Loan House and Americas Loan House: Citigroup

In a volatile year that made the long-awaited return of M&A a nerve-wracking affair for underwriters, Citigroup showed its commitment to clients as it deployed capital and consistently took risk. For this reason, Citigroup is IFR’s Loan House and Americas Loan House of the Year.

Citigroup was at the forefront of event-driven financing during 2015, taking lead roles in the jumbo US acquisition deals that defined the year, which it supplemented with a strong spread of global deals across many ratings categories and jurisdictions.

An enviable global network also allowed Citigroup to unearth unique opportunities that other banks missed, which often produced structured non-vanilla deals in challenging circumstances that helped clients hit by the year’s various challenges.

Those challenges ranged from low energy prices to China’s slowing economic growth, as well as a series of sector upsets in the US pharmaceutical and technology sectors that posed serious threats to loan syndications, making lending and managing risk more complex.

“The year was driven by broader macroeconomic aspects outside the market and it was more difficult to do deals,” said David Basra, head of debt financing, EMEA capital markets origination at the bank. “It was a challenging year and important to stay the course. Loans are a premium part of our business and we have complete focus and commitment to our clients.”

Citigroup cemented its role in the US market with lead roles on investment-grade bridge loans, a key strategic part of the market and fee-earning opportunity. It led on the US$16.2bn bridge as part of the initial financing to back health insurer Aetna’s US$37bn acquisition of Humana, for example.

“Acquisition financing has been an extremely important part of the market this year,” said Carolyn Kee, head of North America loans. “If you look where we were a couple of years ago and where we are now, I think [there is] tremendous progress for Citigroup in acquisition financing.”

The bank was also exclusive financial adviser to US power producer Southern Company on its acquisition of gas distributor AGL Resources, which produced the sector’s largest bridge loan. Citigroup was lead arranger on the US$8.1bn deal, which scored a 100% hit rate with lenders.

Support

The bank’s US franchise also offered support to new borrowers, with lead arranger and bookrunner roles on eight debut deals including a US$4.3bn merger financing that saw the combination of MeadWestvaco and RockTenn to create the new paper and packaging company WestRock.

A US$4bn revolver for technology company Hewlett Packard Enterprise in October was one of a pair of big spin-off financing transactions led by Citigroup. The bank also served as lead arranger on US$1.5bn and €200m revolvers for drug-maker Baxter and on US$1.2bn and €200m revolvers for Baxalta as the biotech unit was spun off from Baxter. Citigroup was one of just two banks to serve as lead arrangers on all four revolvers.

The bank also pushed existing clients and was “uptiered” to either administrative agent or joint lead arranger on eight transactions.

“This is a very relationship-driven market,” Kee said. “If your client does a deal, you want to be in it.”

Citigroup also turned in a strong performance in the US leveraged market and led the biggest buyout financing of the year – a US$4.3bn term loan backing pet retail giant PetSmart’s buyout by BC Partners.

Selective

During 2015, the leveraged market was rocked by several periods of volatility that triggered a flight to quality by increasingly selective investors, which, along with closer scrutiny from US regulators, created a tense and difficult environment for underwriters.

“The market is more bifurcated than it has ever been,” said John McAuley, co-head of US leveraged finance. “The market is exercising extreme judgment.”

When network equipment manufacturer Riverbed Technology sought banks to underwrite a US$1.525bn term loan backing a buyout, the bank had to think long and hard. In previous weeks, buyout deals for other tech companies such as Tibco Software had seen some investor pushback.

However, Citigroup, along with Credit Suisse, looked at Riverbed as a differentiated technology company based on the financials.

“We stepped up in an environment where tech was extremely difficult, and that deal went well,” McAuley said.

Riverbed ended up increasing the size of the term loan to US$1.625bn and cutting the bond portion. The loan was priced at 475bp over Libor, down from guidance of 525bp, showing that tech deals could still get done on issuer-friendly terms.

European challenge

The EMEA market was even more challenging and lacked the bold, blockbuster mega-deals that defined the US year. At least it did until AB InBev announced a US$75bn syndicated loan – the biggest commercial loan in the history of the global loan markets – to back its US$100bn-plus bid for SABMiller in November.

Citigroup was part of the group of banks that financed the self-arranged deal and also played a leading role on a US$31.5bn loan that in part backed Israel’s Teva Pharmaceutical Industries’ US$40.5bn acquisition of Allergan Generics.

As well as playing well in event-driven deals in EMEA, Citigroup was also there for relationship deals for well-established clients, including commodity trader Glencore and telecoms provider Vodafone, either leading or taking top-level positions on deals. Each time, the bank was focused on de-risking and speed-to-market to mitigate risk.

Most importantly in relationship banking, it also remained committed across its franchise and did not pull back despite considerable challenges in Russia, Africa and the Middle East. As such, Citigroup had a consistently strong year across all jurisdictions.

“We don’t just hang around high-profile deals. We’re relevant to all clients and consistent with our depth of relationships and focus across the region on our quality of business, which sets us apart from the market,” said Paul Gibbs, head of Western European loans structuring and syndication.

In EMEA, Citigroup’s emerging markets franchise stood out as a key part of the bank’s strategy. An unmatched presence on the ground allowed the bank to capitalise on regional differences and pools of liquidity, structuring complex deals to help clients and manage risk.

These included a US$1.1bn financing for Dubai’s Port & Free Zone that was part of a second restructuring at Dubai World, a US$1.8bn expansion financing for Dubai Aluminium and an US$800m deal for Nigeria’s IHS Towers, which is the biggest-ever African debt deal to fund telecoms tower infrastructure.

The bank’s varied EM loan franchise also included sovereign loans, emerging markets private equity deals, pre-export financing and reserve-based lending.

“Nothing moves in emerging markets without Citigroup seeing it,” said Rizwan Shaikh, head of CEEMEA loan structuring and syndication. “Across the whole emerging markets landscape clients have needed help due to low commodity prices. Citigroup has added value in dislocated markets.”

Event-driven focus

Citigroup made optimal use of its balance sheet in the Asia-Pacific region and focused on event-driven deals that provide better returns. It had considerable success in Australia and New Zealand. The bank led a A$1.9bn (US$1.4bn) deal backing Canada’s Brookfield Asset Management’s A$12bn purchase of Australian infrastructure firm Asciano and was joint M&A adviser and financier on the A$6bn–$6.5bn securitised financing backing the takeover of GE Capital’s Australia and New Zealand consumer finance business.

It was also one of four bookrunners on a NZ$742m (US$494m) five-year acquisition loan in February backing Philippines food and beverage firm Universal Robina’s takeover of New Zealand snack food company Griffin’s Foods.

In March, the bank signed a rare £1.07bn bridge loan to support Japan’s Brother Industries’ purchase of Domino Printing Sciences in the UK and also bagged sole mandates on smaller acquisition financings including Emcure Pharmaceuticals and Intas Pharmaceuticals from India.

Sole original bookrunner roles on transactions for China Modern Dairy and WuXi PharmaTech were well received along with repeat mandates from frequent borrowers including Chinese department store chain Golden Eagle Retail Group, Hong Kong’s Sun Hung Kai Properties and India’s Tata Steel and Reliance Industries.