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Thursday, 25th April 2024 |
| How IIB Bank accessed E1.5 billion on the capital markets |
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| Adam Mesbur describes the process behind IIB Bank’s recently launched E1.5 billion euro medium-term note programme. |
Money doesn’t grow on trees. As in every financial institution, liquidity management is a key task in IIB Bank and new sources of funding are regularly investigated. We looked at a euro medium-term note (EMTN) programme because we wanted to diversify and extend our funding base. To date, IIB Bank has relied on customer deposits, inter-bank deposits and our $2 billion euro commercial paper (ECP) programme. These provide funding from overnight out to one year, with an average duration of three or four months.
Accessing the EMTM market has two clear advantages for us. It provides long-term funding and introduces new counter-parties. Purchasers of bonds typically come from different companies than depositors of cash. We have also taken a number of other steps to enhance our liquidity and as a result we received positive feedback from the rating agencies. We finally decided to go ahead with the EMTM programme in late September of 2002. Perhaps optimistically we set a deadline for completion by mid December. On occasion that looked too ambitious but after a lot of hard work from all concerned the programme was formally launched on December 16th 2002.
As always with such undertakings the early steps were fairly straightforward. After a beauty parade of investment banks we appointed Merrill Lynch International as our arranger. A&L Goodbody had acted for us on our ECP Programme and we chose them as our legal advisers. As we wanted the program listed on the Irish Stock Exchange as well as the London Stock Exchange it was necessary for us to appoint an Irish listing agency and we selected Davy Stockbrokers. We were also required to appoint legal advisors to represent arrangers and subsequently the dealers and the trustee and the issuing and principal paying agent. On the recommendation of Merrill Lynch, Allen & Overy were chosen.
Even though we are a 100 per cent subsidiary of KBC Bank NV we are in a different position than most issuers because IIB Bank is a private limited company whereas most issuers are public listed companies. But because the EMTN programme taps the capital markets, in effect one borrows from the public.
Stock exchange regulations require issuers to disclose any and all information that might influence potential investors’ decisions. We formed IIB Capital plc as an issuing company for our ECP Programme. It was natural for us to use it for this also. The programme is unconditionally and irrevocably guaranteed by IIB Bank Limited. It was therefore necessary to disclose relevant information about both companies. This included a full business description, outlining our ownership, history and development, our current structure, our business, our management and other particulars.
In addition financial statements, two years profit and loss account and balance sheet were also required. The team in IIB is Tom Foley- executive director, John Kelly- executive director, Terry Sullivan- head of treasury, Brian Austen- internal auditor, Rickard Mills- head of taxation and Damien O’Neill and John Butler of group financial control.
I had to pull everything together internally, including the preparation of the business descriptions, the presentation of the accounts and also to liase with the external counter-parties: the lawyers, auditors, arranger, listing agent, rating agencies and the Central Bank of Ireland. The lawyers advised us as to the requirements of the stock exchanges and A&L Goodbody negotiated the documentation on our behalf with the other counter-parties to the deal. As the documentation is effectively a series of contracts setting out the rights and obligations of the various parties it has to be right. Although A&L Goodbody took our advice they provided very clear guidance as to the direction we should go.
Many different sections of the bank helped to prepare the documentation. Probably the most important document was the business description of the bank. It must be accurate and informative. The financial statements had to be reviewed by our auditors, Ernest and Young, and they had to confirm that the information published agreed with the audited accounts.
Rating the programme was not a complex issue, as IIB Bank, who was guaranteeing the programme already has an institutional rating. So, the programme rating depended on the documentation. The deal was rated, in respect of senior notes with a term of more than one year, A1 by Moodys, A by Standard & Poor’s and A+ by Fitch.
By early December documentation was piling up on my desk. We needed to appoint the dealers, as they play a critical role, providing the link between the issuer and the buyer. We selected suitable institutions with which we already had an existing relationship, and the dealers for the programme are: Deutsche Bank AG London, IIB Bank Limited, JPMorgan Securities Ltd, KBC Bank NV, Lehman Brothers International (Europe) and Merrill Lynch International.
JPMorgan Chase was appointed the trustee and also the issuing and principal paying agent. KBC Bank, London was appointed process agents.
As I already mentioned, the early stages rolling out the programme seemed straightforward enough. However, complications inevitably arose as we went along. Everything was running a bit tight, and there was some talk of delaying the issue until the Spring but Tom Foley pushed things along and insisted we go ahead. The pressure worked, and everyone came through.
There are four main documents that form the programme. The offering circular is the document in the public domain and is approved by the stock exchange. It sets out all the terms and conditions of the issue. It also sets out the detailed information and financials about the issuer and the guarantor. The trust deed is made between the trustee and the issuer and the guarantor. The program agreement sets out the agreements between the dealers and the issuer and the guarantor. Finally, there is the agency agreement with the issuing and principal paying agent.
It was necessary for the board of directors of IIB Bank and the board of IIB Capital to formally approve and minute the programme and the documentation. In addition, three directors, Ted Marah, Tom Foley and John Kelly as well as the head of treasury, Terry Sullivan, had to sign the documentation confirming conditions, representations, warranties and undertakings given by the issuer and the guarantor. Review and accuracy were therefore critical.
The deadline had a magical effect. Just in time it all came together. Negotiations were finalised and the lawyers were satisfied. The auditors agreed to the publication of the financial statements. Revenue tax clearance was obtained. The documents were printed, and the exchanges approved and stamped them. The rating agencies announced their ratings. Then everyone signed. Endless paper.
In addition to a great effort made by our various advisors, huge commitment was made by many departments within the bank to get this programme off the ground. The programme documentation must be reviewed annually or, if a significant event occurs, more often so on going management of the process is required. However, IIB Bank through IIB Capital has achieved its objective and now has access to •1.5 billion of long-term funds. It’s a useful club to have in the bag. |
Adam Mesbur is associate director of treasury, IIB Bank.
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| Article appeared in the February 2003 issue.
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