Private Market Notebook...

June 3, 2009

***May was a good month in the U.S. private placement market, and seems to have met or exceeded most people’s expectations for issuance volume. A preliminary tally suggests the volume of straight corporate, senior note private placements issued in May was nearly $2.5 billion. That’s more than was issued in the months of March and April combined.

What triggered the increase? Mainly, public bond spreads continued to drive lower and lower throughout the month, which always augurs well for privates by encouraging issuers to jump back into the market at the attractive spreads. Given the two- to three-week lag time that it usually takes for the private market to catch up to the public market, sellside sources are expecting (or at least hoping) private spreads will continue to tighten through June.

***JPMorgan had a great month as well, having led solely or had a hand in at least $900 million in private placements. Granted, most of that total is due to the whopping $650 million deal for the Army & Air Force Exchange Service that the bank priced in mid-month. JPM’s other deals included a $160 placement for the Government of Bermuda, a $40 million transaction for Caribbean Utilities, and a hand in the $155 million deal for Integrys Energy.

The AAFES deal (NAIC-1) reportedly garnered $2 billion in interest but drew some groans from competing agents for what was percieved as a somewhat wide pricing, especially given the reported $2 billion in interest that the deal recieved. AAFES is considered comparable to Wal-Mart (in fact it's sometimes called the military Wal-Mart). Earlier in May, Wal-Mart priced five-year notes at 125 bps, whereas AAFES's five-years priced at 360 bps.

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