Capital MarketsInvestment Management

Strengthening Bonds With Fixed-Income Investors Pays Dividends

By February 16, 2023No Comments

A strong commitment to fixed-income investor relations in good times helps one company prepare for rough patches.

Say “investor relations” and most people immediately think of equity investors. But not the director of capital markets at a large manufacturer that has more than $100 billion outstanding in unsecured, asset-backed and convertible debt—and who has two team members dedicated solely to fixed-income investor relations (IR).

  • At a fall meeting of NeuGroup for Capital Markets sponsored by Deutsche Bank, the director described his company’s deliberate, proactive approach to fixed-income IR in good times and the benefits of the effort, which often show up most clearly when market or industry conditions become rough.
  • His presentation generated considerable interest from peers who came away with fresh ideas for managing an area that may not always receive the attention it deserves, where work pays off in ways that at times are hard to quantify but are evident and significant.
  • Deutsche Bank bankers offered insights on how corporates—including those that are infrequent issuers—can foster relationships with debt investors as financial conditions grow more difficult and feedback from asset managers on topics like ESG and sustainable financing becomes more important.

Funding when times are tough. Fixed-income investor outreach “is critical given the need to fund” the member’s company and its financing arm throughout all economic cycles, including downturns, he said. Top bondholders are “anchor orders on our new deals and provide secondary market liquidity in support of our outstanding bonds”—leading to more favorable pricing of new deals, according to his presentation.

  • “We spend a lot of time in the good times engaging with investors, which, we think—it’s hard to quantify this—pays off in the times that aren’t so good,” the member said in elaborating on the value of fixed-income IR. “For us, it’s deal execution in a poor market, or deal execution when there are maybe some not-so-positive forces that are industry-specific.”
  • Matt Siracuse, a managing director on Deutsche Bank’s investment grade syndicate desk, added that reaching out to investors well before any deal is launched can pay off when debt market conditions move against issuers. “As we enter into a market that’s a bit more challenging, fostering those relationships ahead of any kind of issuance could go a long way to minimize deal risk,” he said.
  • NeuGroup’s Scott Flieger, a former banker who leads the capital markets group, said another benefit of engagement with bondholders is an issuer’s ability to complete transactions in the size they want during choppy markets, in part because investors believe a deal will be properly priced with room for some upside potential. Also, “You can get the maturities done that you want to—and you can get both fixed- and floating-rate paper done,” he added.

Unpacking fixed-income IR. The member’s company signals the importance of the company’s relationship with its top bondholders by proactive outreach and offering them private calls and meetings with senior leadership, including the CEO and CFO.

  • “We prioritize one-on-one investor relations,” the member said. “That takes more time, it takes more energy, it takes more work, but we get more candid feedback that way than group discussions.” He added, “We pride ourselves in being best in class, trying to really engage with investors in a way that they see as a partnership.”
  • One-on-one or small meetings are where investors feel more comfortable offering direct, frank feedback to issuers, Mr. Siracuse said. That may include offering critical opinions on KPIs a company may be considering for a sustainable bond.
  • The presentation listed these other key workstreams for fixed-income IR:
    • Supporting rating agency relationships; the fixed-income IR team owns the relationship with agencies.
    • Communicating key investor information to senior management, bringing back what IR hears from investors after earnings calls.
    • Leading quarterly earnings process for the company’s financing arm.
    • Supporting unsecured debt transactions.
    • Preparing quarterly fixed-income presentations for investor outreach.
  • At the end of a recent year, the member’s fixed-income IR had completed more than 250 meetings, including presentations at conferences, non-deal roadshows, virtual events and gatherings at the company’s offices. Many meetings included the company’s equity IR team, but not all.

Other ways to engage. Infrequent debt issuers and companies that don’t have dedicated fixed-income IR teams have options for efforts that will not be as extensive as the presenting member but are still worthwhile. They include:

  • Tacking on fixed-income meetings at your company’s equity conferences; consider joining your company’s IR team when they are going to an equity conference. If you can’t attend, add something to the deck the equity team is presenting.
  • Making sure that if your company’s large equity holders have big bond operations, the fixed-income side of the asset manager takes a serious look at starting or increasing debt holdings.
  • Asking banks to let you know when they are having credit conference so someone from your company can attend. If you prepare a deck for the conference, post it on the company’s website.
  • When visiting a large city, consider asking a bank to organize a lunch or afternoon session with a small group of fixed-income investors.
Justin Jones

Author Justin Jones

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