052620_JP MORGAN_EXCHANGE _ACCESS TO CAPITAL
Thank you, Miles. Good morning everyone. Thanks for attending to join us this morning. We have got a really interesting line-up. The subject of our webinar today is going to be on accessing capital.
Our franchise in each of these areas is incredibly strong. We are the number one corporate broker in the UK. We’ve been number one in equity capital markets in the UK for the last decade and consistently number one in our DCM franchise too. So really this is going to be a great opportunity to hear from Alex, Fraser and Catherine.
We’re going to dive into a little bit around what’s happening in the capital markets, the differences between sectors, recent activity in deals. The aim really is that you leave here with a bit of a better understanding around what you can do and the approach that you might be able to take to accessing capital and liquidity for your business.
The form is very much intended to be a bit of a discussion. We’ll hear from each of them.
There has been a chance for you to submit questions, to pre-submit question, so for those of you who did I will absolutely try and make sure that I get to those. There will also be an opportunity for you to submit questions as we go through. Shortly, you’ll see on the main background an email address where you can send your questions in and I will also try and address those towards the end.
We should be all wrapped up within about 45 minutes or so. And there’ll be probably be a good 30/35 minutes of us talking before we have a few questions at the end.
Just before we dive in though, I really did want to just take the opportunity to say and recognise the difficulty that the past several weeks and months have caused all of us. Beyond historic market volatility, the personal nature of Covid has affected us all in one way or another, so I sincerely hope that all of you and your families are well in these difficult times.
I also just wanted to reflect a little bit on what the firm is doing at this point in time. The role that we play and the communities that we serve and operate is extremely important to the organisation, and with the impact of this global pandemic we absolutely are trying to be on the front-foot to support a whole range of businesses, individuals, communities, neighbourhoods who have been affected. So far, we’ve issued 45 billion in approved new credit to companies most affected by the Covid-19 impact. A billion in small business loans to clients during the first 60 days of the crisis, and over 30 billion to 250 businesses since the beginning via the PPP scheme in the US.
We’ve also, and this is fantastic insights into actually the ability to access capital, despite what some of the headlines might allude to, have been the lead on issuing 664 billion in investment grade globally year to date and over 104 billion in the high yield space. So absolutely capital is available if executed in the right way
And then lastly, the corporate commitment in terms of the philanthropy has been very strong. Over 250 million has been committed to global businesses and philanthropic initiatives to support vulnerable SMEs and communities and the existing non-profit partners.
Closer to home, examples where we have continued our grant making to organisations like Capital Enterprise and Newable to support under-privileged communities, for example, in East London like Tower Hamlets, Hackney and Newham. So the initiatives that the bank is undertaking to support a whole range of stakeholders in this difficult time is unwavering.
Now, with that aside, let’s get into things. Fraser, perhaps I can come to you. Amazing to actually see some of those large numbers. Maybe some over-arching insights and thoughts from you around the debt capital markets, please.
Absolutely. Thanks Oliver.
Welcome everybody. I think the title of the webinar is exactly spot-on, in the sense that this is the question that the vast majority of all of our clients have been really asking for the last 8 to 10 weeks, which is trying to work out how they navigate through the markets. And ultimately, liquidity and how they gain access to it. And obviously there are lots of different tools in the toolkit that people have access to.
I’m slightly biased in the fact that I probably focus a little bit more on the bond market but, similarly, I do just as many private placements that is open and running and, indeed, we’re also starting to see the nascent leveraged finance market again reopen and print some pretty impressive deals.
