Ready for take-off:
In a year of record US bond volumes that favoured banks with the sharpest focus on serving corporate clients, one stood out for the intellectual capital it brought to the table and the innovative ways it helped companies navigate the market. Goldman Sachs is IFR’s US Bond House and North America High-Yield Bond House of the Year.
Bond market access was existentially important for some corners of the US economy in 2020, as the Covid-19 pandemic wiped out revenues and caused an unprecedented liquidity problem.
Corporate America turned to bond investors for critical funding needs, and increasingly for strategic refinancing and investment opportunities after Federal Reserve bond-buying programmes helped restore market confidence.
It was a year in which, ultimately, many bond houses would do well – but Goldman Sachs stood out not only for its impressive market share during the period, but for the level of complexity and innovation involved in many of its bond deals at crucial periods early in the crisis when speed and market timing was critical.
“The thing that made the difference was the way the DNA of our firm is oriented,” said Christina Minnis, co-head of global credit finance at Goldman. “When there is a crisis, we think first and foremost about our clients.”
Flying high
This was best demonstrated by the bank’s work in the airline sector, where efforts were combined across different parts of the bank to create complex but efficient financings.
Goldman combines its leveraged finance, restructuring and structured finance businesses under a single global credit finance umbrella co-headed by Minnis and Michael Marsh.
A US$6.8bn bond and loan deal for United Airlines on June 25 that was backed by its MileagePlus customer loyalty programme showed why combining these businesses gave the firm an advantage.
It adapted a securitisation structure to ringfence intellectual property and cashflows from customers using branded credit cards to collect airmiles, securing them in an investment-grade, bankruptcy remote vehicle that gave investors a way of buying US$3.8bn of airline bonds that were not directly tied to travel.
The structure carried Baa3/BBB– ratings, although the parent is junk-rated at Ba1/BB–.
But adapting the ABS technology to fit the expectations of traditional bond investors was not an easy task.
“It almost died about 20 times,” said Minnis. “If we had just applied traditional structured finance technology, it would have been dead on arrival.”
Investors poured around US$10bn of orders into the deal, allowing United to print US$6.8bn, up from an initial US$5bn.
Goldman had little room for error on the MileagePlus deal, after United had pulled a deal in May.
The airline had hired JP Morgan to arrange a US$2.25bn secured bond backed by a fleet of older, regional aircraft. The deal was pulled as investors demanded too high a price, wary of the value of the aircraft and their importance in a potential bankruptcy scenario.
Goldman picked up the baton, pitching to United the idea of pooling the same aircraft, along with a mix of spare parts and engines.
The deal emerged in October as a US$3bn, A3/A rated EETC note – a structure that gives investors powerful legal protection in the event of bankruptcy.
It was the largest EETC in history and the first ever to combine different types of collateral.
“What we found was the sum of the parts was greater, if you took certain pieces of collateral that by themselves may not have been that attractive – spare parts, including things like coffee makers – with older regional aircraft,” said Stephen Conigliaro, vice-president of US investment-grade syndicate.
“It’s a very powerful package. An airline could not run without these things,” he said.
Investors agreed and order books peaking close to US$6bn allowed Goldman to price the 2027 bonds at a yield of 5.875%, inside initial price thoughts of the low-to-mid 6% area and almost half the 10%–11% coupon whispered on the secured bond led by JP Morgan before it was pulled.
Hit rate
At the same time as carving out bespoke deals for airline borrowers, Goldman’s investment-grade franchise was riding the wave of surging issuance from blue-chip names.
The bank was a bookrunner on eight out of the 10 largest deals to hit the market in 2020, including a US$25bn deal for Boeing and a US$19bn deal for T-Mobile US in April, plus US$12.5bn and US$11bn deals for AT&T and Walt Disney, respectively, in May.
And it advised seven out of 10 of the largest repeat issuers, such as T-Mobile, Boeing, AT&T, Walt Disney and Apple.
“It’s clear that this year has all been about Corporate America,” said Jonny Fine, head of US debt syndicate. “Corporate America, in terms of a financing segment for Goldman Sachs this year, has been a category-killer for us overall.”
Goldman’s IG desk helped companies in many troubled sectors navigate the markets in April and May, such as Marriott and Hyatt in lodging and Booking Holdings and Expedia in the travel sector.
These fundraising efforts helped the bank climb one spot to third in Refinitiv’s investment-grade league table in the IFR review period.
But it was not only about liquidity.
In a year hit by Covid and marked by growing worries about climate change and protests over racial inequality in the US and across the world, Goldman had a strong footprint in helping US corporates step up their ESG financing.
The bank was an active bookrunner in green bonds for Equinix, Prologis and NXP, it was lead-left on a US$5.75bn sustainability bond for Alphabet – the largest ever from a corporate – and it was joint bookrunner on a US$750m deal from Suzano, the second-ever sustainability-linked bond and the first from emerging markets.
“If in 2019 ESG financings really meant ‘E’-related financings, and it was really a green bond market, in 2020 the ‘S’ in ESG has jumped right to the front of the car,” said Fine.
Brave step
Goldman’s high-yield franchise also climbed one spot to third in Refinitiv’s US high-yield corporate debt league table in the review period, but it was the range and the impact of the transactions that stood out alongside impressive volume.
Goldman took the brave step of reopening the high-yield market in March with a US$600m deal for restaurant operator Yum Brands, after several weeks without issuance.
It was the first high-yield deal done with both buyside and sellside working remotely and at a time when it was far from clear that markets would be open and receptive.
The bank helped firm up that confidence with a US$8bn bond issuance for Ford on April 17 – its first as a fallen angel in the high-yield market and the largest non-M&A high-yield deal ever, at a time when its factories were still closed.
“That experience will live long in my memory as one of the landmark deals of 2020,” said Fine.
"Investment-grade had started to get going that week of March 23 but it wasn’t until the week after you saw the Triple B names start to fill in … the step to high-yield and the step to Ford was still a pretty big one,” he said.
The bank guided Ford from an initial US$2.5bn–$3bn to print US$8bn.
The bank was an early mover in that period in April and May, understanding what was possible and what investors were looking for.
“That led the franchise to have a competitive advantage on what else was financeable at attractive levels and that rippled through during the second quarter,” said Kevin Sterling, head of leveraged finance.
The leveraged finance business also brought innovation to bankruptcy financing in October, with Frontier’s US$1.15bn debtor-in-possession to exit financing – the first of its kind in the bond market.
And while it was not a banner year for sponsor-driven leveraged buyouts, Goldman was global transaction coordinator and ratings adviser of one of the largest and most complex – a €10.3bn-equivalent financing package for Advent and Cinven’s acquisition of ThyssenKrupp’s Elevator Technology business in June.
Seamless
The strength of both Goldman’s league table positions and the innovation and strength of execution on show in its deals bear out the company’s strong standing with its clients.
“We’re very fond of saying that when markets get tough, clients turn to Goldman Sachs. 2020 really proved that in a substantial way,” said Fine.
“If we’re surprised about anything that happened in 2020, it’s really at how seamlessly we were able to ultimately execute US$2trn of debt financing with everyone working in basements and bedrooms,” he said.
