Barclays Capital Rises, ‘Big-Boy Checkbook’ in Hand
BY MICHAEL J. DE LA MERCED
The American pipeline operator Kinder Morgan struck one of the biggest deals of the year nearly a month ago with its $21.1 billion purchase of a rival, the El Paso Corporation.
What was just as notable was the financing backing the deal — a $13.3 billion loan package arranged by Barclays Capital, one of the largest financing efforts that the bank had made on its own. It was the second time this year that the British investment bank took the initial financing of a megadeal upon its shoulders. In August, Barclays lent $8.3 billion to Hewlett-Packard to help pay for its $11.7 billion purchase of the British software company Autonomy.
Those loans are part of Barclays’ continued efforts to move into the top ranks of advisers on mergers and acquisitions, a campaign begun when the London bank purchased the bulk of Lehman Brothers’ North American investment bank in 2008.
As of last Thursday, Barclays was ranked seventh among worldwide merger advisers, having participated in 148 deals worth more than $290 billion, according to data from Thomson Reuters. That is a step up from the ninth place that the company held in each of the last three years.
And in terms of deal lending, Barclays ranks in the top five this year, with more than $28 billion in syndicated loan proceeds, according to Thomson Reuters.
“We’ve long had a big-boy M.& A. business,” Hugh E. McGee III, Barclays’ head of investment banking and a Lehman veteran, said in an interview. “And now we’ve got a big-boy checkbook.”
Yet the company still has a way to go. It trails its more established competitors, including JPMorgan Chase and Bank of America-Merrill Lynch, both in merger advice and in lending.
JPMorgan, for instance, is ranked third in deal advice and second in merger lending. And it still claims the crown for the biggest deal loan since the 2008 financial crisis, having initially shouldered a $20 billion loan to AT&T for its proposed $39 billion takeover of T-Mobile USA, a unit of Deutsche Telekom.
And a lending business does not guarantee a higher spot on the league tables, or rankings. BNP Paribas, for instance, ranks seventh for deal lending this year, but 13th for mergers advice. Goldman Sachs, on the other hand, ranks ninth in lending but leads the mergers league tables.
Mr. McGee concedes that his company still has some work to do. But he added that Barclays had made progress, including building investment banking operations in Europe and in Asia.
That campaign also includes lending to deals by longtime clients, as in the case of Kinder Morgan and H.P.
Barclays began discussions with Kinder Morgan on Sept. 8 about financing the El Paso takeover, several months after Kinder Morgan had begun discussing the deal with the American investment bank Evercore Partners, according to a regulatory filing.
What Barclays ended up providing was a three-part loan package that the bank initially shouldered on its own, though on Oct. 31 it sold pieces of the loan to 10 other banks.
As with the Hewlett-Packard and AT&T single-bank loans, the financing provided some speed and certainty to Kinder Morgan, allowing the company to avoid the normally time-consuming process of finding enough lenders to provide capital. It also helped clamp down on leaks by limiting the number of people with knowledge of the transaction.
While the loan appeared to be a risk — it was not rated investment grade — Barclays executives said they believed in the deal, which would create the biggest American operator of oil and natural gas pipelines. Kinder Morgan, after all, was a longtime client.
Barclays’ single-bank loan offerings had some extra benefits for the bank’s clients as well. Along with its loan to H.P., Barclays helped the technology giant hedge the currency risk in its Autonomy deal without tipping off others in the market.
Still, to some, Barclays’ loans signify an effort to buy a better spot on deal league tables.
And the bank has gotten into some trouble for its lending practices before: last month, the company settled a shareholder lawsuit over the $5 billion takeover of Del Monte Foods, in which Barclays advised the seller. The plaintiffs had argued that Barclays, which advised Del Monte and provided financing to potential buyers, had an incentive to prevent a robust auction of the food company. Barclays ultimately agreed to pay $23.7 million and gave up $21 million in fees.
But Mr. McGee said the bank’s aim was not to rely on lending to get into deals. Barclays is less likely to make a giant loan commitment if it is not one of the lead advisers on a transaction, he said, and is being discerning about to whom it lends.
“We want to lead with our relationships and then use our balance sheet,” he said. “We don’t want to lead with our balance sheet.”