It is just Oliver’s point a second ago, I mean the last 6 to 8 weeks we’ve actually seen record issuance. The month of March and the months of April have both been running at record highs, which considering the crisis that’s upon us I think is pretty impressive. And I think that’s really the message that we want to leave with all of you, which is to say that across the different capital markets and the flavours of them is that the market is open. I think where investors have very quickly moved themselves to is to say 2020 is a little bit of a write-off, effectively, and therefore they’re looking to the future and really trying to identify those companies that they do see a future for and who the sort of long term winners and, more probably acutely, who are the long term survivors, and they’re absolutely supporting those sorts of companies, whether that be from the sort of AAA Exxon, especially when they were doing deals with oil in negative territory, right the way through to the cusp of investment grade and then beyond into high yield.
We’ve kind of seen a little bit of everything now. Obviously, the headlines get grabbed by challenged companies, like, I don’t know, Carnival Cruises or Airbus or even some of the airlines and airports in the shape of SouthWest, the low cost carrier in the States or, indeed, the airports in the shape of Charles de Gaulle and Schiphol, who have all done transactions very successfully, because investors are able to look past the sort of near-term pain and the near-term disruption to the long term future of these companies. And okay, we may not necessarily be back to normality in 2021 or possibly 2022 as well, or indeed ever, but there is a potential for a new normal across some of these sectors.
But the fact is, as I say, investors are coming to terms with these companies. And indeed, the pricing of these transactions is just getting ever tighter. And I guess that’s also part and parcel of the point I want to leave you with, which is that while the window is open the pricing is also pretty good as well. And the one thing that a lot of people have focused upon is obviously credit spreads, how gapped out and gapped out quite egregiously at their peaks. Just banding some numbers around, we’re probably 50 to 60% of the journey back in terms of spread tightening. But the flip side of that, and this is the good news, is an awful lot of central bank action has actually helped us in reverse by seeing those yields and those levels plunge quite precipitously, such that the all in coupons that are achievable are pretty darn impression.
And, in fact, again, just to throw some stats around and okay, it’s at the super high end quality of the spectrum, but Apple who we did a deal for two Mondays ago now, we did both a 10 year and a 30 year, and to be able to do a 30 year in these sorts of markets is also pretty incredible. But the coupons they achieved were their all-time record lows, so the 10 year coupon that they achieved was 165, and this compares to a deal they did last September that came at 220. So a good sort of 50 odd basis points better off, and that comes down to ultimately the drop-off in terms of the risk free rates that they’ve been able to price off.
So very, very achievable in terms of execution, very, very achievable in terms of levels. And I think that’s where an awful lot of management have gotten to in terms of their decision making where they’re taking that slightly more distant 30,000 foot view rather than the slightly more narrow focus of it’s not nearly as good as it was perhaps in January or February.
And through that lens, making decisions that, actually, if you compare it to where we were 6, 9, 12, 15 months ago, these levels look actually pretty remarkable actually.
The other thing I just wanted to point out is simply one of – and this is tying back to my comments around the investors and the investors supporting companies and their survival, and this is around the rating agencies as well, where we have seen them becoming much more lenient, much easier in terms of the way in which they’re reacting. Clearly, they are downgrading companies, but I think, again, investors are sort of seeing through some of that. And similarly, the rating agencies are seeing through some of the challenges that these companies are having. And certainly we’ve heard anecdotally in the last few weeks that they are actually expressing a preference for liquidity over leverage. So those companies are now taking leverage on board, albeit on a net basis of just sitting the cash on the balance sheet, you’re ultimately net leverage neutral.
The agencies are turning around and saying we sort of welcome that and the fact that you are staying liquid and seeing your way through this crisis is something that they’re actually giving Brownie points to companies for as well. So whereas in the past they might have penalised or fought for that incremental leverage, this time they’re actually seeing it as a somewhat positive message that they want to convey to their companies that they cover.
And then I guess the last piece is simply one of what the investors are now starting to focus on, and this has really come to bear over the last week or so, is the market and investors sort of starting to now pivot away from just the pure Covid sort of knee-jerk reaction, to now focus much upon sort of what comes next. And, as I say, 2020 is a little bit of write-off, but they are starting to focus on the GDP downturn, they are starting to focus on where does the market and where does our new normal settle. But, again, I think the one thing that we’re seeing is companies are going and making use of capital markets, making use of private placement debt investors to be able to fund. And indeed, we’ve seen, as I say, record issuance, certainly in the public space, and the private markets are only just starting to get going, a little bit like the leverage finance space.
