Quick thinking
In addition to leading some of the largest bond deals of the year, Bank of America excelled at recognising opportunistic times in the market and navigating its clients through those periods. It is IFR’s North America Investment-Grade Corporate Bond House of the Year.
Perhaps the biggest trend of 2019 for US high-grade corporate underwriters was the need to be nimble and adapt to the constantly changing market landscape, and Bank of America proved itself to be exceptionally adept.
The bank showcased its ability to capitalise on these fleeting moments of opportunity in September, when it led 70 issuers to market with US$18bn of supply in what became the busiest September on record and third busiest month ever for US investment-grade issuance.
BofA’s efforts in this market were led by head of global IG capital markets Andrew Karp.
US president Donald Trump in late August escalated his trade war with China in a move that sent the 30-year Treasury yield below 2% for the first time ever even when those low yields looked high compared with negative rates around the world.
Corporations took advantage of the historically low rates in September, printing unprecedentedly low coupons on long-dated bonds.
In that window, Walmart priced a US$1.5bn deal with 10-year and 30-year tranches, PayPal debuted a US$5bn four-part bond and Kraft Heinz completed a US$3bn liability management exercise that is helping to turn around the story on the food company’s troubled debt stack. All were BofA deals.
Even Apple, which had a ridiculous US$210bn of cash on hand and has no need for access the market, couldn’t resist the low rates. It turned to BofA to help lead a US$7bn five-part bond transaction that netted a sub-3% coupon on 30-year debt.
The start of September turned out to be the busiest two-week stretch ever in terms of volume and number of issuers and BofA came out on top during that opportunistic period of issuance.
FLIPPING THE SCRIPT
Coming into the year, no one would have thought the market would be this active. Banks were preparing to navigate a choppy period before Federal Reserve chairman Jerome Powell reversed course and cut rates by 75bp in total.
The rate cuts made M&A deals led by BofA – such as IBM’s takeover of RedHat and Occidental Petroleum’s buyout of Anadarko – more palatable as both transactions were able to lock in cheap funding.
Occidental proved to be a complex transaction as the company was caught up in a bidding war with Chevron for the Texas-based assets for most of the year. Eventually the two sides agreed on a price but it significantly increased Occidental’s leverage and deteriorated its credit score into the Triple B band.
BofA had to sell the credit story, which included a US$10bn sale of Anadarko’s African business to Total Capital and a commitment to deleverage in the long run at a time when investors are sceptical of such commitments.
It took elevated new issue concessions but ultimately the company was able to price one of the largest low Triple B energy transactions ever. The US$13bn 10-parter garnered the second largest order book of the year at US$66.1bn.
BofA also proved a leader in environmental, social and governance trends in the US corporate world.
The bank started an ESG advisory business to provide analysis on new issues, independent of green bonds. This trend is growing in the US ESG space and BofA is leading the way.
Additionally, some of the most impactful corporate green bonds of the year were run by BofA.
For example, Owens Corning came to the market with the first US industrial green bond in July and Verizon Communications debuted the first ever US telecoms green bond in February.
Market participants have been calling for more corporate green bond issuance to jump-start the market and these transactions helped move to the product to the mainstream for others to follow.
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