK
COSTS
INVESTORS
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The EuroPP Market – An Overview
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Source: BNP Paribas, Bloomberg, 31st July 2013
Corporate EuroPP Issuances 2012- 2013 YTD
2012
Issuer Amount (€)
Maturity Date
Coupon (%)
Issue Spread vs.
MS Implied Ratings
BONDUELLE 145,000,000 11-Mar-19 3.830 250 Low BBB
PLASTIC OMNIUM 250,000,000 12-Dec-18 3.875 283 Low BBB
ORPEA 65,000,000 10-Jan-18 4.100 315 High BB / Low BBB
ORPEA 128,000,000 30-May-19 4.600 340 High BB / Low BBB
NEOPOST 150,000,000 6-Dec-19 3.500 225 High BBB / Low A
LACTALIS 128,500,000 19-Dec-17 3.150 230 Low BBB
LACTALIS 22,000,000 19-Dec-18 3.450 245 Low BBB
LACTALIS 356,500,000 19-Dec-19 3.750 260 Low BBB
FROMAGERIES BEL 20,000,000 20-Dec-18 2.750 175 High BBB / Low A
FROMAGERIES BEL 140,000,000 20-Dec-19 3.000 185 High BBB / Low A
SOUFFLET 100,000,000 21-Dec-18 4.250 325 High BB / Low BBB
KORIAN 67,500,000 2-Aug-19 4.625 336 High BB / Low BBB
AGRIAL 95,000,000 31-Jul-20 4.000 244 BBB
2013
Standard Investment Grade documentation: Change of Control, Pari-Passu, Negative Pledge & Cross Default
Issuers: This is an attractive market for unrated issuers looking for disintermediation and a direct access to a club of institutional investors . It is intended to debut issuers which are mainly French for now but some investors are willing to look at European issuers as well
Fixed Maturity. Usually between 5 to 7 years but sweetspot is around 6 years. Tranching is sometimes considered for specific needs.
Euro PP Key Characteristics
Size: €50m to €250m is feasible bearing in mind that 75% of deals in the €50/150mn range and average amount around €125mn
Investors are usually French but for the most of them insurance companies and pension funds. Those investors could be approach through a club deal or a bilateral format.
Financial covenants are flexible. From full package, step-up coupon, to none, on a case by case basis.
Limited implicit subordination required (limited financings secured and/or at the subsidiaries’ level)
Market size: 15-25 French institutional investors with potential ticket size from €5m to €100/150m; but this market is growing with potentially new pocket of liquidity in France (private banks and convertible investors) but also institutional investors in Europe
Yield targeted: c. 2,50-4,50% for 5-7yr depending on implicit credit risk
Public Capital Markets Financing Options in Europe - Rated
Euro Belgium-Retail GBP CHF
Format / Currency Public
EUR
Public Retail Offering
EUR
Public
GBP
Public
CHF
Available Tenors / Current Sweet spot
1yr – 15yr potentially long end to open up soon 3 – 7 years 3 – 30yr+ 2 – 8 year, potentially 10y depending
on 2-3 accounts
Investor Universe Asset Managers, Insurance & Pension Funds, (Retail-) Banks True retail investors Primarily UK Institutional investors with
3. A Review of Heineken’s and Corio’s Capital Markets History
- A Case Study
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2003 2008 2009 2010
€10bn EMTN Programme Established
1.1bn 1.4bn
0.4bn 0.14bn 0.21bn
2012
Unrated Issuer Baa1/BBB+ Issuer
7th March Baa1/BBB+ Rating
Announced
4bn 3.1bn
2013 2014+
? 0.88bn 0.725bn (USPP)
0.27bn
Public EUR USPP Schuldschein
0.5bn (USPP) 0.3bn SSD?