And the last message, I guess before I hand it back you, Oliver, is really around perhaps some of the mistakes that have been made. And I think this is certainly something that I see culturally that in the US I do think people have turned less to sort of government schemes and to bank capital as their knee-jerk lowest hanging fruit route to gaining liquidity. Whereas in the US I think it’s sort of the opposite, where they see that very much as a last resort, that they do see the sort of syndicated route of using the capital markets investors as their primary route to market. And that certainly bears out in terms of issuance as well, that if we look at the issuance numbers coming out of the US it’s far, far in excess of what we’ve seen in Europe. And I think that’s, again, the culture difference of US market, they go straight to the debt capital markets and leave their sort of rainy day capital, with that being bank or, indeed, government finance untouched or at least tested but not necessarily utilised. And then they focus on getting out into the markets quickly.
And we’re starting to see that coming through in Europe as well, and I loosely state the UK’s in Europe for the time being at least, that they are starting to sort of get round to that refinancing wave of taking some of that lower hanging fruit and monies that they took and put that into the bond market.
I mean I’m just looking at the screens right now, actually, and we’re seeing Severn Trend, a UK water company, we’re seeing Pearson again dipping into the market today, as well as 3i. So companies are making use of the market live in sterling and euros and doing so pretty darn successfully. So perhaps I’ll stop there. Throw it open to some questions or you, Oliver.
Fraser, a thought maybe then, one or two questions before I do come to Alex. So if I’m a UK entrepreneur, a UK business owner, public or private, really fascinating to hear both this notion and actually the access to capital is there. Don’t believe the hype, don’t necessarily believe some of the headlines that you hear. Amazing to hear some of the pricing actually that you alluded to, and also that difference, of course, in routes to accessing capital and liquidity.
So if I am one of these listeners in the UK how would you advise people start to think about that route to market, that journey that they should take? You’ve often talked about the differences between the private or the public, for example, maybe some of your thoughts on that within a Covid context.
It’s a super question. I think in terms of how people are starting to think about, and let’s be clear, 6 or 8 weeks ago the market was jammed in the sheer volume of requests we were getting for liquidity and liquidity facilities and standby facilities was frenetic, it was horrendous. I think I heard anecdotally in a single day alone in the early part of March we were receiving anywhere between 150 and 200 requests per day, and therefore it was pretty horrible.
Things have calmed down, but I would say that there is still some stress out there and therefore perhaps have those conversations soon rather than later. Certainly, slightly oddly, and it does seem quite odd, but there are a number of situations that we’re currently now working on in terms of the M&A sphere. So there are certain companies that are now plummeting or have plummeted in value. And I’m actually seeing some companies to get on the front foot, starting to see what they can pick up in terms of quote unquote “bargains”, if you like. Again, it comes back to seeing through to the longer term winners.
And therefore, part and parcel of that, those discussions that would normally happen quite late in the day are happening much sooner, just so that you can work through the plumbing of the institution and of other institutions to sort of start socialising things. Because of that frenetic pace we’ve seen in the past it does just mean that things take that little bit longer to process through. But it is true we’re starting to think about acquisition financing facilities and bridge facilities for those sorts of situations. But yeah, I would suggest have those conversations with your partners soon rather than later would probably be my first tip.
And the second one is just think about sort of the tenor also of the asks. The one thing we have heard a lot of is – forgive me if I start getting into some slight technical jargon – but from a risk weighted assets, from an RWA perspective the banks have been quite distressed. Certainly not even a factor of where we were back in the financial crisis, but there has been some focus and, as a result, a lot of institutions have been quite focused on trying to shorten up the facilities that they’ve been able to give because the RWA costs and overhangs are simply much lower, if you like, for the shorter facilities.
