Baker McKenzie advised as lead counsel to Firmenich on each interconnecting step of the flavour and fragrance giant’s €2.25bn hat-trick financing last year, including, the debut bridge loan to support its bid; its debut senior eurobond to part fund the acquisition; and its debut hybrid bond to bolster its capital structure and preserve its investment grade rating.
Partners Michael Doran and Geoff O’Dea led the deal, with lead senior associate James Tanner, who had joined Bakers in January 2019. He qualified at White & Case in August 2012, having worked in the firm’s London, Hong Kong and Singapore offices previously. “Despite my American accent, I’m an English lawyer, and did my university, law school and training contract on this side of the pond,” he says.
Tanner’s work is generally split between debt capital markets and securitisation transactions. He says he particularly enjoys deals that involve interesting applications of existing financial products to new jurisdictions, a Ghana-based securitisation of construction receivables for example, and a swap collateralised by government bonds for a Mauritius-based bank financing a sub-Saharan African central bank.
“However, the deal that might be most memorable for me was working on the private sector debt restructuring for Greece – the biggest sovereign restructuring to date – at the height of its financial crisis. Seeing your work mentioned in the news is always nice! Working on green / ESG products is also great – we’ve been increasingly involved in these, including a recent Social Bond for Sovcombank, the first in its region, and it’s a great to be able to do a bit of good while also learning about interesting new types of products.”
He works most often with the partners in the structured capital markets team at Bakers, including Jeremy Levy, Simon Porter and Matthew Denning, as well as those in the broader capital markets team such as Adam Farlow and Rob Matthews.
“I’m enjoying at present working frequently with our amazing Istanbul finance team, led by Muhsin Kehskin, on several bonds for Turkish issuers (including a recent green bond for Akbank). I was lucky enough to meet his team and be taken for a night on the town when there on business shortly before the pandemic hit. I particularly enjoyed meeting our two office dogs there!”
On 28 May 2020, Swiss flavour and fragrance manufacturer Firmenich International, announced the completion of its acquisition of Les Dérivés Résiniques et Terpéniques (DRT). DRT is headquartered in Dax, France, and develops and supplies renewable and naturally derived ingredients. The acquisition sees Firmenich become a key player in renewable ingredients for perfumery and fragrances and consolidates its global leadership position in the sector.
Firmenich and its advisers structured a pioneering three-step financing, unique for a large private business, raising the acquisition finance, consolidating its balance sheet, and preserving its investment grade rating. The transaction proved to be a true pathfinder financing amid the headwinds of the early destabilising days of the covid-19 pandemic. It showed the critical large private company sector in Europe what was possible with ambition, resilience, management determination and fiercely focused execution.
“This deal stood out for seeming to be several deals combined into one. A bridge loan, an acquisition, two completely different bonds (with a third Swiss bond lurking in the background) – it seemed that every day there was a new challenge to be overcome, and that’s before even mentioning the pandemic and the challenges and opportunities that brought. The deal also started immediately before the pandemic hit – we had in-person kick-off meetings in Geneva in late February, just before the borders closed – the last trip of any sort many of us had of any sort for a long time,” Tanner recalls.
“Finding out about Firmenich and their business was absolutely fascinating. Learning about their history and how their finance and fragrance products are used on such an enormous amount of different types of product one uses on an everyday basis was tremendous. Drafting disclosure for a securities issuance is always interesting in this respect, but this was particularly so given it was a first-time issuer, meaning we were starting with a blank page. I also learned a lot about hybrid capital instruments, which I was only vaguely aware of before the deal – an interesting type of finance that straddles the conceptual line between debt and equity.”
Firmenich was able to achieve its targeted acquisition debt financing, despite the challenging market conditions. The bridge financing was provided on investment grade terms but with certain fund mechanics successfully imported from the large cap leveraged finance market which ensured that the financing remained committed despite rapidly worsening market conditions in March 2020. It is worth recalling that February and March 2020 saw historically large and rapid declines across all sectors globally.
