Barclays Chases Deutsche Bank's European High-Yield Crown
Barclays Plc’s acquisition of parts of Lehman Brothers Holdings Inc. has helped catapult its investment banking unit to third place in underwriting bonds for Europe’s riskiest companies, from 15th a year ago.
Barclays Capital more than doubled its share of high-yield issuance to 8.2 percent in the first three quarters of this year, from 2.9 percent for the same period in 2009, ranking behind Deutsche Bank AG and Credit Suisse Group AG, according to data compiled by Bloomberg. The London-based bank underwrote $3 billion of debt, up from $534 million a year ago, data show.
Barclays Capital boosted its European high-yield and leveraged finance unit with 25 hires across syndicate, sales, trading, and research since buying Lehman’s North American operations in 2008, according to Joe McGrath, head of global leveraged finance. Europe’s junk-rated companies issued 27.4 billion euros ($37.5 billion) of bonds this year, compared with 13.6 billion euros in the same period of 2009, Bloomberg data show. The data exclude self-led deals and emerging markets.
“The Lehman Brothers acquisition gave us the opportunity to accelerate and shift up our strategy globally within leveraged finance,” New York-based McGrath said. “There are fewer banks, lending less and that’s what’s driving many European corporates to explore the public debt markets.”
Deutsche Bank, the biggest German lender headed by Chairman Joseph Ackermann, retained its position as the top underwriter of junk debt in the region, helping sell 25 issues totaling $4.3 billion, Bloomberg data show. Zurich-based Credit Suisse helped manage 14 offerings for $3.2 billion of sales, moving from fifth place last year.
Royal Bank of Scotland Group Plc, which needed the world’s largest bank bailout during the credit crisis, dropped from third place to sixth with 15 issues of $2 billion, while New York-based Citigroup Inc. fell to seventh from second last year, with a 5.4 percent share of the market.
High-yield bonds sold by European companies returned 10.87 percent on average this year, compared with 6.7 percent for investment-grade bonds, Bank of America Merrill Lynch data show. Junk debt is ranked lower than Baa3 at Moody’s Investors Service and BBB- at Standard & Poor’s.
Sub-investment grade companies in the region have more than $150 billion of debt maturing through 2013, according to S&P. Borrowers are turning to the high-yield market to take advantage of low borrowing costs and to make up for a slowdown in bank lending, McGrath said.
Banks are providing a smaller share of loans as capital rules designed to prevent a repeat of the worst financial crisis in decades make it more expensive to lend to riskier borrowers. The Basel Committee on Banking Supervision on Sept. 12 raised the cost of the capital lenders are required to set aside against the loans.
The extra yield that investors demand to hold European high-yield bonds rather than government debt is at 601 basis points, compared with 842 basis points in June following the sovereign debt crisis and down from a peak of 2,242 basis points in 2009, according to Bank of America Merrill Lynch data.
Barclays arranged 20 high-yield issues this year, according to Bloomberg data, compared with just two issues during the same period last year. It helped underwrite 150 million-euros of five-year notes for DSG International Plc, Britain’s largest electronics retails, in July as well as 100 million euros of bonds for Codere Finance Luxembourg SA, the financing unit of Codere SA, a Spanish operator of bingo clubs and casinos.
“Barclays has such a strong infrastructure for fixed income as a whole, so there is no reason why it shouldn’t have been able to improve on its relative weakness in European high- yield,” said Andrew Lim, a financial analyst at Matrix Corporate Capital LLP in London, who has a “sell” recommendation on Barclays Plc.
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
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