So again, have those conversations around what is available, what the sort of the terms are of that, and then navigate through using the different tools in the toolkit, and really assess the different options available to you before making decisions. But yeah, I think those are the main things. So come to terms with the new reality, but also just start having those conversations earlier. And if you want people signed up to NDAs, we seem to be doing it all the time because of those conversations happening, normally they would happen quite late and therefore the risks of leaks and things like that are less of an issue. But if you need people to sign up to NDAs to be able to that, do it I would suggest.
Fraser, that’s great, super interesting, thanks for that. I know you and the team would be delighted to help for anyone who is thinking about this. So that’s the debt side.
Alex, I’m thrilled we managed to get you on audio. Obviously, equity markets have seen a pretty volatile ride to date, remarkable that in many ways we got back almost to level. Depth and breadth, of course, has been an interesting dynamic. There’s a handful of slots that really have sort of led the recovery in the US. But maybe you can give us some perspectives of the equity capital markets. What are some of the key themes that you’re seeing, what are some of the things that you’re talking to your clients about?
Thank you, Oliver. From our side what we’d say is clearly when the spread of Covid-19 to Europe became apparent, market volatility actually picked up to the most volatile the market have ever been, so VIX over 85, which meant the market moving 7% a day. And we saw very elevated volumes at that time. So the equity market was seeing almost two to three times the typical levels of trading activity during that period. So really was a rollercoaster. I think the combination of policy action and then how the number of individual Covid cases played out have seen markets calmed somewhat. So I think volatility now, we’ve a got a VIX inside of 30, which is still about twice the normal level. So a functioning market is generally more consistent with a VIX in the sort of 15 level. And the markets have recovered 15 to 20% from their lows, so we’ve come back a long way. Volumes are now quite thin, so we’re going to have all that big trading activity from our institutional clients in terms of repositioning their portfolios, it has eased a lot. So they’re actually running probably more like 50 to 60% of typical levels now, so quite thin.
I think where that all leaves us, I think it leaves us with quite a divided equity market in some sort of where next. So I think conviction is low universally. I think very few investors are willing to express a view in terms of what they think is going to happen next. But I mean broadly speaking there are two camps. I think one is those that would say don’t fight policy, you’ve now got the monetary taps are very much back on and that tends to underpin markets. And you’re going to have fiscal, the further area of support from government. And I think you’ve got another constituency that would say the market’s expensive, if we ignore 2020 because earnings estimates are now so disturbed. You know, the US equity market’s probably back up at 18 times 2021, Europe’s probably back up at about 16½ times, 2021. So the market’s not cheap. And I think there’s a lot of scope for perhaps investors to be disappointed, when we get the data in terms of how the market’s reopening. And it’s very clear that a lot of corporates are thinking about what the footprint is post Covid.
Consumer confidence is likely to be low, and so I think all of that for us. The dampening we’ve seen in volatility and the recovery in markets I think we’re all pleased and emboldened by it, but I think our suspicion is volatility could well kick back out when we get more data in terms of how we’re going to emerge.
I think the good news is for corporates in terms of financing in the equity markets is the markets have really sprung to life, so April and May together were up more than a 100% on last year in terms of the European issue. And we’ve seen 40 deals in Europe over the last 8 to 10 weeks, and 200 deals globally. And actually, the UK’s probably been the most active market in Europe, so 26 deals, over £50 million in the region. We’ve seen 7 billion of issuance. And we’ve been the most active bank by far in the market, I think twice the number of deals, we got number two to peer. And I think helpful those deals have been actually working for investors. I think it’s 21 of the 28 deals in the UK are up on issue price, average of the market for those deals is plus 7%.