“Ensuring the deal was compliant with the requirements of the huge emergency debt purchase programmes put together by the ECB to purchase corporate bonds during the pandemic, while still working from a Swiss tax perspective, was incredibly challenging, requiring work with tax teams around Europe to restructure the deal mid-transaction. Having the deal start in the “normal” world and finish in the pandemic world also created its own challenges too, with all of us learning how to use Zoom and the other delights of remote working mid-deal. Finally, the deal being a combination of a debt issuance and an acquisition meant there were some very strict timelines to stick to,” says Tanner.
“The sector of the client, as well as the challenges of working to ensure eligibility with the ECB’s bond purchase programme while maintaining positive tax treatment, created a completely new set of challenges compared to other deals I’ve worked on. It was also the first major deal I worked on remotely, which brought its own set of difficulties.”
The senior bond was structured to achieve two mission-critical goals – tax efficiency for what was ultimately a Swiss credit and eligibility for the Pandemic Emergency Purchase Programme announced by the ECB to combat the covid-19 crisis. Baker McKenzie worked with teams in Switzerland, France, Luxembourg, the Netherlands and the UK to ensure that this senior bond issuance would be tax efficient and benefit from such eligibility, leading to favourable launch pricing dynamics for Firmenich. At this point, the ECB was the mainstay of the European bond market.
The covid-19 pandemic shuttered the European hybrid capital debt market in early 2020. This market is based on a quasi-equity piece of the capital structure seen as being more risky than senior debt. It was a brave decision to attempt to re-open it with a debut issuance and unknown private company Issuer. But this courage was well rewarded as it successfully opened the hybrid capital market again – and clearly showed to the wider financial markets that both stability and liquidity were providing favourable financing considerations for companies desperate to raise cash. It signalled that the financial markets were holding together.
The hybrid capital bond offering was significantly oversubscribed, attracting interest from a broad base of both existing and new institutional investors. The hybrid capital bond issuance was made more complex by virtue of a repackaging through a Netherlands vehicle which issued asset-backed notes backed by the hybrid loan note issued by Firmenich.
The structure was chosen by Firmenich’s advisors, including Baker McKenzie, to achieve tax efficiency while being in full compliance with all applicable regulations and market practices and meeting investor criteria. The hybrid bonds were S&P-rated, and S&P allocated a 50 per cent equity credit, strengthening Firmenich’s capital structure, preserving its investment-grade status and demonstrating to investors a prudent and conservative approach to its finances.
Tanner has continued to work on both capital markets deals and securitisations since this deal closed. “Recently we closed a private securitisation for a finance provider based in Australia – managing those time zones meant a lot of late nights and early mornings! I’ve also done several commercial paper transactions recently that took advantage of the UK government’s Covid Corporate Financing Facility – it was exciting to help companies ‘keep their lights on’ during the worst months of the pandemic,” he says
Reflecting on the deal he adds, “In addition to learning about a new sector and new product, I developed a great relationship with several people at a company which will going from strength to strength in the coming years. Hopefully this will lead to work throughout my career both in the fragrance and flavours sector, with hybrid capital products and with the Firmenich team.”
As with many of this year’s deals, working through the pandemic proved what’s possible with the right technology. “The benefit of being able to work remotely was chiefly that it enabled the deal to keep going at all! Without the ability to work remotely, the deal might never have happened,” Tanner says.
“As it was, we all quickly realised that working remotely enabled us to be more efficient when under real time pressure – the time saved in commuting every day was hugely helpful during days when every minute was precious. It was for all of us the first time working fully remotely – so the first few Zoom calls certainly had more children/dogs intruding into the background and odd backgrounds before everyone started getting into the groove of working that way!”
From a deal management perspective, Tanner says it taught him how important it was to keep juniors involved. “In the office, it’s easy to simply ensure calls are taken together and quick discussions had – whereas it quickly became clear that this would require more thought and effort when working remotely. Similarly, we learned the importance of regular check-in calls with the partners on the deal to ensure that they were kept up to date – much easier to do casually when we’re all in the same office. Finally, we learned the importance of still having a little celebration for closing, even if has to be done remotely or somewhat delayed until everyone can be in the same place.”
About James Tanner
2019-present: Senior associate, Baker McKenzie
2012-19: Associate, White & Case
Who’s Who: the Baker McKenzie team
Partners: Michael Doran and Geoff O’Dea
Senior associates: James Tanner, Oliver Jackson, Nick Cusack, Teresa Ryan and Roma McCool