Scotiabank has steadily built out its platform in investment-grade U.S. debt capital markets over the past couple of years, adding significant origination capabilities and sector expertise to expand its advisory and coverage footprint and drive more deal flow through its full-service sales and trading operation.
To provide leadership and strategic direction to its expanded DCM operation, Jack McCabe joined Scotiabank in April 2023 as Managing Director, Head of U.S. Debt Capital Markets, responsible for origination, syndication, liability management, derivatives and private placements. Fadi Attia, a 20-year market veteran, joined in 2021 as Managing Director, Head of U.S. Debt Syndication. They join Michael Ravanesi, Managing Director, Head of U.S. Debt Origination, who has been with Scotiabank for over 13 years and maintains a personal focus on power and utilities coverage.
In U.S. investment-grade corporate bonds in the first five months of 2023, excluding self-led, Scotiabank’s market share this year has meaningfully increased 19% compared to 2022, while its wallet share has risen 20%1. The ambition, hardly over-stated: it is to become a prominent player in this space.
“In terms of the team build-out, we now feel we can achieve our ambition. We have a strong roster of clients but it takes time to continue to cultivate the client base and develop those relationships. From an investment-in-the-team perspective, though, we feel like we’ve got the right pieces in place.”
On the origination side, over the past 24 months, the bank has doubled the team of senior origination/coverage bankers to sharpen sector specialization. “We’ve generated strong momentum and created some real traction with clients,” McCabe said. “One of the benefits of bringing in new talent and broadening our footprint is better client focus. We’ve historically been strong in utilities and energy but we can point to multiple wins this year that offer demonstrable evidence of our expansion in terms of first-time active bookrunner roles in real estate and other sectors.”
Active bookrunner wins
Clients are paying heed. “We have noticed a strength in Scotiabank’s capital markets coverage and a more thoughtful approach. Given this, we now include Scotiabank as an active bookrunner. Execution is seamless, and post-deal analysis is highly insightful,” said Daniel Melski, the treasurer of Church & Dwight, the conglomerate responsible for manufacturing and marketing a wide range of personal care, household and specialty products in the U.S. and internationally.
Recent Scotiabank first-time active bookunner wins include deals for major communications infrastructure REITs American Tower (US$1.5 billion 5s/10s in February) and Crown Castle (US$1.35 billion long 5s/10s in April). And the US$1.2 billion in 10s/30s for logistics real-estate company Prologis; the US$1.3 billion in 10s/30s for shopping mall REIT Simon Property; the US$400 million six-year tranche on environmental services provider Republic Services’ dual-tranche; the US$500 million five-year for technology solutions provider Avnet; or the US$1.5 billion Yankee (5s/30s) for Nutrien, the Canada-based supplier of crop inputs and services.
“Winning those slots was the culmination of the groundwork we’ve laid over the past 18 months to develop long-standing client relationships from a lending and corporate coverage standpoint,” Ravanesi said. “The focus of our build out on the origination side has been on sector specialization and innovation: a greater focus on meeting specific client needs, building out sector expertise and ensuring the team has dedicated personnel covering each industry and the full suite of DCM products.”
Attia adds that Scotiabank’s transaction wins have been in growth sectors for the Bank. “We’re growing our footprint from a wallet and market share perspective across a broader range of sectors, which showcases the growth the platform has delivered for a variety of different issuers,” he said. “The US dollar footprint is becoming a lot more visible as the diversity in terms of sectors and clients has meaningfully expanded.”
Focus on products and capabilities
Scotiabank has made sure that as the sector franchise expands, the origination team remains focused on serving clients’ needs with a range of capabilities across products – like sustainable finance, private placements, and liability management – where it has created specialist teams to provide tailored advice and solutions.
On sustainable finance, Ravanesi says Scotiabank is committed to being part of the transition story. Attia takes up the story: “The way issuers approach sustainable finance is driven by ensuring that when they access that market, they access it with the right framework and with the right structure that get them the best visibility within the ESG buyer base in the U.S. and globally. Based on all the conversations we’re having with dedicated sustainable finance accounts in Europe and the U.S., that continues to be a core area of focus for issuers, despite the market volatility.”
