Private placements hit parity with Rule 144A market as insurance companies stay firm amid turmoil

By Paul A. Harris

St. Louis, Oct. 3 - The private placement and Rule 144A markets are now offering issuers similar terms and in some cases a private placement can be more attractive, a sell-side source told Prospect News.

The private placement market has been helped by insurance companies' continued steady involvement while the Rule 144A has seen its more volatile investors stop buying, the source said.

This banker, who keeps close tabs on the private placement market, believes that in certain circumstances true private deals are seeing executions that are superior to conventional Rule 144A deals.

For one thing, the private deals are playing to a more stable audience, i.e. insurance funds, the banker said.

The insurance companies continue to have premiums to invest, in contrast to mutual funds and hedge funds which are lately said to be hoarding cash in anticipation of redemptions, the source said.

"Now the coupon in high-yield has gotten so much higher that the private placement market has become much more competitive," the banker asserted.

In some cases, this sell-sider believes, private deals are coming with interest rates lower than those which the same company would likely see were it to presently attempt to raise cash with a Rule 144A transaction.

El Paso beats junk market

For example, El Paso Pipeline Partners, LP privately placed $175 million of senior unsecured notes due 2011 to 2013 in late September, the banker recalled.

The fixed rate tranches included 7.76% three-year notes, 7.93% four-year notes and 8% five-year notes.

"It was an NAIC3-rated deal, which is an approximate equivalent of a double-B," the sell-sider recounted.

"For argument's sake, let's say that the [8%] five-year deal came around 475 basis points over comparable Treasuries.

"Right now the high-yield double-B spread is 650 over.

"So in certain cases, with asset-intensive entities such as pipeline companies, you could see a private placement coming inside of a 144A placement."

Cogeco matches investment grade

Likewise a recent placement by Cogeco Cable Inc. (BBB-), the banker said.

"It's an NAIC2, which is investment grade.

"They did $190 million seven-year bullets at 375 basis points over Treasuries, and a C$55 million 10-year deal at 391 bps spread.

"Those spreads are more or less in line with where investment-grade public deals are happening," the banker said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.