And so I think what we’ve been encouraged by is investors saw this coming, they set aside cash. They’ve backed their companies. I think one of things we are seeing is that investors are really keen to part with their money and the companies that are going to emerge from this crisis stronger than their peers are in relatively ruder health. And I think there’s a view that being less levered will play its part there. So if anything, coming to the market and raising primary has been a catalyst for many companies, provided there’s been a well-articulated use of proceeds, a well-articulated scenario for how the company is thinking about its downside.
And then look, I think the pipeline continues to build and so whilst we’ve had an absolutely blow-out couple of weeks in the UK, I think in the near term it may be quieter in the next couple of weeks, but it’s clear that the pipeline’s building into other sectors and perhaps beyond just consumer, which is where some the early activity has been most felt.
And I think finally, with the sort of support from investors I think the market has become perhaps a bit more discerning about where to put its money from a sort of valuation standpoint, and I think that overall equity market valuation sort of hides
the bifurcation between sectors is now as wide as it’s ever been. So if you are in any area of tech, whether it be software, whether it be systems, if you are in consumer staples, if you’re in food, if you’re in certain parts of retail, if you’re in utilities valuations are extremely robust and appetites extremely strong. And so I think with that will come the broadening of issuance activity. So we had the intention to float announcement for the first meaningful European IPO last week, for the intention to float Peaks Coffee, which is the largest pure growth coffee company in the world and the second largest player behind Nestle. And we’re book building this week. Books are already covered, and I volunteer that as a sort of example of it’s perhaps not as gloomy as you might think. If you’re in some sectors activity is broadening.
And so overall, I think while we’re cautious in terms of what the economic outlook is likely to hold, I think the finance markets are likely to remain robust, and while investors will be discerning, as I say, I think for the right company, for the right use of proceeds I think you’ll continue to see a lot of activity and a lot of support.
So I think with that I can probably turn to questions.
Alex, thanks for that. I think really interesting insights. Again, much more nuanced than you might have appreciated looking outside in. Really interesting to kind of hear some of that detail.
I thought quickly maybe a comment or two from you. You know, entering into this crisis there was, of course, a lot of talk around the amount of dry powder that was sitting on the side-lines for sponsors or the private equity industry. What have you seen from private equity or, indeed, any sort of potential M&A. We were, of course, on the recent Liberty 02 deal, but some thoughts on that perhaps from you.
It’s looking up. I think early on in the crisis I think it’s clear that M&A activity is the first thing to suffer and take a step back, take a big pause for breath before you see activity resume. And really what’s at the heart of that is there tends to immediately be a pretty big valuable gap between seller expectations and buyer willingness to pay. But I think activity has probably come back slightly faster than we thought in a couple of areas. I think number one is strategic deals where even if relative valuation may have moved around a bit, the industrial arguments and the benefit of the synergy from doing a deal are still very much there.
And I think the case in point was, obviously, you know, the marquee deal we led for Liberty Global and 02 in terms of combining their UK telco assets to create a strong number two to BT. But also actually a smaller deal that we led the announcement last week for Marston and Carlsberg in terms of their UK brewing JV. So you’re seeing strategic deals happen where the industrial arguments are unaffected.
I think for now, in terms of the sponsor side, I mean I think where they’ve probably been tending to spend a bit more time is probably more around private investment and public equity. So you’ve seen some quite notable examples, like the deal for Apollo, we led them to Expedia in the US. So I think particularly in the US, but increasingly Europe, you’re actually seeing some companies look to that community as an alternative to the public equity race, so active there.
And then I think the sort of take-privates that we’re beginning to see happen in the last 18 months, pre-Covid, like Advent, Advent Cobham and all this kind of thing. I think it’s coming back. I think tentatively you’ll see a few of those deals over the next six months. So I think our sponsor friends are operating at record fund sizeI think they’re now under a lot of pressure to deploy capital. I think they are probably through the worst in terms of fighting some of their own liquidity fires on portfolio companies. I would expect that activity to come back.