Fanny Doucet, Managing Director and Head of the Sustainable Finance group has built out a team that supports Scotiabank’s strong presence across the Americas, with dedicated ESG specialists located in Canada, the U.S., and Latin America. Similar to the DCM team, the Sustainable Finance team has also been building out coverage with sector expertise that can offer a full suite of sustainable finance products to meet client needs. This strategy has been successful, with the Sustainable Finance team recently winning a number of global awards across the Americas such as, 2023 Best Bank in Canada for Sustainable Finance by Global Finance, 2022 Best Bank for Sustainable Finance in North America by Euromoney, and 2022 Sustainable Finance Bank of the Year in Latin America & the Caribbean by LatinFinance – reflecting their leadership in the space. “Clients are invested in this space with a focus on transactions that are structured appropriately and deliver on key and verifiable impact. So, it’s certainly a big focus and it will continue to be a big focus on a go-forward basis.”
On private placements, Managing Director Maeve McLaughlin points out how Scotiabank has a global focus in terms of issuers and investors. “The U.S. private placement market has a broad issuer footprint that we’re focused on,” McLaughlin said. “It includes a large subset of U.S. domestic companies; utilities, in particular and other issuers that operate below the public bond radar screen because they have smaller financing needs, don’t have public credit ratings or have bespoke financing requirements; and clients from our international client base, which are key. Australian and UK issuers tend to be important users of this product, as are our Canadian multinationals. We also cover a range of clients across Latin America,” McLaughlin explained.
Sector focus and market colour
The full-service U.S. salesforce and trading desk that sits alongside origination and syndication has been a critical component of Scotiabank’s U.S. build-out. The deep bench the Bank has built when it comes to sales, trading and desk analysts that analyze credits and markets and come up with trade ideas has been aligned very proactively to support the origination business and corporate clients.
Scotiabank brings thoughtful advice to clients by leveraging the team’s expertise. This has been particularly valuable given the elevated level of volatility that has played out and will continue to play out in the market and which can have a pretty meaningful impact on funding costs.
“We’ve been leveraging our distribution platform, we’ve been expanding and deepening our relationships with the institutional investor side, and we’ve been aligned and focused on delivering the right advice to clients to help them achieve their funding objectives. As a platform that’s in build-out mode and capturing U.S. market share, the value proposition that we bring to issuers matters a lot to us,” Attia said.
Despite the recent market volatility, McCabe says the Bank is committed for the long-term. “The investment-grade bond market is pretty resilient,” McCabe said. “The last six months have been a little less active with the market volatility we’ve seen but we expect things to settle down. And given the exceptionally strong credit profile of Scotiabank, longer term that’s also going to help us versus competitors.”
Credit offers relative value
Attia points to the value the credit market offers global asset managers versus other risk assets, particularly equities. “The relative value of credit remains very compelling,” Attia said. “U.S. and global money managers that need to be invested in the US dollar market are now being compensated from a risk perspective but on top of that, the returns are more attractive on a risk-adjusted basis versus equities. That will keep liquidity and technicals fairly strong for the credit side in the investment-grade world.”
The US dollar investment-grade bond market is one of the most liquid markets in the world. When there is heightened volatility, investors tend to put a lot of value in liquidity and they can readily find that in the US dollar investment-grade market, more so than other asset classes, whether that’s emerging markets, high-yield, or non-US dollar capital markets globally. It’s a strong supporting element.
Scotiabank expects the credit markets to remain resilient. “The trajectory of the U.S. economy, whether there is a hard landing or shallow recession will have an impact on spreads but it won’t dramatically impact market access for borrowers,” Attia said.
Issuers adapt to new paradigm
Corporate issuers are adapting their approach to funding to give themselves flexibility, for example borrowing in the front end of the curve to avoid locking in 10-year funding or longer because they take the view that over that next two to three-year period, there could be upside in terms of lower financing costs that may be available to them.
“Issuers have been adapting to the new funding paradigm. Access across the curve has been relatively efficient in terms of investor liquidity and order-book over subscription even on days where volatility has been elevated,” Attia said.
Corporate investment-grade funding in the first five months of 2023 is around 30% higher versus the same period of 2022. Bank issuance has slowed, mainly because financials were ahead of the curve and captured a much bigger component of the new-issue calendar as they met a lot of their capital and liquidity needs throughout 2022. That, added to banking sector turmoil from March, had led to an easing of FIG supply into 2023 prior to an uptick in June. But that has created more space for corporates, which are taking advantage of the liquidity that typically goes to banks.
“The resilience of the U.S. market in the face of volatility is a key takeaway for me and why Scotiabank wants to be big in the U.S.,” McCabe said. “If you look at the US dollar market and compare it to other global bond markets, be it euros, sterling, yen or others, the US market has grown at their expense. We see that continuing. Liquidity is so key to investors and it continues to be heavily favoured. That’s why we’ve seen more and more foreign companies come to the dollar market and we expect that to continue.”
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