This solution was required to finance a $6.4bn acquisition within a very tight timeline from start to finish. The financing was arranged in euros but the acquisition was in US dollars so contingent forwards and currency swaps were used to manage FX risk.
Photo of Laurent Mouthuy, Anne Lenaerts, Pascal Hubinont and Régis Henry, Solvay.
Deputy Group Treasurer
An international chemical and advanced materials company, Solvay assists its customers in innovating, developing, and delivering high-value, sustainable products and solutions that consume less energy and reduce CO2 emissions, optimise the use of resources and improve the quality of life. Solvay serves diversified global end markets including automotive and aerospace, consumer goods and healthcare, energy and environment, electricity and electronics, building and construction, as well as industrial applications. Solvay is headquartered in Brussels with about 30,000 employees spread across 53 countries. It generated pro forma net sales of €12.4bn in 2015, with 90% made from activities where it ranks among the world’s top three players. Solvay SA (SOLB.BE) is listed on Euronext in Brussels and Paris (Bloomberg: SOLB.BB – Reuters: SOLB.BR).
Solvay was acquiring the US-based group Cytec in a deal valued at $6.4bn and needed its treasury team to manage the financing required for the transaction.
Cytec represents a decisive milestone in Solvay’s transformation and opens up new horizons for growth and innovation to become a leading provider of lightweight materials for the aerospace industry.
The following summarises the key components of the transaction:
The treasury team also had to manage all credit rating related analysis and consequences and this allowed Solvay to define the financing structure for a sustainable investment grade profile.
Treasury also managed the many foreign exchange and interest rate risks as the acquisition was in USD (contingent forwards, currency swaps), whereas funding was mainly denominated in euros but also all internal financing and capital structure related challenges and the associated key questions on counterparty risk, cash management, and so on.
“Solvay’s very substantial capital increase illustrates once again the role that capital markets play in financing businesses’ growth and ambitions,” Alain Baetens, Head of Listings, Euronext Brussels, adds. “We are particularly proud to support this international champion with Belgian roots, whose history goes back over 150 years, in a move that opens a new stage in its business development. The success of this transaction underscores the strong confidence of investors in Solvay’s future.”
Best practice and innovation
The best practice and innovation demonstrated by this financing project can be summarised as follows:
The successful execution of a highly complex transaction.
Issuance of various types of debt (hybrid, EUR senior, USD senior) with various roadshows in US/EU.
The first equity increase for Solvay (€1.5bn issued) since the company IPO in the late 60’s.
The first debt issuance in USD for Solvay ($1.6bn in two tranches).
The use of contingent forwards to buy forward USD at a time when the transaction was uncertain.
Financing secured at announcement through bridge financing and syndication afterwards.
Perhaps the most impressive aspect of the transaction is the very tight timetable involved. The transaction was announced at the end of July 2015 and closed in December and, moreover, was executed by a small treasury team.
This highly committed small treasury team participated in the major strategic step of Solvay’s history by managing the financing of a $6.4bn company acquisition and all related treasury risks and challenges through innovative and best in class solutions, and all of this in the extremely short period of only four months.
Pascal Hubinont, Group Treasurer, Solvay concludes: “What makes this acquisition financing unique goes beyond size and securing liquidity – there is also a complex credit enhancement instrument mix driven by rating considerations as well as large contingent hedges to cover the forex exchange risk.”