Demystifying Debt Offerings - Autodesk Treasury Discusses its Recent Offering

In early January, Autodesk closed a new debt issuance of $500 million in public bonds. Autodesk is not a frequent issuer of debt, by which I mean that over my tenure at Autodesk (4 years and change), this is only our second public bond offering. The timing of the deal was impeccable, Autodesk’s credit story strong, and the execution was flawless – all together allowing for the tightest pricing in Autodesk’s history. 

For treasury professionals who haven’t had the opportunity to work much on debt issuance, I wanted to share a bit about our experience. I sat down with Autodesk’s Assistant Treasurer, Liz Kwong, and our Senior Manager for Debt & Capital Markets, Brandon Hillstead, to talk about our experience:

Tell me a little about your past experiences with working on debt b?

Brandon:  I've helped with Autodesk's prior $500M issuance and refinance in 2017 and the $500M term loan for the acquisitions in 2018.

Autodesk issued public bonds in 2017 and then decided not to go to the public market in 2018 when we needed to raise funds for two acquisitions. A lot of different factors go into the thinking behind issuing public debt versus taking out a term loan, two such considerations that went into our thinking in 2018 were:

·      Intent / timing to de-lever: term loans can be amortized at will and generally do not have a prepayment penalty for investment grade issuers; and

·      Interest expense over time outstanding: public bonds for investment grade issuers generally have a lower interest rate, but the delta between a 3-year public bond and a 2-year term loan wasn’t wide enough to offset the prepayment expense and Autodesk intended and did pay down the term-loan in 12 months making it a more economical choice.

How did you think about the timing of the issuance?

Brandon: We thought through the timing in relation to our upcoming $450M bond maturity and then layered on top of that timing company specific constraints, like blackout periods, as well as when we thought the market might produce good results for our offering.

Liz: Keeping a close pulse on macro and geopolitical risks, economic calendars, and the fixed income technical backdrop helped guide the strategic planning and subsequent tactical execution of the debt launch.

There are many factors an investment grade issuer should consider when entering into the debt markets, a few include the use of proceeds, balance sheet management, WACC optimization, refinancing upcoming debt and credit rating impact. In this instance, Autodesk has prior public bonds coming due in June of 2020 and based on our specifics we decided to refinance rather than repay those bonds. Once that decision was made, the next decision around timing was black periods, holidays, geopolitical events, FOMC events and announcements. You start with a calendar and mark off all the blackout times and potentially volatile times and then you get down to when you can enter the market.

How much lead time did you need?

Brandon: We kicked off the project internally about two and a half months prior to deal launch. Since we don't issue debt super often, it helps to have some lead time to get the muscle memory back from the prior issuances.

Liz: As part of a broader capital structure review, we revisited our credit management philosophy as well debt capital structure a few quarters prior to the bond refinancing. We presented our recommendation to the CFO, CEO, and Board Members, and engaged in very productive and meaningful discussions on the topic. With their approval, we got things started on the debt issuance. 

As pointed out above, there are so many factors that must be weighed in thinking about a debt issuance, you really need a decent amount of lead time. If pressed by an immediate need for proceeds, say for deal funding, some of deal work will also encompass the financing work – board approval, use of proceeds, etc. That can shorten the time needed to prepare.  Also, time needed for a public offering will depend on whether your company has a shelf registration on file with the SEC or whether they need to register the offering. Your legal counsel can answer that in two seconds flat!

Wait, you did this offering on the first day of the first full business week in 2020? How did you managed all the work going into it?

Brandon: We made a conscious effort to front load as much work as we could before the holidays, including scheduling activities that needed management to be involved, well before the down-time around the holidays.

Liz: Our legal counsel, auditors, and banks were also very engaged and working in lockstep with us to ensure all necessary work and diligence were completed timely. By the time we entered into the new year, we were ready to launch after completing all bring down work.

Autodesk is closed between Christmas and New Year’s Day. We knew going into December that we wanted to target the first week back in January for the offering. The whole team in Autodesk, our legal counsel, auditor and banks worked throughout December to get all the documentation done so we could launch coming right out of the holidays. A little planning went a long way for everyone to enjoy their holidays!