Public EUR Public GBP SGD PP
USPP SGD PP
Public USD Public EUR
Public EUR EUR PP SGD PP
Evolution of Heineken’s Funding from Unrated to Rated
Debt Composition
78
14 3 5
% Traded Notes
USPP
SSD
Bank Financing59 28
2 6 1 2 1 1
%
EURUSDNGNGBPPLNCHFSGDOther
Source: Heineken
Currency Split Net Debt Source Split LT Debt (as per Jun-13)
Due to its strong brand name, Heineken have traditionally had access to a variety of markets on an unrated basis
With limited bond financing needs prior to 2012, the company did not see a need for a public rating
With the acquisition of Fraser & Neave’s stake in Asia Pacific Breweries in 2012 (ca. $4.1bn), the company had to refinance the acquisition facility in the bond market. In order to get access to the USD RegS/144a market, the company decided to obtain ratings
The spread reaction on Heineken’s outstanding, publicly traded, debt was dramatic and the spreads tightened in by ca. 30-40bp during the intraday trading session. The CDS had a similar reaction with significant tightening
With public ratings, Heineken now have access to the full range of Debt Capital Markets products and can thereby enjoy the full flexibility to quickly and efficiently tap any market on an opportunistic basis
Heineken Long Term Debt Maturity Profile as per June 2013
Source: Heineken * Debt Maturing in remaining of 2013
Heineken has a wide range of debt maturities with the longest-dated Notes maturing in 2043* Expected average interest rate for Full Year 2013 is approximately 4.5% (vs. 5.4% actual average interest rate
in year 2012* Heineken have made full use of its EMTN program by issuing Public- and reverse enquiry driven Private
Placement transactions across currencies and maturities depending on the investor appetite at the time Away from the EMTN market, Heineken have also diversified its investor base further by tapping the Public
Rated Unrated Investor Base Broadest- full range of investors can buy rated paper Significantly reduced (50/75%) as many investors are unable to buy unrated paper
Market Access High Uncertain – Highly dependent on market sentiment
Pricing Full price tension Limited tension Wider pricing (+50 to 100bp)
Maturity Full curve available 3-7 years
Size Total flexibility from PP size up to large benchmarks EUR200-500mn
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Why did Maersk and Heineken Decide to get Ratings?
Extract of Presentation Given by Maersk CFO on the Capital Markets Day on the 25th September 2013
Extract of Heineken’s Media Release (7th March 2012)
The public credit ratings announced today, the first in the company’s almost 150-year history, provide Heineken with continuous access to a wide range of funding sources and will facilitate and further enhance its already successful track record in the financial markets
“The award of these credit ratings underlines our commitment to transparency and diversification of our funding sources”
“Our sound financial policies and conservative approach towards managing liquidity and funding continue to support a strong capital structure in the long-term”
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5. Rating Considerations and the Process
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Prior to committing to seek a rating ...
The best time to get a rating is when you don’t need one The rating process typically takes around three months Senior management involvement is critical Lack of availability/focus may delay/prejudice the rating
Having a rating increases your confidence In a consolidating sector, a rating increases certainty and
can assist quick and easy access to the capital and bank bridge financing markets
You know the rating before you need to use it Any potential rating issues can be addressed well in
advance Assessing the impact of an acquisition is much easier for a
rated company
The rating can be kept confidential until needed The Agencies have an excellent track record on
confidentiality
Benefits: Establishes initial rapport with key analysts Allows for informal discussion on approach, methodology,
industry outlook Helps ensure all key issues are identified prior to the
management presentation Has proved successful in helping achieve an optimal rating
outcome
Typical Agenda: Plans / thoughts for using ratings in the future Rating timing and fees Agreement to maintain rating confidentiality Views on peer group industry outlook ownership structure
Initial thoughts on the rating Any other business
Timing An informal meeting with key Agency analysts
... Management should consider…
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The rating process consists of 4 phases
The Client: “Owner” of the ratings
process
Knowledge of the business and its intrinsic risks
Collect data
Inform outside participants
(if appropriate)
Send documents to
agencies
Management meetings
Ongoing relationship with Rating Agencies
Select rating
agency
Preparation of management
meetings
Due diligence meetings
Prepare background document
Finalise documentation
Define information
needs
Recommend presentation
strategy
Notify rating agencies
PHASE II PHASE I PHASE III PHASE IV
3 weeks 8 weeks 12 weeks Flexible Timetable
Ratings Advisor: Advises “behind the
scenes”
Knowledge of credit analysis & rating agency perspective
Rating obtained
Involving close co-ordination of your company and Ratings Advisor
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6. Documentation Considerations
Disclosure & Reporting Requirements
Issue Type Bond Schuldschein US-PP
Financial Disclosure in the Prospectus/Document
Prospectus Directive requires at least 2 years of historic financials
A bond issuance outside the Prospectus Directive is possible !
None None
Minimum Reporting
2 year of annual reports with auditors certificate , Investors would
appreciate slightly longer historic figures
Not defined, but Investor will ask for last 3 annual reports
Not defined, but investors will ask for last 3 annual reports
Recommended Reporting At least audited annual reports with
At least audited annual reports with intra-year performance updates, ideally unaudited semi-annual
accounts
At least audited annual reports with intra-year performance updates, ideally unaudited semi-annual accounts
Any covenant testing None At least semi-annually At least semi-annually
Investors across all instruments will make a comprehensive analysis of the company’s credit profile Disclosure will always have a material effect on pricings and liquidity With the right Lead Manager, you should be able to find the right structure/market for various disclosure levels agreed to by the company True private placements including use of NDA can be successfully placed depending on pricing, structure and size
A comprehensive credit decision needs to be made. Hence sufficient material needs to be made available also adhering to any listing standards
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Disclaimer
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