Bill Young the Great Innovator of European ABS No Banker Has Done More to Promote the Development of a Key Asset Class

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CAPITAL MARKETS ACHIEVEMENT AWARD Bill Young the great innovator of European ABS No banker has done more to promote the development of a key asset class

photo: R.Singh

SECURITIZATION HAS TAKEN many years to At that point Citibank was not a big player in board, and how large infrastructure projects become an indispensable part of European ABS but that was about to change dramatically are paid for. capital markets. Just 10 years ago it was a little – suddenly he was behind the wheel of one of He is associated with more innovations in understood, rarely used technique borrowed the strongest fixed-income franchises when ABS than any other banker in Europe, and his from the US. During the past five years, Travelers merger with Citibank brought peers rate him as the best in London – high though, it has caught on with issuers and Salomon Brothers’ investment banking capa- praise in the ultra-competitive financial investors at a pace that has been nothing bilities into the fold. services industry. However, Young demands short of astonishing. No individual can claim responsibility for that praise is shared with his current and Bill Young, formerly of Citigroup, now at the state of a whole market segment, but some former team members. Goldman Sachs, has headed up securitization come closer than others. Although there a few “One of the great pleasures of my career has teams that helped shape the European finan- bankers with securitization backgrounds that been to work alongside such gifted people at cial landscape. After working for Citibank in have extremely large profiles, especially those Citigroup and Goldman Sachs,” he says. “It has the US straight after completing college, Young that used ABS as a tool for M&A activity, none been a challenging, invigorating experience… journeyed to Europe in the late 1990s without can boast a portfolio as broad as Young’s. looking at issues in depth and trying to find a expecting to still be in London seven years Young has done more than his fair share of new creative solution to a client’s problem or later. Once at Citigroup London, he set about trades that have been corporate finance- specific need.” establishing a small capital markets business driven, but he has also been instrumental in The £1.5 billion ($2.7 billion) Punch working with continental European players changing the way that mortgage finance is Taverns issue in June 2000 was one of the first that needed finance for commercial real estate. conducted, how much debt utilities take on groundbreaking deals. It put together a port-

96 EUROMONEY · July 2005 www.euromoney.com folio of managed and leased pubs purchased been to broaden the investor base on those ment risk instead of an expensive corporate. from Allied Domecq. Morgan Stanley lost the deals,” Young says. Now operating in a pure investment banking refinancing mandate when Citigroup stepped Young joined Goldman Sachs in the summer model, without the benefit of substantial in with a novel plan. Why not avoid the of 2001 in search of a new challenge. commercial banking coverage, Young is offer- hassle of carving the portfolio into managed Broadening the investor base continued to ing value primarily via ideas. and leased components? No-one believed be a theme in his new role on the repackaging Commercial banks have a natural scale securitizing a managed portfolio was feasible. of an acquisition bridge loan ahead of the legal advantage in the asset-backed market because Another essential twist was to create massive completion of the purchase. Toll Road Funding of their depth of coverage, selling commercial triple-A rated portions of debt via a monoline was the A1.025 billion (later increased by A250 banking products, and the high end of the credit wrap. The sterling market would not million) issue that partly refinanced a A10 value chain can often be structured finance have been able to absorb that much paper billion purchase of Autostrade by the Benetton business. without some of it being credit enhanced. family-owned vehicle Schemaventotto in 2003. “Punch was simply a question of us listening During the sub-underwriting stage of syndi- Changing landscape to our clients,” says Young. “If you like the cation, the mandated lead arrangers, But the European bond market landscape is economics of pubs, you should like both leased Mediobanca and Unicredito struggled to get undergoing change, partly in reaction to and managed pubs. It was important to look at other banks to take down the loan because of greater competition. A number of securitiza- the different characteristics of the leased and its size and tenor. In the end Barclays and Gold- tion teams are now moving out of flow managed pub sectors and to structure and man Sachs, aided by Crédit Lyonnais and La sectors that provide significant volumes but distribute the transaction accordingly. We Caixa, came in and devised a completely differ- require little or no value added in terms of believed there would be significant demand for ent refinancing plan. ideas, and therefore smaller returns to the lower tranches, even below investment grade, “A number of our transactions have hinged banks. given the quality of the asset class.” upon unlocking a new and more efficient Many opportunities remain. These include It is worth remembering that at the same access to the capital markets. Frequently it the long-overdue restructuring of the German time Citi was arranging a £2 billion whole busi- involved broadening the investor base, or banking system, and how financial institu- ness securitization for Welsh Water. Faced with introducing an asset class to a new pool of tions shift underperforming assets from their such large amounts of paper to distribute, new money. With Autostrade we spent a lot of time balance sheets. New accounting regulations in structuring and distribution ideas were needed. working out how we could distribute a bridge the form of IAS will force large portions of the Welsh Water was able to raise debt at 92.5% of loan in the interim period. Rather than just financial services industry to mark to market. its regulated asset value – the next best offer on syndicating it in a standard loan, we were able And although ABS originators might fear the table was from Guy Hands’ principal to wrap it and distribute it to non-traditional that a weakening economic outlook will finance team but worth only 75% of RAV. investors,” says Young. affect volumes, Young says they might be “All of these structures were ideas that a team While also at Goldman, Young put together looking in the wrong direction. of people developed to solve a problem where financing for the purchase of Kabel Deutsch- “I think the supply side may be even more there was either a liquidity problem or a distri- land from Deutsche Telekom by private-equity driven by bank behaviour than necessarily bution issue. We had a great team of people on firms Apax Partners, Goldman Sachs Capital asset growth. A key issue is what European it. And we did the same on the master trusts, Partners and Providence. banks want to do with their balance sheets and again listening to the client,” says Young. This transaction was distributed through how they want to fund themselves in the The development of the master trust for UK the bank market, although it would have been future, and how they view other funding alter- residential mortgages transformed the nature possible to have sold bonds. Deutsche natives like covered bonds and unsecured of mortgage financing. Suddenly unpredictable Telekom was able to raise cash by divesting credit,” he argues. prepayment speeds were not such a problem. this non-core subsidiary, extremely important It is not just the banking sector that will face With the master trust it was possible to create given its credit profile at the time. The market pressure to use innovative techniques. bullet securities and much larger transactions was suffering from a reduction in liquidity “One of the most interesting areas of finance were now part of the norm. If there was insuffi- because of the fallout from Callahan and at present is the public sector. Governments cient capacity in Europe, you sold the paper to other cable names getting themselves into across Europe are facing a number of challeng- US investors as well. Abbey National and Bank trouble. Markets overshoot and when that ing situations,” says Young. “There are a of Scotland were the two UK banks to first go happens there are opportunities for operators number of budgetary issues, but also the need down this route in 1999. that remain focused on credit issues to to achieve cost-efficient financing. Under- “Master trusts brought with them a pick-up purchase assets cheaply. standing governments’ needs and constraints, in efficiency, not only on where the swap was Last year’s £1.5 billion Tube Lines deal for the and introducing creative solutions, will be priced but also on the securities, just because refurbishment of the London Underground a key driver going forward. Many of the again they’re easier to price and, for an was another example of where a new approach issues facing the public sector in Europe are investor, easier to understand if they’re just added a great deal of value. By bifurcating the applicable to the US and the state and local buying a bullet. The whole idea has always risk it was possible to price it as a quasi-govern- governments.” I