January/February Recap: Strong Month Puts Private Market Ahead of 2008 Pace
March 4, 2009
The U.S. private placement market priced $2.52 billion in new issuance in February, according to data compiled by Private Placement Letter, making up the highest one-month total since July and putting this year’s pace of issuance far ahead of 2008.
Adding-in the one deal that priced in January—QinetiQ Group plc, at $300 million—total private issuance for the first two months of 2009 was $2.82 billion, compared to only $1.65 billion priced in the first two months of 2008.
However, some say it is still to early to breathe sighs of relief. One buysider noted that there is still not much variety in terms of countries, industries, and credit qualities.
“You’re still seeing mostly domestic and U.K. issuers, and a lot of defensive plays like utilities and defense companies,” said the buysider, who requested anonymity. Indeed, the U.S. and the U.K. spawned all but one of the 10 deals to price in January and February, six of which were energy-related and two of which were defense and security companies. “Good companies can get financing at palatable levels, but we’re not out of the woods by any means,” he said.
Still, the very fact that U.K. issuers are tapping the market cannot be seen as anything but a good sign. During the last three months of 2008, not a single foreign deal hit the U.S. private market. In January and February of this year, however, foreign issuers tapped the market for $1.7 billion spread over only four deals, with $1.25 billion of that total coming from the U.K.
Energy & Utilities Dominate
Companies from the energy and utilities sector tapped the market for $1.22 billion so far this year, spread over six deals, by far the largest concentration of deals from any single industry.
The largest of those deals was a $450 million transaction for Ireland-based electric and natural gas utility Bord Gais plc, the only non-U.S., non-U.K. issuer to tap the private market. The deal was brought to market via Barclays Capital and priced in four-, five-, seven-, 10-, and 12-year tranches, with the four-year tranche priced at 375 basis points over Treasurys, and the remaining tranches priced at 400 basis points over Treasurys.
Other energy and utilities deals to hit the market included a $235 million deal for Houston-based Ultra Petroleum Corp. via Citigroup, Deutsche Bank, and JPMorgan Securities. Indiana-based utility holding company Vectren Corp. priced a $150 million deal via Banc of America Securities, which finished up in five-, seven-, and 10-year tranches at 450 basis points apiece.
Repeat issuer American Transmission Co. priced $150 million in private notes via JPMorgan and Wachovia, in a single 10-year tranche that priced at 265 basis points over Treasurys. Liquefied natural gas company Southern LNG got $135 million in two tranches via BofA, and Duquesne Light tapped the market for $100 million in a single-tranche via JPMorgan.
Other Sectors
The largest deal so far this year was a $600 transaction for global food company Associated British Foods plc. The agents on the deal were BofA and RBS Greenwich Capital, and the placement priced-up in nine tranches, all nine of which priced at 475 basis points over Treasurys, or the equivalent. The U.S. dollar portion of the deal was split into four-, five-, seven-, and 10-year tranches; the Sterling portion of the deal was split into five-, eight-, 10-, and 12- year tranches; and the euro portion of the deal had a five-year tranche.
Two U.K. defense companies tapped the private market in the first two months of this year. Qinetic got $300 million via Barclays and JPMorgan—in the year’s first deal—which priced in seven- and 10-year tranches at 535 basis points over Treasurys. Cobham plc also tapped the market for $350 million in five-, seven-, and 10-year tranches priced at 425 basis points over Treasurys. That deal was priced by BofA and RBS.
From the transportation sector, Burlington Northern Santa Fe was led to market via Citigroup for $350 million in leveraged lease notes, priced in a 20-year final, eight-year average life tranche at 375 basis points over Treasurys.—GC
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