The five Cs of lending: character, collateral, cash, capital and conditions

Two years ago, Intesa Sanpaolo was barely on the global finance map. Today it has a string of deals under its belt. The latest is supporting the acquisition of Keurig Green Mountain by European private wealth fund JAB.

01/03/2016


“At the end of the day, it’s all about trust,” says Jordan Schweon, the New York-based global relationship manager at Intesa Sanpaolo, the Italian bank.

 

He’s fresh from being named documentation agent in the $14bn acquisition of US coffee company Keurig Green Mountain by his client JAB, the European private wealth fund.

 

A largely honorary title, it gives little away about the role Intesa Sanpaolo and Jordan Schweon played in the transactions and the impressive fact that the bank was involved at the Tier 2 level of finance.

“It’s a great boost to be mandated at this level in another global coffee deal”
he says.

The other coffee deal he’s alluding to is the $7.6bn one between Master Blenders and Mondelez back in 2014. The latter sold its coffee interests in the shape of Douwe Egberts into a joint venture called Jacobs Douwe Egberts (JDE) with Master Blenders, which was owned by JAB.

 

Intesa Sanpaolo had worked with Mondelez parent company Kraft as one of many banks supplying rolling finance. When Kraft spun out its non-US consumer interests into Mondelez, Intesa Sanpaolo saw an opportunity to upgrade its relationship and be part of the Mondelez core banking team. It offered a $150m rolling credit facility.

 

“It’s about impressing clients by being ahead of the curve. So when Mondelez needed finance for the Master Blenders coffee deal, they knew they could count on us,” says Jordan Schweon.

This activity brought Intesa Sanpaolo to the attention of JAB.

Having committed €120m to help Mondelez finance the transaction, the bank subsequently was awarded JDE’s cash management business in Italy as well as that of supplier finance and derivatives.

Then it was just a matter of building the relationship and waiting.

This activity brought Intesa Sanpaolo to the attention of JAB.

Having committed €120m to help Mondelez finance the transaction, the bank subsequently was awarded JDE’s cash management business in Italy as well as that of supplier finance and derivatives.

Then it was just a matter of building the relationship and waiting.



“We suspected that something was going to happen with Keurig. And we knew the coffee market, having done the JDE deal. We also knew JAB and they knew us. We kept talking to them. And we had won the new business from JDE,” says Jordan Schweon. “So when they wanted to buy Keurig, we offered to be part of the financing.

 

The deal was non-investment grade – Keurig has suffered moderately falling revenues due to some problems with a new product launch– but Intesa Sanpaolo knew the coffee market, knew JAB and JAB knew the bank.

“We understood the JAB global strategy, which included both a significant financial commitment and a very strong and experienced management team.”

"We knew what we were getting for our money. They knew us and knew we could act fast. Our offer even got scaled up to $325m,” he says.

The financing was arranged in just two weeks – with the bank working right up until the last day to make sure everything was ready. “There’s always a lot of pressure. You never know quite how things are going to go in credit approval. I was confident we would get a fair hearing and we were very nimble when we saw the opportunity to increase our commitment,” says Jordan Schweon.

 

“It’s important to do advance preparation, to be organised and use time zones to your advantage,” he adds.

 

He believes part of the bank’s success is down to its culture. “Milan has embraced relationship banking and that has made us faster and more agile,” he says. “Capital markets, credit, structured finance, relationship management, senior management – they must all be on the same page.”

 

Intesa Sanpaolo is also one of Europe’s strongest banks by capitalisation – ranked third – and has a growing reputation for focus and consistency.

I have about a half dozen other names where I’m exercising a similar strategy of talking, preparing the ground, knowing the market, anticipating needs, all for a similar result. But JAB is very important to us and we hope to expand this relationship further.

As for Keurig, Jordan Schweon is keen to be involved in any bond conversions; there is $2.7bn in seven-year Term B Loans. “We will continue to assess the capital structure and talk to them about their needs. Our goal is to be a proactive provider of finance and corporate finance solutions.”



Relationship banking is all about trust. And that trust must go both ways. For the bank, Jordan Schweon says it was able to commit a significant sum to a non-investment grade deal because it knew JAB, knew it would put in new top management at Keurig, improve cash generation and clean-up operations. JAB involved Intesa Sanpaolo because it had confidence in the bank to step up to the plate and deliver on time.

“It’s the five Cs of lending – character, collateral, cash, capital and conditions,”
he says.

“We had the insight; they put in $8.5bn of their own money; we’ve worked together before. All the boxes were ticked.”

 

Meanwhile, this deal cements Intesa Sanpaolo’s position as a serious European player in the US. “It’s a significant transaction for us for a company of this rating and will put us in the league tables,” says Jordan Schweon, although he stresses that league-table banking is not a game Intesa Sanpaolo plays. “We only do deals that make sense for us. Deals that don’t match our relationship strategy, we won’t do.”

Related stories.