Alex, that’s great, thank you. Stay on Alex, we might take a chance for a few questions all of us at the end.
Moving on, Catherine, thanks for taking some time today. Maybe before we dive in a little bit, it’s an exciting new initiative to be launching the commercial bank in the UK. It’s fantastic to have you on board. Maybe just some overall sort of insights on the commercial bank initiative. And then love to pick up a little bit with you around some of the things you’re doing with your commercial bank clients. I know you’ve talked around the evolution in payment and also some things to be aware of around cyber. So love to hear some of those things from you.
Thanks, Oliver for having me. Yes, indeed we have an exciting and I would say further development of our footprint within the commercial bank, having kind of implemented a couple of new teams across the European region, as well as in Asia, again, to further enhance our relationship with our global clients. And to your point I think as part of the commercial bank in the UK we are spending a lot of our time helping your client navigate development markets, as well as maximising the opportunities created.
So we couldn’t have hoped for a much more interesting topic than Covid-19 to kickstart our business. But again, I think there was a couple of key important aspects for us from a commercial bank perspective. The first one is obviously to keep serving our clients. I think luckily, JP Morgan maintained Fortress capital and liquidity. We are obviously one of the largest banks in the world by assets. We are close to $3 trillion of assets. And, indeed, despite the macro economic environment we definitely continue to see tremendous opportunities to broaden our relationship with our existing clients, be it addressing the liquidity crisis or supporting kind of draw down on RCF, helping renegotiate covenants, as well as protecting their current existing businesses where we’ve had a lot of hedging discussions. And to Fraser’s and Alex’s point, it’s also about making sure that we enable the access to the market.
I think our capabilities and stability are even more valuable in this environment and as part of the UK commercial bank we have been quite lucky and, I guess our recent wins have demonstrated that we are able to support our clients in that regard.
When it comes to the UK commercial banking clients I think, as I mentioned, the real focus has been on helping our clients gain access to the capital markets. We – and to Fraser’s point – we are actually not buyers in terms of which market to tap into, so it’s about what makes sense for the current situation of our clients. And making sure that – we’ve had many recent examples of clients taking advantage of these attractive windows to attend capital and liquidity.
I think a key topic that we’ve seen as well is really the renewed focus on M&A and how to fund these opportunities. So it's about accessing the capital, not to survive, but also to grow and maximise the current opportunity. And we’ve seen a lot more discussions happening on that topic, moving away from the Covid-19 discussion and how to survive, but really talking about the mid to long term strategy. And I think this has been a renewed focus of a lot of our clients.
When it comes to new clients, it’s obviously a part of our start-up strategy, being perceived as a safe haven we’ve been, indeed, on the receiving end of new requests for capital, and I would say overall support. We also recognise that for us we have a generational opportunity to attract new business and develop also further as part of the UK commercial bank.
As always, we remain vigilant about our firms, you know, client’s principles and continue to apply a really risk centric lens to any new relationship. But this is where leveraging the private bank and leveraging the existing relationship within the bank has come as really extremely important when we were looking at onboarding new clients.
And another interesting topic that we saw recently is obviously around not only access to capital, but what do do with it? As I mentioned, we saw a lot of deposits growing on either the back of the governmental stimulus, albeit now it’s obviously going down. But also, as mentioned, you know, clients building some [inaudible] to fund future opportunities. So we’ve been having numerous discussions on deposits and liquidity.
A key point of note, and I’m sure clients are aware of this, but in general banks are not really keen on what we call hot money, and are redirecting the large non-operating deposit spikes to off-balance sheet, i.e. asset management alternatives. So that’s really something that we’ve seen and we’ve been directing our clients towards our asset management division.
To your point, Oliver, around what we’ve seen and what is the current focus and the current trends. I would say in light of full term financing becoming more and more extensive our clients are looking at managing cash more efficiently, and it has been extremely critical in today’s environment. It’s all about optimising the payment process, helping your clients’ cash management as and when their business grows as well. But most importantly, we’ve really seen this also in the context of the wider thinking about the long-term strategy. The crisis seemed to have been a catalyst to more kind of long-term focus, about transforming digital payment, for example.