What other teams did you work with in Autodesk to get this done? 

Brandon: We worked with a lot of other teams at Autodesk. The main teams that we were engaged with were: Legal, SEC Reporting, Corporate Accounting, FP&A, Investor Relations and our auditors, EY.

We also worked closely with our banks, bank counsel and our legal counsel to get this closed.

What is the role of banks in a debt offering?

Brandon: Besides underwriting the deal and executing it on issuance day, our banks helped us in three main areas: 1 - deal marketing (net road show and investor call); 2 - diligence (conducting diligence calls and subsequent bring-down calls); and 3 - documentation (underwriting agreement, working group lists, etc.)

Liz: Outside of the formal roles taken on by the active bookrunners, the banks in our bank group collectively took an important advisory role through providing insights on areas such as deal structure (sizing, tenors, rate hedges, optionality features), execution of bond repayment (tender vs exercise on make whole calls), and other thematic debt considerations (green bond, convertible debt, etc..).

The banks are your partners in the offering and help with both the marketing of the debt but the tactical execution as well. Find banking partners with whom you like to work!

There was some deal specific lingo in there, can you describe for treasury team members who haven’t worked on a debt, the role / lingo of the banks? What is a book runner, a left lead and a right, a passive book runner, etc.?

Brandon: Sure, active book runners are the banks that will be working with you from an early point in the project and typically you will assign them different roles and responsibilities that they will manage through the project. Passive book runners will get involved in a later stage of the issuance and their name will appear as an underwriter, but they will not be doing a lot of the earlier work with the company. I would describe left lead as the “main bank” that you want to have the overall lead on the issuance.

As a tax lawyer who evolved into a treasurer over time, one thing I realized is that there is not a Blacks Law Dictionary for bank terminology. If you are new in treasury and don’t understand the roles or the terms, just ask. Trust me, sometimes you will find no one else in the room knows either!

Were there any surprises along the way?

Brandon: For me the biggest surprise was how many issuances were going to market at the same week. We thought the market would be active, but there was more activity than I imagined there would be.

Liz: At the peak, our orderbook was 8x oversubscribed and we landed at 6x over-subscription. We spoke with 106 different investors. It was a nice surprise to see the diversity in the investor base that ranged across geography, size, management style, etc. All the hard work by the team and our banks to market the Autodesk credit and brand paid off!

Was there anything you learned in a previous experience that you wanted to be sure you did differently this time? –

Brandon: This time I wanted to make sure we had a robust and detailed timeline with responsibilities and milestones. I thought that this would help reduce surprises and risks to the project progress.

As for me, nothing I wanted to do differently. But I was closely watching our pricing. If you believe in efficient markets, as a treasurer the way your debt trades the day after an offering is seen as indicative whether your debt was appropriately priced (meaning the right interest rate). Investors will give the right yield for the right risk, but obviously would prefer to receive a higher yield. If you squeeze your pricing too low, either you won’t have interest in your bonds or they will trade off with investors losing money on them or becoming illiquid. That makes it harder to go into the market next time you need capital. It is all a balancing act. 

How did you make sure Scott Herren, the Autodesk CFO, was supported in the process?

Brandon: I think the most important thing was to make sure he had everything he needed to have the conversations to get approval for the project from the CEO and the Board.

Liz: Ensuring that Scott had all the relevant information at the right time, every step of the way - from CEO and Board approval to investor and analyst meetings through bring down calls was key. Also making sure any important changes from plan were communicated timely was important.

The treasury team worked hard to keep Scott up to date and informed about the process, to help prepare him for investor meetings, and make sure he was in the loop on all the strategic decisions, without getting him bogged down in the process. It is a balance act and the team did great!

What was the best moment of the transaction?

Brandon: Seeing the final deal pricing alert come across on my Bloomberg terminal! 

Liz: The closing call. Done and done! 

?Seeing my team shine. Watching the order book fill up is also fun, seeing investors you talked to in investor calls place orders, watching the order values fill up. I love the day of the offering!