Capital Markets Adviser of the Year: Rothschild

The past year could have been tough for independent advisers on capital market transactions, with issuers finding it relatively easy to raise both equity and debt. But for successfully bringing distressed sovereigns back to the market as well as acting on a raft of IPOs, Rothschild is IFR’s Capital Markets Adviser of the Year.

Rothschild’s financing advisory business is a critical part of its wider corporate finance activities. Although only bringing in on average half the revenues of the M&A arm, it has continued to enjoy significant growth over the past year, as shown by its latest figures.

For the six months to the end of September, revenues from M&A fell 21% to €314m compared with the same period in 2016 but financing advisory revenues rose by an impressive 27% to €178m in the same period.

The firm said debt and restructuring advisory were “particularly strong” but equity advisory revenues also grew, with Rothschild remaining the most active adviser on European ECM deals.

In the 12 months of the IFR Awards review period Rothschild worked on 71 equity transactions, 13% more than in the year before, including 12 IPOs. Transactions have involved advising governments (on Allied Irish Banks, ABN AMRO), corporates (Societe Generale floating ALD, Philips on Philips Lighting) and private equity (Apollo’s IPO of Athene, Cinven’s float of Jost).

A significant part of this year’s activity has been work for governments, in particular the €3.4bn re-IPO of Allied Irish Banks in June. It was timed to perfection, according to Adam Young, global co-head of equity advisory at Rothschild, as bank stocks rose and the valuation came in well above expectations.

In that case, the challenge was managing demand and providing comfort on allocations.

“We use data to aid execution,” Young said. “You have every investor in the world in the book, so need to differentiate between them in an auditable way. We can say, ’in the last 15 IPOs these people featured on average’ and assign levels of trust on whether this is a trading position or if they will still be there two years later.”

The adviser’s role is more pronounced when it comes to timing sell-downs post-IPO and riding difficult markets, but Young said that they play a role whatever the backdrop.

“If every deal was smooth, it might seem there wouldn’t be a lot of need for us,” Young said. “Yet Bain and Blackstone do many IPOs – they know the decisions to be made and how IPOs work – but they need our help to make those decisions.”

In many ways it is the mandates from sponsors that know the equity markets better than any other client that speak to the value of Rothschild’s advice.

Rothschild has remained prolific on the debt advisory side over the past year, generating a 21% increase in assignments to 205, with a total value of US$139bn. More than 50 of these were financing packages for M&A processes, mainly by existing Rothschild clients, either on the buyside or sellside.

“We have a breadth of market knowledge that lenders on the whole are no longer able to provide,” said Paul Duffy, global head of debt advisory at the firm.

He said that the market has developed from 30 years ago when syndicate desks at major banks saw all the deals pass through and had a good idea about pricing in particular sectors and geographies.

“That has largely gone but we are still able to replicate the syndicate desks of the big banks in the 1980s and 1990s,” Duffy said. “We see more deals in the leveraged landscape than many individual lenders might do.”

This also allows the firm to find the most suitable package for a client. With so many non-bank lenders now in the market, it is important to know the strategies of each individual provider of funds. This helps in advising whether a client might be better suited to the high-yield market over loans.

One example was the €330m unitranche loan refinancing arranged for Dutch casino operator JVH, which includes a two-year portability clause more often seen in the high-yield arena. This was completed ahead of private equity owner Waterland’s decision in June to sell the business. The clauses are disliked by banks as they cut out the opportunity for a further fee post-sale.

The firm can advise on how best to negotiate covenants depending on wider strategy, for example if the plan is to sell the business shortly, and so design the leverage package to be portable or not. “We are one integrated team, acting across sectors and geographies,” said Duffy.

In the past Rothschild has been less of a presence in the US, an area where there is a less recognised market for independent debt advisory work. But that is changing. The firm has built up a team there under Mike Speller, who joined from Credit Suisse, and has done three deals since February.

In an easy credit market, one might think there is less demand for independent debt advisory work. But Duffy said that is not necessarily the case. “People want to know whether they should lock in new lending, or extend existing facilities, before rates rise again,” he said.

A notable example was the €2.1bn recapitalisation of Polish mobile network operator Play after its Greek and Icelandic shareholders, Olympia and Novator Partners, respectively, failed to sell the business at the end of 2016.

Rothschild worked to refinance the company’s debt facilities in one of the largest zloty fundraisings ever. This allowed Play to cut its debt costs and stagger the maturities of these facilities. It also enabled a €500m PIK toggle to be inserted, funding dividends to shareholders.

Rothschild was instrumental in arranging this capital structure and creating the competitive tension among potential bookrunners that led to the deal’s successful execution.

SOVEREIGN RETURN

Rothschild has also been in demand advising sovereign clients on making the best use of the benign conditions and returning to the bond markets. This practice has been developed under Anne-Laure Kiechel, who has a background in ratings advisory.

The effort came to fruition this year, as the firm was retained by Ukraine and Greece, both of which had restructured their debt in recent years, to advise them on how to return to the bond markets for the first time since their restructurings.

These mandates were more unusual, requiring deeper planning to convince investors to back the country again. Market conditions in September undoubtedly helped though, with investors lapping up the 7.375% coupon on Ukraine’s 15-year notes. A book of US$10bn was built.

“Ukraine was a yield play but it was not only that,” said Giovanni Salvetti, head of CIS at Rothschild.

“It was an attractive yield but investors had to believe in the credit story too,” said Kiechel, head of sovereign advisory.

The country’s first issue since 2013 saw it raise US$3bn via a 15-year bond offering, after receiving US$1.6bn of tenders in an above-par offer for its 2019 and 2020 instruments. This significantly eased immediate financing requirements for the country, which is still in an IMF programme.

Previously, Rothschild used similar techniques to bring Greece back to the bond markets at the end of July. Holders of the country’s April 2019 bonds tendered €1.5bn of these notes, again above par, at the same time as new five-year bonds were issued, raising €3bn and priced at 4.375%.

This was opportunistic, with Rothschild moving quickly to take advantage of a significant breakthrough at a political level, with the country’s European creditors agreeing to release further funds from its latest €86bn programme, and benign markets seeking yield.

Under Rothschild’s guidance the country has since carried out another more ambitious manoeuvre to swap €30bn of debt restructured in March 2012 maturing in small tranches over 20 years to 2042 into five more liquid note issues.