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r 8 What's NewS Issue 9 October/November 1999
Our people around the network have been applying all their
creativity and expertise to win mandates for top deals. Here
is our usual quarterly round-up.
Knocking in a reverse
convertible - Paul Nevin
Rabobank in the UK recentiy con-
cluded its second equity derivatives
deal for a major UK insurer in its home
market. Scottish Mutual (SM) is a AA-
rated subsidiary of Abbey National plc
that sells pension, life insurance, and
investment products to retail clients. One
of Scottish
Mutual's
specialities is
high yielding
equity-linked
products.
However, as
a result of
regulatory
prevailing
market con-
ditions, it has
become
increasingly
difficult for
companies like SM to deliver these prod
ucts at a sufficiently attractive margin. RI
helped to design an innovative solution to
their conundrunt: a so-called 'knock-in
reverse convertible' which allows SM to
offer its clients an enhanced coupon plus
full return on their invested principal,
provided that the Eurostoxx50 Index does
not fa 11 by more than one-fifth during the
investment term. The details are as
follows: SM initially hedged GBP 100
million with Rabobank, then purchased a
further GBP 50 million after signals front
its distributors that demand was likely to
be high. The product, launched in
mid-August, is now being successfully
marketed. (SM has in the past sold single
tranches in volumes in excess of GBP 200
million.) 'Our trading desk successfully
hedged the bulk of the associated market
risk in the interbank market and was able
to generate a very attractive margin for
RI,' says Paul Nevin of GED. At the time
of development, this represented a unique
structure, and the RI solution was selected
front a shortlist of alternative ideas
offered by other investment banks.
Indeed, the fact that we won an exclusive
mandate for sueh a large deal is nothing
short of a coup. It is also notable given
that we were still at an early stage in the
development of our equity derivative trad
ing and sales business. The deal not only
enhanced our relationship with SM, but it
also improved our reputation for depend-
able and professional execution - the un-
derlying asset structure supplied to SM
was very complex to ensure it was tax ef
ficiënt for SM and met UK regulatory re-
quirements. A nuntber of areas within RI
were involved in ensuring that we could
structure the assets appropriately.
One of the bank's current clients in
Thailand was recentiy able to benefit
from a cash-backed and tax-driven financ-
ing package devised by the Singapore
Structureel Finance unit, working in con-
junction with GFM Structureel Products.
The transaction not only met the client's
immediate funding requirements in a fis-
cally efficiënt way, but it also played a role
in restructuring his balance sheet. More-
over, close internal cooperation within RI
made it possible to maximize our fee rev-
enue from the deal. It involved Singapore's
Koh Ban Aik, Marcus Eee and Clarence
Singam 011 the structured products side,
as well as Stacey I.oh and Pobporn 1'ipat-^
satukit from GFM Structured Products.
Says Marcus Lee, 'This was a good exam-
ple of the effectiveness of joint product
development and team effort amongst de-
partments. Ultimately, we delivered an at
tractive financial solution to an important
and long-standing cliënt, and enhanced
our yield without the use of solvency.'
Our healthcare staff in the US recentiy
circled a USD 50 million private
placement for Dean Health Systems
(DHS), a cutting edge health care delivery
and insurance company owned by physi-
cians and based in Madison, Wisconsin.
While this type of cliënt will gradually be
phased out as a result of our recentiy
completed Strategie Review, the deal was
the product of intense effort and reflected
precisely the kind of networking that will
remain a hallmark of our future mode of
operation. Acting as rating adviser, finan
cial advisor, structurer and placement
agent, RI professionals were able to ob-
tain an investment-grade rating from Duff
Phelps, to place the debt at a notably
long 15 year maturity, facilitate documen-
tation, and successfully take in over USD
85 million in biels despite an adverse
media climate for the physician group and
HMO industries as a whole. This was the
latest in a series of deals executed by RI
on behalf of DHS: they include a USD 64
million L/C that we agented and fronted
in support of a commercial paper
program earlier this year. The placement
was privately subscribed by two mid-
The DHS facility - cutting edge delivery
Western institutional investors - an insur
ance company and a pension fund. Ac-
cording to Sheldon Sussman, a Managing
Director for Credit Trading in NY, a
broad range of RI colleagues were integral
to the success of the deal. They include re
lationship manager Lydia Crowson who
sourced the deal and assisted in execution.
Holly Hellman and Scott Rickman of the
private placement group shaped the DHS
credit story for the nationwide roadshow
that preceded the placement, and were in-
strumental as rating and financial advisers
as well as in the actual structuring and
placement itself. Congratulations are in m
order for the hard work of all concerned.™
NB We've used the department titles cur
rent at the time of closure.