We are seeing clients really taking actions to digitally transform their payment processes, and this has been really now more than ever. They might have thought about it as a 2021 project, and more and more we see this as really being on today’s agenda. So we are really seeing a lot of increased adoptions across all of our channels on the commercial banking side.
We – and I think to your point – and by the way, on this we are seeing a lot of new requests for proposal on global cash management or other kind of cash management and treasury services in general, broader and global structures. So we are helping a lot and addressing some of those conditions at the moment.
And to your point, the last point, slightly indeed off topic, but nonetheless relevant, before I had it over to you, Oliver, it’s really around cyber security. We are seeing a lot of our clients being subject to attacks, whether it’s on developing sensitive data, such as personally identifying information or financial account information, or even flows and transfer of money not being made or being made maliciously. I think more and more we see cyber criminals are using these pandemic fears and uncertainty to maximise their profits and, as such, we are having a lot of discussion with our clients to make sure that not only do they have the right flow and the right ways to process their funds, but also the right systems in place to put themselves.
I hand it back over to you, Oliver, if you’ve got any questions.
Thanks, Catherine. I think that’s a fascinating insight. The cyber security one is something that the firm takes extremely seriously and we are seeing, of course, in an increasingly digital mobile, working from home environment, the risk of fraud and cyber security has increased substantially.
Fortunately, at JP Morgan we have over 3,000 cyber security specialists in London, New York and Singapore and spend a billion dollars a year on making we sure we protect our clients from exactly these type of issues. Thanks, Catherine.
Mindful of time I will try and get wrapped up in the next five minutes to get everyone away before lunch.
Miles will just put up another slide on the screen for those who did want to try and open up or send in any further questions. You’ve got an email address there if you would like to submit a question over and above the chance to submit before the event.
Perhaps I can just ask Alex and Fraser to come back on while people have a chance to send a question in. I’ll pose one to you both.
It’s been interesting to think about the timing and opportunity that is there right now. I got that from both of your comments. Whether or not there is a second wave, whether or not there is a need to pivot before that comes, could you maybe just talk about any sort of seasonability that you see in equity and debt capital markets, and also what’s the time that it really takes from the start of a conversation to be able to execute a deal and maybe some thoughts around size too?
I don’t know who wants to go first, Fraser or Alex. Fraser, over to you.
I’ll jump in. So I think in terms of the timeline from standing start to finish, I think it sort of depends on the documentation process that the borrower has. I mean there are lots of companies who have short term shelf or MTM programmes that have allowed them to turn things around pretty quickly. Although even there you’ve been frustrated by the fact that this current environment and this current process that we’re going through does need some supplements in terms of the information and the disclosure that people are putting out into the public domain is really just the impacts that Covid is having on people’s businesses.
But in terms of the sort of more normal, if you want to call it that, sort of process it would be somewhere between six and eight weeks all told in terms of working with lawyers. I know Alex will be able to blow that out the water in second, but that’s probably about right from the debt market’s perspective.
In terms of the seasonality point and the timeline there, and this is the bit that everyone’s sort of trying to grapple with now, as you say, is what happens next, what’s the second wave, it’s what comes from here.
And I think for the most part people have been rushing, and I think that’s part and parcel of why March and April were so busy, that people were trying to rush to the market a) - for liquidity and b) - because they saw sort of greyer clouds on the horizon. But that said, there are a number of companies that are starting to now focus on August and September for issuance, notwithstanding the holiday season that’s normally the back end of August. I’m not sure the sort of the traditional holiday schedule sort of permits this year, but we’ll see how that plays out. But no, people are starting to focus on that.
