Slow patch could give way to a more active month of May...

April 24, 2009

The private placement market has slowed down a bit over the past couple of weeks, after starting-off the year at a pretty fast clip and staying active through March.

The effects of Spring Break season, the Easter and Passover Holidays, and the end of the first quarter—as companies try and get their financials out the door—typically cause a lull in new issuance. But this year the market has also had to contend with a somewhat pre-occupied investor base...

Buyside shops are dealing with a swarm of amendment and waiver requests, and spending much of their time sorting through their lending portfolios for potential problems. All of which, say agents, is taking up their time and making them more conservative, in general.

“The Life-Cos are under varying degrees of pressure right now. Quite a few are under the microscope for what they may or may still have going on in their portfolios,” said one private placement agent.

When the credit crunch began, he noted, the only kinds of deals investors wanted to see were NAIC-1 and strong NAIC-2s and from very defensive industries. Even now that credit conditions have improved somewhat, investors are still favoring those kinds of deals. "[The investors] have stayed conservative far longer than expected," said the agent.

The problem with that is the “sweet spot” of the private placement market has traditionally been solid, mid- to weak- NAIC-2 type companies and so-called “story” credits from a wide variety of industries. Until those kinds of companies start getting warm receptions again, it could continue to be lonely in the private market, sources agree.

Although no one expects the raft of amendments to stop any time soon, and no one expects the buyside to jump right back their pre-crisis lending habits, signs do point to a pick-up in activity in the following weeks.

Most agents say they have deals in the pipeline and are ready to bring them to market over the next few weeks. While that is a very common refrain on the sellside, the month of May has traditionally been a strong month in the private placement market, and so there is some reason to believe it could be true this time.

“The first week of May could be very interesting,” said one agent.

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