But I think the one thing that we are taking heart from is the fact that even in the sort of depths of March, certainly from the high grade bond market, we were only closed for six business days. And therefore through the height of that, yes, there’s going to be some stresses and there are bound to be some strains, but people have taken great heart from the fact that for the right company, with the right profile, investors continue to support through thick and thin, and that sort of bodes particularly well. But perhaps I’ll stop there and hand back to Alex.
Yeah, thanks Fraser. Alex.
I think the prep times can be quite a lot faster, so I think for an existing listed company who are looking to raise up to 20% of their market cap, I mean I think you can sort of be in market within 10 days to two weeks, so very, very quickly. I think for someone who’s looking for to be larger, probably a listing listed company that’s looking to raise a large amount of money the timetable then becomes sort of more like 8 to 10 weeks. And then finally, obviously, if you are unlisted today and wish to raise equity, whether that be in a public format or another private format, I think a state of planning assumption is 3 to 4 months. So I think issuers can be in market quite quickly.
And I think what you’ve seen in the last sort of 8 to 10 weeks in terms of issue is clearly the UK, for example, has been dominated by these financings representing less than 20% of the company’s market cap, so that’s an overwhelming majority of deals. There’s only been two deals that have been much larger than that relative to company size. Aston Martin and then Whitbread, the latter – we led both of those deals. And Whitbread came last week and those are the ones that have, obviously, required much more extensive preparation. But I think the pipeline of those larger financings relative to market cap are building and I think there’s likely to be a number targeting the July window offer option of Q2 numbers.
Alex, there is one question that’s come in, we can squeeze it in perhaps before we have to close, large single stocks. What have you seen in terms of activity around large single stock positions?
Yes, so specifically in a block market, [inaudible] So obviously the first month post-Covid, April, particularly first half of April, but most of April was pretty quiet for secondary positions and it was much more focused on primary. But I think the last four or five weeks have been really quite active on the secondary block side. So we’ve seen about 10 to 15 deals in Europe over £250 million, so really some quite large positions beginning to be monetised.
And I think we’ve been reasonably pleased by the depth of demand. So I think discounts, I think the median discount of deals done have been in the 4% area, and it’s been actually fairly consistent with historical averages. There may be a tiny bit wider of sort of investment, a slightly greater discount to reflect market volatility, but overall I mean the market debts are there. And again, when I talked about issuance earlier, I think in single stock positions will be I think much more active in the coming months.
And I’ll just probably make the point that it shouldn’t, it should be compliant to disposals, actual financings. I think the terms on financing single stock positions has got better and so yeah, I think we would expect some people to look at the recovery versus the uncertainty, then maybe look to take some money off the table.
And hedging, of course, given the rally that we’ve seen back as well not to be under-estimated.
I am acutely aware of time. Let me just close with perhaps some final thoughts. The first and foremost would be a huge thank you to Catherine, Fraser and Alex. We spend a lot of time as a group really talking about how we can join up the various different constituencies with JP Morgan to truly deliver an integrated joined up and pretty compelling and unique proposition to market for individuals and their operating businesses.
If there are other questions or conversations that you would like to explore please do get in touch with your private bank relationship manager. I hope you’ve got a sense that we are able to cater both for your private and personal financial affairs as well as the professional context in support of any of your operating businesses or operating assets.
I think it was a fantastic insight across the landscape there.
I’ll close with perhaps a quote as a final thought for how to think about tackling the challenges of Covid. They are extensive, they are broad, there is a lot of uncertainty and there is much more thoughts and advice that we can provide. We’ve come up with our sort of Covid-19 dashboard for how companies can think about things. So please do get in touch.
But there was a quote that particularly struck me in terms of the mindset and opportunities from this, because while there are a lot of challenges whenever there is adversity there is also opportunity. Bad companies are destroyed by crisis, good companies survive them, great companies are improved by them.
Thanks very much everyone. Enjoy the rest of your day and the rest of your week. Thank you.